Housonomix - 26 Apr '24: 📈 Why are Mortgage Rates Rising? 🏠 How Good or Bad are the Recent Govt. Measures to Help with Housing?

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🎥 Housonomix Highlights: Insights at a Glance 🕒 (in less than 60 seconds) ✨

🚨 Rate Watch: Potential Short Term Pain For Buyers ⏳💸

Unfortunately, the news on rates isn't very positive as fixed rates have edged upward:

• 📊 For those considering a mortgage, current rates are about 10-25 basis points (bps) higher than just a few weeks ago.

As we’ve been asked by several clients to explain this, we’ll go into a bit more detail today.

Why are fixed rates increasing now?

• 📈 The short answer: a rise in Government of Canada bond yields. As noted and continuing from our last newsletter, 5-year bond yields have surged nearly 15% or about 45 bps higher than in early March.

• 🌎 This increase follows recent developments in both the U.S. and Canada. Canadian bond yields began to rise in March, driven by stronger-than-expected U.S. economic performance, which led to speculation that U.S. rate cuts might be postponed.

• As that pushed up US treasuries, Canadian bonds which are tied at the hip with them, went up too.

🔍 Deeper Dive:

• 💹 Fixed rates typically precede changes in the Bank of Canada's overnight rates. If the market anticipates rate cuts, fixed rates usually drop.

• Back in February they did just that, which meant that there was a lot of discount baked into them in anticipation of rate cuts. However, these discounts are now being reversed as conditions have changed.

• 🚀 Adding fuel to the fire, the recent budget announcement included tens of billions in additional spending. This requires more government borrowing through bond issuance, making these bonds riskier and driving yields even higher.

Our Take: 📝

• 📈 Fixed rates could rise even further. Experts predict that 5-year fixed rates, which most people are wisely avoiding, could soon exceed 5%. They currently stand at 4.79%.

• 🔒 If you're planning to buy, refinance, or renew, consider locking in your rate now. Any future rate decrease could be leveraged later.

• We’re still not recommending variable rates to our clients as the potential savings in rate cuts over the next few years are unlikely to be larger than the higher interest cost for variable mortgages now.

By the way, the one decrease today which is in flexible lenders rates, is due to our access to one of the lenders who’s running a promo. In all honesty that might get reversed soon.

To finish - as we always say, mortgage solutions and rates are mostly unique to every mortgage depending on the client’s situation. Please reach out to us at www.ronmortgages.com if you have any questions on best rates that you can get.

📡 Real Estate Radar: GTHA Market Shifts & Tax Implications 🏗️🏡

In our last edition from earlier this month, we gave you our analysis of the latest GTA real estate statistics from TRREB. You can read it here. In this edition Real Estate Radar, we're covering two real estate trends in the GTHA area that are noteworthy, as they're also potential opportunities, one being the direct result of last week's budget. Let's dig in.

📉 Sharp Decline in GTHA New Condo Sales

• In the first quarter of 2024, the Greater Toronto and Hamilton Area (GTHA) experienced a significant downturn in new condo sales, which plummeted to levels not seen since the late 1990s. A recent report from Urbanation, a leading condominium research firm, revealed that only 1,461 new condo units were sold during this period. This figure represents an 85% decrease from the sales high of early 2022 and a stark 71% fall below the ten-year average for the first quarter.

• This is compounded by the fact that construction has also slowed down dramatically. More than 11,500 housing units are delayed in Toronto - four times as many as last summer. 60 housing projects are on hold indefinitely as developers pull back. The reasons for the drop in construction has been the falling preconstruction activity over the last few years. And that has been the result of high interest prices and a drop in confidence. Builders need to sell most of their units before they start construction, which they haven't been able to as people stay away from the high prices that the builders need to make a return.

