The market for houses with basement apartments is about to get a little hotter. CMHC has announced it will allow 100% of the rental income from legal secondary suites to be used when qualifying for a mortgage. Currently it allows 50%.

The nation’s largest default insurer says the move is meant to “facilitate affordable housing choices for Canadians.”

“Secondary rental suites are recognized as a source of affordable housing offered at a cost that is often lower than those for apartments in purpose built rental buildings,” it adds. Secondary/basement suites also give lower-income Canadians the chance to live in single-family residential neighbourhoods.

The new rule takes effect September 28, 2015.

“This is definitely good news for anyone who is looking to buy a home and subsidize the cost” with a renter, says Vancouver-based broker Peter Kinch, of DLC’s Peter Kinch Mortgage Team. “…The ability to utilize 100% of the rental income to qualify for the mortgage…can certainly make the difference for many homeowners and may move a larger number of homebuyers from condo purchases to a single-family home with a mortgage helper.”

Broker Marg Green, of Concierge Mortgage Group, agrees that “there will be a big demand for it,” but rightly notes that more clarity is needed on what CMHC considers a legal suite. “What is legal? Is it fire retrofitted? Is it registered with the city? If the suite isn’t legal, lenders generally won’t use the rental income (for qualification purposes).”

Here’s what we’ve gathered thus far, with respect to what’s required to use 100% of suite income with CMHC:

• The property must be owner-occupied.
• The property being insured can have only two units (i.e., a duplex or a single home with a legal secondary suite). 
• Rental income cannot be used if the suite is “illegal/non-conforming” but “legal non-conforming” is okay. (Non-conforming means that the suite was grandfathered in before zoning/regulations restricted such units. You can check with the city to confirm if a suite is legal.)
  
• The suite must be self-contained with its own entrance.
  
• Property taxes and heat must be factored into the borrower’s debt ratios (which is currently not the case when using rent from legal secondary suites).
  
• For existing units, there must be two-year history of rental income from the suite. The maximum rental income allowed for qualification is a two-year average of the unit’s rent.
  
• For new units, a market rent appraisal can be accepted if an appropriate vacancy rate has been applied to the estimated rental income.
  
• Mortgage applicants must “demonstrate a strong history of managing credit” with a minimum credit score of 680.
  

On 3-4 unit owner-occupied properties and 1-4 unit non-owner occupied rentals, CMHC will be allowing a net rents calculation (i.e., gross rents less operating expenses).

Note that individual lender guidelines may very well be tighter than what you see above.

Genworth and Canada Guaranty have had a 100% add-back policy for a while (for basement suites), but mainly in Victoria and Vancouver. CMHC’s new policy extends nationwide. Both private insurers say they’re reviewing CMHC’s changes and haven’t decided if they’ll match this guideline. We’ll bet that one or both of them will.

“In the big picture, I do not see that this will have a significant impact on the overall housing market,” says Kinch. “But in certain suburban areas, this shift in CMHC policy will help speed up a trend that is already taking place, and that is the widening price-gap between single-family and multi-family (condo, townhome) homes.”

Another broker, who didn’t want to be named, said the move could encourage more people to lie about owner-occupying a property (i.e., say they’re living in one unit but renting out both units). That minor unavoidable side effect aside, CMHC deserves applause for trying to boost the stock of affordable rentals and allowing young homebuyers an alternative to condo living.

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2015/07/cmhc-to-allow-100-of-suite-income.html 

Limiting foreign investment would hurt sales and cost jobs: province

When Premier Christy Clark threw cold water on Vancouver Mayor Gregor Robertson’s call for measures targeting foreign homebuyers to cool the housing market — steps that have been taken in Australia, the U.K. and Singapore — she said such interference would have little effect on housing prices.

More importantly, it had the potential to harm the economy, according to the premier.

If the province drastically reduced foreign investment, it would have little impact on general housing prices, but would cause the loss of about $1 billion in residential real estate sales and 3,800 jobs in construction and real estate sectors.

It would also knock $350 million in nominal gross domestic product out of the economy, noted a B.C. Ministry of Finance analysis meant to back up Clark’s response.

If government action caused a 10 per cent fall in house prices, roughly $60 billion in home equity would be lost in the province, which would work out to about $85,000 for a homeowner in Metro Vancouver.

The analysis was based on using government policy to drive down a hypothetical foreign investment rate of five per cent to just one per cent of the total $27 billion in Greater Vancouver home sales in 2014.

Although there is no solid, clean data on foreign money, five per cent is considered the upper level of foreign investment by provincial estimates based on information provided by the real estate industry.

The province used an economic model from B.C. Statistics to estimate the impact on jobs and gross domestic product (GDP), a widely used measure of economic activity.

It is clear that the provincial government wants to be careful about tampering with the real estate and property development sector as it believes it is an important driver of the economy.

So, how important is this sector that is under so much scrutiny?

According to Statistics Canada data from 2011 provided to The Vancouver Sun, the latest numbers that are available for a detailed sector-by-sector break down, real estate agents, brokers and related activities generated $1.93 billion in GDP in B.C.

