The Bank of Canada Lowered the Overnight Rate For the Third Time in March 2020

The Bank of Canada (BOC) lowered its target for the overnight rate by 50 basis points to 0.25% today. The Bank Rate is correspondingly 0.5% and the deposit rate is 0.25%.

This is the third time the BOC has lowered the target for overnight rates; They dropped 50 basis points to 1.25% on March 4th, another 50 basis points to 0.75% on March 13th, and a third 50 basis points to 0.25 % today.

These decisions bring the policy rate to its effective lower bound and is intended to provide support to the Canadian financial system and the economy during the COVID-19 pandemic.

Read full article :
https://www.bankofcanada.ca/2020/03/press-release-2020-03-27/?fbclid=IwAR1X7-Pu0brKLKuyZxL62y4h39USfzPmMoCY16ojhBrFXdjk9wm2VMeo-cg

Big Drops in Mortgage Rates

Here is the latest news: On Friday the Bank of Canada made an emergency rate cut and most of the big banks passed along the full 50 bps of rate cut on Monday.

• The country’s prime is now 2.95 per cent and variable rate mortgages are as low as 1.95%.
• Floating mortgage rates and lines of credit moved from 3.45% to 2.95%.
• The Office of the Superintendent of Financial Institutions (OSFI) has announced the April 6 mortgage stress test improvements has been suspended indefinitely.
• Banks and mortgage lenders are offering mortgage payment deferrals of up to six months.
• Ottawa is planning to purchase up to $50 billion in mortgages.
• Canadian dollar falls sharply against US dollar. It is currently at $0.69 CAD per $1 USD.
• Personal income tax deadline extended to June 1st.
• Real estate supply remains constrained and as of February’s reporting by the Canada Real Estate Association, prices and the number of sales have trended higher.

Real Estate Values Still Rising to Date

You’re hearing a great deal of financial distress in the news of late. It’s important to note that real estate - the value of your home and your investments – will not be impacted anywhere as quickly as mortgage rates and stock prices. And there are counterbalancing market conditions in play – the most important being our constrained market supply. Real estate prices continue to rise in Greater Victoria in good part due to a lack of inventory.

"One of the most prominent aspects of our market right now is this continued low inventory," says Victoria Real Estate Board President Sandi-Jo Ayers. "Our ten-year average active listings for the month of February is 3,007. We concluded this month with just over 2,000 active listings, which means a lot less choice for consumers, more pressure on pricing and multiple offers."

Bank of Canada Rate Cut

“The Bank of Canada has made an unexpected rate cut, cutting the central bank's benchmark interest rate by 50 basis points to 0.75 per cent.

The central bank already cut its rate to 1.25 per cent at a previously scheduled meeting on March 4 to help counteract the impact of the coronavirus. Friday's decision takes that one step further.

"This unscheduled rate decision is a proactive measure taken in light of the negative shocks to Canada's economy arising from the COVID-19 pandemic and the recent sharp drop in oil prices," the bank said.”

Update on Inquiry into BC Money Laundering

The Cullen Commission began hearing from stakeholders including the BC Real Estate Association, the federal government, and more than a dozen others as it begins to assess impacts of money laundering in the province. After the initial hearings the Commission will report on its finding in May, then begin a full set of hearings in the fall.

Two reports concluding that $7.4 billion had been laundered in the BC economy with $5 billion connected to real estate prompted the BC government to announce in May 2019 that there would be a public inquiry.

“Criminal activity has had a material impact on people: Whether it be the rise of opioid addictions, the rise of opioid deaths as a result of overdoses, whether it was the extraordinary increase in housing costs, people were being affected by criminal activity in British Columbia,” the Premier reported to The Canadian Press.

Reference: https://www.canadianrealestatemagazine.ca/market-update/bc-inquiry-into-money-laundering-in-real-estate-gets-underway-326601.aspx

Why Condo Insurance Are Rising So Dramatically?

Here are some of the answers the insurance industry is providing:

• Major reinsurers are hiking rates to cover catastrophic damage around the globe. 
• Some insurers are opting out of the strata market and lessening competition.
• Construction costs are rising, meaning repairs are more expensive. 
• Buildings have more amenities, which hike replacement costs. 
• Some stratas are careless about budgeting for maintenance, meaning more frequent and more expensive claims.