🔔 Rush to Sell Cottages Ahead of Capital Gains Tax Increase

• In response to the impending capital gains tax changes set to take effect on June 25, there is an expected surge in cottage listings across Ontario, into a market that's already saturated with listings. The federal government's decision to increase the taxable portion of capital gains from half to two-thirds for profits exceeding $250,000 is prompting many cottage owners to consider selling sooner than planned.

• This tax adjustment particularly affects those who've seen substantial appreciation in their property values. For e.g., if a cottage was bought originally in the 1980s for $75,000 it could be worth over a $1million today. Someone who inherits that cottage now and wants to sell it, faces a taxable income of $533,475, adding an extra $70,000 to the taxes that they need to pay after June 25.

🔍 Our take

• Condos are the new starter homes, particularly in a super expensive real estate market such as the GTA. People don't like condos for many valid reasons but for first time buyers they're a decent stepping stone into that eventual detached home with acreage and a picket fence in the suburbs.

• A drop in the condo market could be an opportunity. However, based on current numbers the prices are still too high, as builders would rather leave inventory unsold than sell at a loss. In the same way, if you're an investor or just someone who is looking for a home in cottage country - there can and most likely will be good deals soon.

• Having said that, we'll also add a reality check. In the immediate future, while listings might be high, we still think sales might be subdued - partly because of low buyer affordability due to high interest rates but also because of stratospheric expectations from buyers. The market will eventually balance itself out, imperfectly yes.

• The key thing to remember whether you're a buyer or a seller, is to make sure you're working with right set of professionals - realtors, mortgage pros etc. who can help you navigate this market. Real estate markets always have deals, which can be yours provided you have a good real estate team in your corner. Reach out to us today at www.ronmortgages.com to find out how we can help you get your deals in.

🎉 🌟💼Success Spotlight: Mortgage Funded For New First Time Homeowners! 🏗️💰 🎉

📜 Canada's 2024 Budget and Housing Plan - Deep Dive 🏡🔍

Maple Pulse 🍁: Tenant being forced to pay landlords taxes 🏢💸, news affecting your Mortgage Rates and more 📈💹

• Bank of Canada Opts for Measured Approach to Rate Cuts Amid Inflation and Growth Concerns 🏦💹The Bank of Canada is set for a cautious approach to lowering interest rates, emphasizing a gradual easing to balance economic risks. At their April 10 meeting, where rates were held at 5%, the governing council reviewed recent declines in core inflation, which met their criteria for initial conditions to consider rate cuts. However, they noted the necessity of these improvements being sustained before further action. With diverse opinions among members about the timing and pace of rate cuts, the first reduction is expected in June or July but may not quickly be followed by more. This cautious strategy aligns with concerns about robust U.S. growth affecting inflation and potential risks from an overheating housing market and rising global oil prices. The Bank remains optimistic that inflationary pressures will subside as the economy shows signs of excess supply and corporate pricing behaviors normalize. 🌍📉

• The Underlying Driver of Canada's Housing Crisis: Homeowner Profit 🏠💸This CBC analysis reveals a complex aspect of Canada's housing crisis: homeowners' preference for high property values. According to Paul Kershaw, a UBC public policy professor, this preference arises because homes are seen primarily as financial assets. Despite political efforts aimed at increasing housing supply, the reality is that a significant portion of demand is driven by investors, who accounted for 30% of home purchases early in 2023. This investor-driven market exacerbates affordability issues, pushing homeownership out of reach for many first-time buyers. Meanwhile, higher home prices benefit long-standing homeowners through increased equity and potential profit upon sale, aligning their interests with rising market values. This situation calls for a critical reassessment of housing policies to balance the needs of all citizens, not just those already on the property ladder. 📈🛑