That is a contribution of just under one per cent of the province’s total GDP in 2011, and equivalent to the contribution by computer design and related services, truck transportation and legal services.

The real estate sector’s contribution was the same in 2009 and 2010. A report by the Real Estate Association of B.C. using 2007 data also found that the real estate sector contributed about one per cent to the province’s GDP.

The report on economic impacts also found that for every 100 house sales, $2 million in GDP was generated and the equivalent of 28 jobs were created. That year, the 102,000 home sales in the province on the multiple listings service (MLS) accounted for the equivalent of 28,000 jobs created.

The report noted that whenever homes are bought and sold, lawyers, appraisers, realtors, surveyors and other professionals collect fees. Governments also collect significant taxes, and many homebuyers renovate their homes to suit their lifestyles.

As well as the commissions and fees that have to be paid out, realtors must provide supplies and services to their offices where technology is increasingly important, said Dan Morrison, a realtor for 25 years and president-elect of the Real Estate Board of Greater Vancouver.

A hot market can also create increasing economic spinoffs, said Morrison, one of the 12,000 real estate agents in the Greater Vancouver area.

“Usually, you would have one home inspector, but in this market it’s not unusual to get five or six inspectors the day before the offers are presented so the people can present that offer without it being subject to inspection,” observed Morrison.

Cameron Muir, an economist with the B.C. Real Estate Association, says while the real estate sector directly does have an effect on the province’s economic output, it is the construction sector that delivers a bigger economic bang.

“When you build a house, there’s a tremendous amount of economic activity,” said Muir.

Statistics Canada data shows that residential construction contributed 2.7 per cent to GDP in 2011, nearly three times as much as the real estate sector.

A report by the Urban Development Institute, a group representing a broad spectrum of the development industry including developers, lawyers, bankers and real estate professionals, found in a study using 2012 data that the property development industry generated $8.17 billion in GDP, a little under four per cent of the provincial total.

The analysis encompassed construction of all buildings, property development, heavy and civil engineering and specialty sub-contracting. Residential construction made up about 75 per cent of the $20 billion in construction in 2012.

“The residential sector, broadly defined, does play a significant role. So, 

changes in the demand for real estate will filter through the real estate economy and hence the broader economy,” says Central 1 Credit Union economist Helmut Pastrick.

“There are obviously indirect and induced spinoff benefits. When you start adding that up, it starts becoming a larger number,” said Pastrick.

Simon Fraser University economist Andrey Pavlov thinks the effect of the real estate sector — taken in the broadest sense to include the banking system which relies on mortgages for a significant portion of their business — is even bigger than the data on direct impacts shows.

“It’s hard to find hard data on that, but my feeling is that it’s a lot more. It’s more like 25 per cent,” said Pavlov, who specializes in real estate finance. “We don’t have any manufacturing really to speak of — with the exception of mining and forestry. Most of our industries are really real estate, finance, insurance and a bit of services.”

Across the border, analysis by the National Association of Realtors produces a higher relative contribution to GDP for the real estate sector with the inclusion of title insurance, rental and leasing, house appraisals, moving truck services and other related activities.

In Washington State, the real estate sector’s contribution was 16.6 per cent of GDP, while in Oregon it was 15 per cent.

“I think the premier is rightfully concerned that if we do something to the real estate market, that will have a negative impact on the economy,” said Pavlov.

Still, he believes the market is overheated and some action should be taken.

But Pavlov explains the rise in prices largely as a result of low interest rates and aggressive lending by banks, who take on very little risk because mortgages are backed by federal insurance through the Canada Mortgage and Housing Corp.

If the concern is that real estate is getting too expensive, the first step is to remove the subsidy and normalize interest rates, said Pavlov.

“In other words, don’t pour additional resources into real estate. Don’t get people to over-extend themselves. That to me is the proper response,” he said.

The federal government has taken some steps in an attempt to stem Canada’s hot real estate market, including reducing amortization periods and not providing CMHC insurance for homes worth more than $1 million.

However, the Bank of Canada lowered its benchmark overnight landing rate by 25 basis points to 0.5 per cent on July 15, a move that was promptly followed by the major banks.

University of B.C. economist Tsur Somerville believes slowing down price increases wouldn’t necessarily be a bad thing, but says you have to be careful not to use a big policy hammer that drives the market into a serious decline, given that the wider real estate construction market is important to B.C.

“You want to try to get a soft landing when you cool things down,” said Somerville.

He said any policies should directly target issues that are causing harm, which is difficult to pinpoint given the dearth of data on variables such as foreign investment.

He also noted you are contending with population increases in the Vancouver region largely driven by immigration.

Still, Somerville suggested that it may make sense to consider policies that deal with non-resident buyers and vacant properties, but also a broad-based supply response.

That could include increased density in more areas, and even allowing subdivision of lots to build additional single-family homes, he said.

Muir, the economist with the B.C. Real Estate Association, is frustrated with the current debate, arguing there is no crisis, and noting that apartments and condos have only increased in price five to six per cent since the financial crisis in 2008, while it is the stock of diminishing detached housing that is increasing in price.