Recommendations by the insurance industry:

• Mandatory household insurance for all residents’ units, as opposed to the building. That would offload some claims onto individuals.
• More stringent requirements for prevention technology, such as water sensors, flow meters and shut-off valves.
• Heightened discipline around capital repair and replacement budgets of stratas.
• A cap on payouts for losses.
• A bare-bones legal definition of a condo unit to reduce risk exposure to just the structural components and make amenities and finishings the responsibility of the unit owner to insure.

Reference: https://www.timescolonist.com/opinion/columnists/les-leyne-insurance-jump-for-victoria-condo-building-817-000-from-265-000-1.24085281

Savings Lost for Families in Condos

Just as the NDP was congratulating itself for saving families up to $1,800 a year by eliminating Medical Services Plan premiums, those saving have been wiped out for condo owners due to runaway insurance premium hikes.

MLAs are getting a wave of complaints from constituents staggered by the increases. Many pundits are worried the rate hikes will chill a significant part of the real estate market, and the government isn’t sure what to do about it. Finance Minister Carole James has been essentially treading water in the house while the government reviews response measures.

Last Tuesday, opposition Liberals proposed some ideas in a private bill. It calls for clearer definitions between insuring a unit and insuring the strata corporation’s building, more stringent insurance requirements and a strata water-damage prevention program to help with preventative maintenance in stratas.

Reference: https://www.timescolonist.com/opinion/columnists/les-leyne-scrambling-for-a-fix-as-costs-go-sky-high-for-condo-insurance-1.24084392

Bank of Canada cut its interest rate

On Wednesday, March 4th, 2020 the Bank of Canada cut its interest rate by half a percent.

But what does that really mean? How is this going to impact me? Will my mortgage rate change?
It means that lenders will typically also lower their PRIME rate.

Will lenders lower their prime rate the full 50 BPS (half a percent)?
Historically no - lenders haven't passed that full savings on to the clients. As of March 5th, our lenders have not yet adjusted their PRIME rate. We anticipate today to begin receiving emails notifying us of rate drops on PRIME rate.

What does that mean?
It means that if you have a variable rate mortgage your rate (and monthly payment) is going to go down. On average it will equal about $27 for every $100,000 of mortgage money that you have.

What if I have a fixed rate?
Right now, this does not impact you. Your rate is the same. This is PRIME rate only.

Source: GLM Mortgage Group | Dominion Lending Centres

Condo Insurance Hikes Hit Shoal Point

Most condo stratas are seeing condo insurance rate hikes in the 20% to 80% range, which is problematic, but not as difficult as what the residents in the Shoal Point condominium complex are now facing. According to residents, this year’s price tag is $817,000 as compared to last year’s amount of $265,000. Divided up between the 150 plus units, that means resident’s condo fees are going up 44% this year to more than $1,000 a month in order to cover the additional costs. Their deductible for water damage is also rising from $25,000 to $500,000.

It’s an example of how new luxury buildings in BC are being hardest hit.

Reference: https://www.timescolonist.com/opinion/columnists/les-leyne-insurance-jump-for-victoria-condo-building-817-000-from-265-000-1.24085281

BC Condos Struggle to Renew Insurance

According to the Insurance Brokers Association of BC (IBABC), strata corporations are facing drastic changes in insurance deductibles and premiums.

For instance, IBABC said some condo building strata corporations are facing renewal premium increases from between 50% and 400% and deductible increases from $25,000 per claim to $250,000 and up to $750,000.

Mortgage Professionals Canada (MPC) Pushing for Changes

Ever since the stress test was introduced in 2016, MPC has been asking for it to be uncoupled from Bank of Canada (BOC)’s 5-year fixed rate. That’s because, as the Government of Canada’s own website states: “The Bank of Canada 5-Year Benchmark Posted Mortgage Rate is also less representative of average contact rates as it only considers Canada’s six largest banks, and the “posted”, and not “actual” rates offered to borrowers by those banks.”

Paul Taylor, President and CEO of MPC said the association continues to ask for more support for those struggling to pass the stress test. He considers the 2% buffer to be “an onerous test level given the economic realities globally.”

MPC is also asking the government to reintroduce an insurable 30-year amortization for first-time buyers and to increase the income maximum multipliers under the First Time Home Buyers Incentive Plan.

References:

https://www.canadianmortgagetrends.com/2020/02/department-of-finance-announces-new-qualifying-rate-for-insured-stress-test/?fbclid=IwAR2vA_XfW9htt-pe5oQexEFaAbRYYeXPf9zDW7-tWCGpnj8OcLPOXzyUCYA

https://www.canada.ca/en/department-finance/news/2020/02/a-new-benchmark-rate-for-insured-mortgages.html