• Canadian Tenant Pays Price for Landlord's Tax Evasion 🏢🚨In a striking case from Montreal, David Siscoe, a former Olympic athlete, faced severe financial consequences when the Canada Revenue Agency (CRA) held him responsible for his non-resident landlord's unpaid taxes. Unaware of laws requiring tenants to withhold tax from rent for non-resident landlords, Siscoe was audited and assessed for six years' worth of taxes, resulting in a staggering debt of about $80,000, reduced to $43,000 upon appeal. His ordeal highlights the significant risks tenants face with non-resident landlords amid Canada’s housing crisis. Siscoe's story underscores the importance for tenants to verify landlords' tax status to avoid similar predicaments, advocating for legal reform to protect renters better. ⚖️🏠

• U.S. Inflation Trends Threaten Canadian Mortgage Rates 📈 Recent U.S. inflation data showed a surprising increase to 3.5%, prompting a significant rise in U.S. Treasury yields, which, in turn, pulled Canadian yields higher due to the the extremely close correlation between the two (0.96 out of 1). This bond yield spike underscores Canada's limited control over its own mortgage rates. The Bank of Canada maintains optimism that inflation will gradually decrease, but the uncertainty remains high. With economic and inflationary trends closely tied to U.S. activities, Canadian borrowers face potential rate volatility, stressing the importance of cautious financial planning and possibly locking in rates as a prudent measure. 🌐💰

• Currency Fluctuations Complicate Bank of Canada's Rate Cut Plans 💱As the Bank of Canada prepares to cut interest rates, the falling Canadian dollar could complicate these plans. Anticipated earlier rate cuts by Canada compared to the U.S. Federal Reserve have already pressured the loonie, causing a 1.7% drop. This divergence might widen, potentially lowering the Canadian dollar to 72.99 US cents in Q2 of this year, with BofA predicting further decline. A weaker dollar heightens inflation risks as imports become costlier, possibly forcing the Bank of Canada to reconsider the depth of rate cuts or pause them to keep pace with the Fed. With Canada's central bank historically intervening in currency markets, such as during the 1997 Asian financial crisis, the possibility of intervention remains if the loonie's weakness becomes excessive post-rate cuts. 📉🚨

🏡 Mortgage Mastery: Securing Your Home with Mortgage Protection Plan (MPP) 🛡️

Navigating home financing in Canada often involves various types of insurance. Today we’re covering one of the ways to secure your home using a mortgage protection plan. 🧐

Mortgage Default Insurance, before we go further, it’s important that you understand that a mortgage protection plan is not the same as mortgage default insurance. Mortgage default insurance (more popularly knows as CMHC insruance), insurance is mandatory if your down payment is less than 20% of the purchase price of your home. It is designed to protect the lender and covers the lender in case you default on your mortgage. 🏦

What is (Mortgage Protection Plan) MPP? MPP is a type of insurance that covers your mortgage payments in case of death, disability, or critical illness. It ensures that your mortgage obligations are met, safeguarding your family’s living situation without the financial burden during challenging times. In a nutshell, it protects you. 🛡️

Key Benefits of MPP:

• Comprehensive Coverage: Combines life, disability, and critical illness insurance, directly paying out to your lender to clear or maintain mortgage payments.

• Simplicity and Convenience: Application processes are typically straightforward, often requiring minimal medical information. 📋

• Portability: If you move or refinance, your MPP can usually be transferred to your new mortgage without a hitch. 🔄

Considerations:

• Cost vs. Benefit: Weigh the premiums against the potential financial impact of not having coverage. MPP premiums are determined by factors like your mortgage amount, age, and health. 💰

• Coverage Specificity: As benefits are directed towards mortgage payments, consider how MPP fits with other insurance policies you might have, like life or general health insurance. 🤹

Making the Choice: Deciding whether MPP is right for you involves evaluating your financial health, existing insurance coverage, and personal risk factors. Consult with a financial advisor to tailor MPP perfectly to your needs, ensuring you’re not over or under-insured. 🏦

✅ Tip: Always read the fine print of any MPP policy to understand exactly what’s covered and any exclusions that might affect you. Knowledge is power, especially when it comes to financial security! 📖

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