Says Muir: “Why are we trying to devise a solution to a problem we don’t know exists?”

ghoekstra@vancouversun.comwith files from Postmedia News

Read more: http://www.vancouversun.com/business/Tinkering+with+housing+market+could+dangerous+economy/11241388/story.html#ixzz3hO3CYbeP

Be prepared to feel the heat if you’re in the housing market. The British Columbia Real Estate Association released their second quarter results, and demand for homes in the province are the highest they’ve been since 2007.

According to the report, Vancouver and the Fraser Valley are leading BC’s housing growth with a 16 and 17 percent increase in sales, respectively.

Demand for single family homes in Vancouver will go down, while demand for apartments will go up, so expect to see more construction of multi-family buildings over the next year.

The city will also see the average home price shoot to $870,000, which is an increase of seven percent. The board says to expect that number to grow to nearly $900,000 in 2016.

“Market conditions in Vancouver have improved as a result of consumer demand rising faster than the number of homes for sale. While the market is exhibiting sellers’ market conditions overall, there is variability according to product type and its location in the region,” reads the report.

The BCREA notes that foreign investment persists, but it remains a “relatively small, niche market” in the luxury sector.

The average price for an apartment in Vancouver is $465,000, up 1.4 percent.

http://www.vancitybuzz.com/2015/06/vancouver-real-estate-facing-highest-demand-eight-years/ 

While some are betting the Vancouver housing bubble is about to burst, Royal LePage is predicting the value of a home will rise 10 per cent in 2015.

The detached two-storey and bungalow homes continue to be Vancouver’s most sought-after properties, with prices rising about 13 per cent between the second quarters of 2014 and 2015. For condo owners, values rose as well, but at a slower pace at 6 per cent.

For all property types, Royal LePage forecasts that home prices will rise 9.4 per cent on average by the end of this year. The cost of owning a home in Toronto is also quickly rising at a rate similar or just above Vancouver. Prices there should increase 9.6 per cent come December.

“The robust national average home price increases that we have seen in the second quarter are heavily influenced by activity levels in Toronto and Vancouver,” said Phil Soper, president and chief executive officer, Royal LePage. “The housing industry in both cities boasts a foundation of prosperous labour markets driving demand for housing that is in limited supply – above average price increases aren’t going away any time soon. Looking to Canada as a whole, 2015 is shaping up to be a record year for housing, despite the cloud of economic uncertainty caused by low oil prices and twitchy global economies.”

Vancouver and Toronto remain Canada’s hottest markets, followed by Hamilton, Ontario, which has seen roughly a 12 per cent growth rate for detached two-storey and bungalow homes.

Condo owners in Halifax, Toronto, Edmonton, Vancouver and Victoria have seen the biggest increase in value averaging at about a 5 per cent growth rate, whereas condo markets in Winnipeg and Regina fall and Calgary and Montreal see mediocre increases.

A standard two-storey home in Vancouver now sits at $1,368,125 and a bungalow at $1,247,125. A condo is averaging $506,624.

http://www.vancitybuzz.com/2015/07/vancouver-housing-prices-rise-10-percent-2015/

The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

Total CPI inflation in Canada has been around 1 per cent in recent months, reflecting year-over-year price declines for consumer energy products. Core inflation has been close to 2 per cent, with disinflationary pressures from economic slack being offset by transitory effects of the past depreciation of the Canadian dollar and some sector-specific factors. Setting aside these transitory effects, the Bank judges that the underlying trend in inflation is about 1.5 to 1.7 per cent.

Global growth faltered in early 2015, principally in the United States and China.  Recent indicators suggest a rebound in the U.S. economy in the second half of this year, and growth is expected to be solid through the projection. In contrast, China is slowing amid an ongoing process of rebalancing to a more sustainable growth path. This has pulled down prices of certain commodities that are important to Canada’s exports. Financial conditions in major economies remain very accommodative and continue to provide much-needed support to economic activity. Global growth is expected to strengthen over the second half of 2015, averaging about 3 per cent for the year, and accelerate to around 3 1/2 per cent in 2016 and 2017.

The Bank’s estimate of growth in Canada in 2015 has been marked down considerably from its April projection. The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities.  Real GDP is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation.

The Bank expects growth to resume in the third quarter and begin to exceed potential again in the fourth quarter, led by the non-resource sectors of Canada’s economy. Outside the energy-producing regions, consumer confidence remains high and labour markets continue to improve. This will support consumption, which will also receive a fiscal boost. Recent evidence suggests a pickup in activity and rising capacity pressures among manufacturers, particularly those exporters that are most sensitive to movements in the Canadian dollar. Financial conditions for households and businesses remain very stimulative.

The Bank now projects Canada’s real GDP will grow by just over 1 per cent in 2015 and about 2 1/2 per cent in 2016 and 2017. With this revised growth profile, the output gap is significantly larger than was expected in April, and closes somewhat later. The Bank anticipates that the economy will return to full capacity and inflation to 2 per cent on a sustained basis in the first half of 2017.

The lower outlook for Canadian growth has increased the downside risks to inflation. While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment. Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.

Information note:

The next scheduled date for announcing the overnight rate target is 9 September 2015. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 21 October 2015.