The following is an excerpt from the VERICO Economic Report written by Michael Campbell
The drastic change in the Bank of Canada’s stance regarding future increases in interest rates since October is a clear indication that the Bank and the Finance Department are surprised by the impact of rising rates on the real estate market and the overall economy. Gone is the October talk of three to four more rate hikes by the end of 2019 to today’s mantra of “wait and see.”
I still shake my head at the thought that they were surprised that an economy that had been built on debt and record low interest rates, especially in the real estate market, would react negatively to higher rates. Despite the fact that surveys and polls had relentlessly delivered the message that higher rates would cause consumers to cut back.
The average Canadian has nearly $23,000 in non mortgage consumer debt. It shouldn’t have been a surprised that by July, 2018, after four quarter point increases a third of Canadians were worried about paying the bills and bankruptcy. Environ Analytics calculated that for the average person living in Calgary the five rate increases since July, 2017 would translate into $3,641 in higher interest costs. In Halifax, an extra $2,246, Winnipeg and Montreal $2,100 more and in Vancouver, a whopping $3,943 in additional interest payments.
You don’t need an economics degree to figure out that taking an extra $2,000 to $4,000 out of people’s pockets will impact their spending. The increase in interest rates cut Canadians average discretionary income by 5% along with a 5% drop in their net worth because of the fall in homes prices. Simply put, people feel poorer and they’re paying significantly more in interest expenses - and that’s never a recipe for consumer confidence.
Michael Campbell is one of Canada’s most respected business analysts, and long time host of Money Talks talk show.
What a difference a day makes...
My last post about not growing pot in your home elicited a ton of response, some of it quite heated, and I stand corrected...
In speaking with our local CMHC representative she says CMHC has no issues if you grow the legal 4 plants PER HOUSEHOLD (not per person) in your home, and she says most mortgage lenders shouldn't as well, THOUGH CMHC does leave the lenders to make their own policies and procedures in this regard. She did caution that house insurance may still be an issue, and YES, in speaking with insurance agents they may ask additional questions about where and how you might be growing pot in your home, BUT for the most part, growing the Legal 4 Plants per household, SHOULD NOT present problems when financing, buying or selling your next home. I still would exercise caution, but the wording of mortgage and real estate law is concerned with ILLEGAL activity, so just keep that in mind if you want to grow cannabis in your home.
Man, I think I need a beer...
Pot is now legal in Canada, BUT mortgage rules HAVE NOT YET CHANGED...
Please know....In the eyes of a mortgage lender (bank or credit union) 1 pot plant can constitute a "grow op" , and can make your home impossible to finance. None of the big banks will even finance a "fully remediated" grow op. I have 2 small lenders in BC who will still consider financing but at much higher rates and with additional fees. Until financing rules change DO NOT grow even one pot plant on your property. If you are a landlord, prohibit the growing of pot plants anywhere on the property. I expect mortgage rules to change eventually, but right now the value and sale/resale of your home are seriously impaired by the growing of even one pot plant, regardless of the legalization of cannabis.
I first posted this to Facebook in response to Realtors comments on pot and your home, and in response to two media Facebook pages that had articles on the growing of pot in your home, one was even a "How To" from Global News...
The responses were overwhelming. Many realtors, other Mortgage Brokers and lenders all agreeing, and some uninformed pot activists trying to argue that …
"Banks won't care."
"How will they even know?"
"This is just fear mongering."
To those that doubt these FACTS, please know that when your bank says NO to financing or refinancing your home, or refuses financing for the next purchaser of your home when you try to sell, due to grow activity,
Please feel free to give me a call...
I am sure I can find some GREAT High Interest rate options for your financing needs.
Michael Campbell is one of Canada's most respected economists, host of "MoneyTalks" radio show and my Verico mortgage network head economist. This excerpt is from his February report...
Interest Rates - You'd be forgiven for thinking that the government's motto is "if the stress test won't kill 'em, the rise in interest rates will." Three quarter point rises in the last 8 months and the promise is for more to come in both Canada & the US.
The Bank Of Canada continually says they are data driven and overall the data is positive. For the vast majority of analysts the debate isn't whether they will increase rates again but when? The ongoing NAFTA negotiations are still a concern, as is the impact on the real estate market of the new stress test rules but the Bank has made clear they want to push rates higher.
My biggest concern is for mid and longer term rates to move significantly higher over the next three years throughout the world. There is $230 trillion in debt worldwide and at some point that is going to be a big problem and investors are going to ask for a bigger risk premium in order to entice them to buy bonds, especially if the slight pick-up in inflation gains momentum. Those people with floating rate mortgages and other variable rate loans should be paying close attention.
The rest of Michael's report can be found at www.verico.ca/economicupdate_michaelcampbell_feb2018/
As a Mortgage Broker I would definitely suggest watching and considering locking in those variable rate loans and mortgages, sooner than later. If you are sitting on the fence about buying or refinancing a home now is still a pretty good time to do so, Rates are still low & house prices seem to have softened slightly in many of our local markets. What are you waiting for?
Who would ever think the VERY BEST Financial Advice would come from Saturday Night Live more than 10 years ago...Enjoy!
Lets talk about the "New Mortgage Rules" that took affect January 1st, 2018. (make sure you read to the end)
You may have already heard about the "Stress Test" rate our federal government introduced in late 2016 for "Insured Mortgages", or mortgages with less than 20% equity/down payment. This rule required mortgage lenders to qualify ALL borrowers with less than 20% down payment using a much higher (about 2% higher than actual) "stress test" rate. The borrower still gets the lower current rate(s), But using a higher rate to qualify them reduced their borrowing power, the mortgage they could qualify for by almost 20%.
Now the federal government in it's wisdom has deemed it necessary to apply this "stress test" rate to EVERYONE, regardless of their equity/down payment in their home as of January 1st, 2018.
If you follow me on Facebook (and you should...lol) you already know I vehemently disagree with the "stress test", as it seriously restricts & even prevents hard working responsible Canadians from pursuing their dreams of home ownership, but then that same government introduces the $40 billion "National Housing Strategy" to help with affordable housing and strengthen the middle class??
Am I the only one to see a bit of a disconnect between these two programs?
BUT, TO END ON A GOOD NOTE - Our provincially regulated lenders, the Credit Unions that I use (and love) for the majority of my clients financing needs...HAVE DECIDED NOT TO IMPLEMENT THIS NEW January 1st, 2018 RULE, So it's business as usual @ Chris Heidt Tekamar Mortgages Ltd.