Archives January 2022

For the first time since 2018, the Bank of Canada has hiked the overnight interest rate to curb inflation and cool the real-estate market. With increasing interest rates many variable mortgage holders are considering switching to a fixed rate mortgage.

History has shown that central banks usually fall short of their rate hike goals. Variable rates offer more flexibility and lower penalties than fixed rate mortgages. Many borrowers end up breaking their term if they need to re-finance or sell.

The penalty for breaking a variable mortgage is typically three months of interest whereas a more punitive calculation is usually used with a fixed rate.

The main reason for switching to a fixed rate is if you experience anxiety every time the Bank of Canada makes an interest rate announcement. For a five-year fixed rate, 3.3 per cent is still historically low and below current levels of inflation, so if you prefer the peace of mind — the fixed option makes sense.

Canada Mortgage and Housing Corporation has announced the launch of its latest multi-unit mortgage loan insurance product, MLI SELECT.

This new product is designed to incentivize the preservation and creation of rental supply, as well as address the need for affordable and accessible housing that adheres to climate-conscious engineering principles.

The incentives will be available for both new projects and existing properties, CMHC added.

“As Canada’s only provider of multi-unit mortgage insurance for residential properties, we believe that MLI SELECT will be a critical component to achieving better housing outcomes for renter households,” said Romy Bowers, president and CEO of CMHC. “Increasing rental supply and preserving existing rental stock will offer more affordable options for renters, including those in core housing need, getting us closer to our aspiration of, by 2030, everyone in Canada has a home they can afford and that meets their needs.”

There are “encouraging” signs for the Greater Toronto Area (GTA) housing market in RE/MAX Canada’s just-released Quarter Century Market Report, the company’s president has said, not least that market fundamentals appeared “very strong” during that 25-year stretch.

Christopher Alexander (pictured top) told Canadian Mortgage Professional that the average yearly price appreciation of just over 7% during that period was similar to that of the previous quarter-century, a development that suggested a strong and robust GTA market.

“I find that very interesting because 7% is the best you can hope for as far as an overall market health appreciation number. Once you get over that 7% mark, you’re into pretty strong upward pressure, and then people get concerned about longevity,” he said.

The total value of outstanding residential mortgages in Canada continues to grow, according to the national statistics agency.

Uninsured residential mortgage volume held by chartered banks grew by 39.6% on a quarterly basis in Q3, while the value of insured mortgages with these institutions ticked down by 3.6% during the same period, Statistics Canada said.

Meanwhile, Canadian non-bank mortgage lenders saw the total value of their mortgages go up by 1.1% quarterly, with the volume of outstanding mortgages rising in seven of the past 10 quarters.

“This was driven by the growth in outstanding uninsured mortgages: from the second quarter of 2019 to the third quarter of 2021, the value and the number of uninsured mortgages grew in most quarters, increasing by a total of 19.6% and 8.6%, respectively,” StatCan reported. “In contrast, the value and number of outstanding insured mortgages decreased in most quarters during that same period, and declined by a total of 8.2% and 10.7%, respectively.”

“Investors are demanding strict capital discipline, while environmental opposition to new fossil fuel projects and the Canadian government’s plans to cap carbon emissions are also deterring growth,” Reuters explained.

“What we’ve seen over the last month or two has definitely been a quite significant outlier in what has been historically a very steady and pretty consistent relationship,” said Shaun Osborne, chief currency strategist at Scotiabank. “We would probably be in a situation here where the Bank [of Canada] would not be pushing back against the idea of a stronger Canadian dollar.”

And while the loonie is expected to ride the crest of higher energy prices for the rest of 2022, this will come about not due to greater investment, but as a result of Canada adjusting its export-import price ratio accordingly, Reuters analysts said.

For brokers and lenders specializing in the realms of commercial and construction financing, the COVID-19 pandemic has thrown up a unique challenge: supply chain snarls that have seen the cost of materials spiral upwards and disrupted the building process across Canada.

The acuteness of the problem is shown in Altus Group’s recently released Canadian Cost Guide 2022, a measure of construction costs across the country, which revealed that 2021 had witnessed a spike in the cost of building compared with the previous year.

Total construction spending in Canada nearly shattered the $300 billion mark last year, the guide said, with the residential side accounting for $126 billion, ICI (industrial, commercial, institutional) totaling $73 billion, and $100 billion shelled out on infrastructure.