Low Interest Rates Not Having the Same Impact

The Bank of Canada held its key interest rate steady at 0.25 per cent last Wednesday. While the overnight rate has shed 150 basis points (bps), bank notes 5-year mortgage rates only declined 17 bps from the beginning of the pandemic. Lenders have not brought the rates down further because many feel they have a higher risk and lower reward with higher home prices and low mortgage rates.

Until the economy fully gets back on its feet, the absence of rate hikes means variable mortgage rates will remain low, and anyone with a variable rate can expect prime to remain unchanged. Fixed rates will stay near historic lows.

Note: One basis point is equivalent to 0.01% (1/100th of a percent).

Reviewing CMHC’s New Lending Criteri

The Canada Mortgage and Housing Corporation (CMHC) is tightening its lending standards, making it tougher for Canadians, especially first-time home buyers, to borrow money to purchase a home.

As of July 1st, at least one applicant must have a credit score of 680, an increase from the current score of 600.

The gross and total debt servicing ratio will move to 35% (from 39%) and 42% (from 44%) respectively. The gross debt service (GDS) ratio, also referred to as the housing expense ratio is the proportion of income going towards housing related debt, while the total debt service (TDS) ratio adds in all other consumer loans such as credit cards and auto loans in the ratio.

CMHC is also barring “non-traditional sources of down payment or unsecured lines of credit that increase indebtedness.” This refers to a practice of someone using an existing line of credit or other lending sources to come up with the down payment.

Does this mean a grandparent who wants to take out a small mortgage on their own property to help finance their grandchild's down payment no longer allowed? When asked, Beverly LePage, account representative with CMHC replied, “The situation you are describing would be gifted funds for down payment, which continues to be recognized by CMHC has a traditional down payment source by CMHC.”

Greater Victoria Neighbourhoods – Westhills

The Westhills area along the southwest shoreline of Langford Lake is well known for a massive construction project by the same name which to date has built more than 3000 new homes since its inception in 2008.

The developers and builders - The Westhills Land Corp. and Keycorp Consulting - are committed to constructing environment-friendly, energy-efficient residences to BUILT GREEN® standards. They are even using geothermal equipment to aid home heating and cooling.

The community is made up of condominiums, duplexes, single-family homes, and high rises. Two retail centres and sports fields provide a wide variety of amenities and attract local teams for the neighbourhood to enjoy. Close by, Langford Parkway features community amenities such as hockey, soccer, rugby, bowling, mini golf, indoor playground, roller skating, roller skating and more. The YMCA’s new facilities features swimming, weight rooms, gyms, dance floors and a variety of community programs.

A new Belmont Secondary School supporting 1,200 students opened on September 8, 2015 which supports wide range of programs, including expanded students' skills and trades training. Additional programs include global and intercultural skills, French immersion and even robotics.

Westhills has already attracted hundreds of young families due to its beautiful, west coast suburban environment, amazing community amenities within the bustling Langford lifestyle.

How will Canada’s residential and commercial property fare in a post-production world?

Housing prices are just like wages. They are “sticky”, which means, like wages, you will rarely see a large drop in the market pricing. You really cannot draw a straight line from the slowdown in sales to lower home prices because it doesn’t work that way. As well, less listings on the market offsets the slower sales because there are fewer homes for buyers to choose from.

If you enjoy podcasts, listen to Financial Post columnist and Ryerson University real estate management professor Murtaza Haider as he assesses the pandemic’s impact on housing and rental prices, how the shift to working from home could affect real estate in downtown cores and a rethinking of the suburbs on “Down to Business”.

Update on Canada Emergency Commercial Rent Assistance Program

The Canada Mortgage and Housing Corporation published more information on the Canada Emergency Commercial Rent Assistance Program (“CECRA”). Highlights include:

• Commercial Rent Landlords must have declared rental income on their tax returns for 2018 and/or 2019 to qualify.
• Landlords must apply before the deadline of August 31, 2020. 
• The Government loans are forgivable if the landlord complies with all applicable program terms and conditions
• Landlords cannot seek to recover rent abatement amounts after the Program is over
• The Government loans to the landlord will cover 50% of the gross rent owed by a qualifying small business tenant during April, May, and June 2020
• Landlords can apply retroactively for this Program provided that the landlord can prove eligibility during April, May, and June 2020.
• Landlords must refund any amounts paid by the small business tenant for that period. The refund can be a credit for future rent if agreeable by the tenant and the landlord.

Small business tenants to qualify if:

• The $50,000 maximum in monthly gross rent is per location and defined in a valid and enforceable lease agreement, and
• The small business cannot generate more than $20 million in gross annual revenues calculated on a consolidated basis (at the ultimate parent level).

Reference: http://www.mondaq.com/canada/landlord-tenant--leases/938232/cmhc-comments-on-the-canada-emergency-commercial-rent-assistance-program

Consumer Price Index and Deflation in Canada

Consumer prices fell in several segments of the Canadian economy in April. They included transportation, clothing and footwear, recreation, and education. Gasoline and clothing both experienced the largest decline in the history for those components on record. Statistics Canada (Stat Can) data shows the consumer price index (CPI) fell in April.

Deflation is when consumer prices fall. That is a good thing. After all, who does not want to pay less for things? Declines at certain times, especially if due to decreasing manufacturing costs, can be terrific. Consumers have more money they can spend or invest.

While the Bank of Canada does not want to see sustained deflation (see link for more information about why), they do not deem small price declines over short periods of time to be a problem.

Greater Victoria Neighbourhoods – Triangle Mountain

Looking for a home with an out-of-town feel in a central location that has inspiring ocean and mountain views? Look no further than Triangle Mountain.

Situated outside of Colwood, Triangle Mountain is immersed within Vancouver Islands forests and natural beauty, yet it is a five-minute drive to coffee shops, restaurants and grocery stores, and a 10-minute drive to the Juan de Fuca recreation centre and Q-centre; the athletic hub of Colwood. The recreation centre houses a gymnasium, pool, skating rink, soccer fields, and tennis courts. The Q-centre is the home rink for the Victoria Senior A Lacrosse Shamrocks and the Victoria Grizzlies Junior A hockey team.

The area features custom-built homes with panoramic mountain and ocean views to the east; Mount Baker, Haro and Georgia Strait, and the Olympic Mountains.

If you are a hiker, you will want to head up Havenwood Park to Lookout Lake. Go up the mountainside and the flights of stairs and you will find yourself at Lookout Lake high up on Triangle Mountain. The lake is a local favourite for swimming, picnics, hikes, and shoreline fishing and is regularly stocked with rainbow trout and smallmouth bass. Bald eagles regularly join fishermen to catch fish!

The area first got its name ‘Triangle Hill’ during World War II because it was part of the coastal defence system as a command post. It was used as a navigational aid and point of triangulation for ships entering the harbours. “There were 20 locations across the entrances to the Victoria and Esquimalt harbours,” says Kate Humble, curator at Fort Rodd Hill. “They were like studs on a belt and they all had different purposes…some were gun batteries; some were observation posts and all of them working together was called a fortress defence system.”

Today, the area boasts lovely views and a peaceful serene setting that belies the origin of its name.