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The Less Stress "Stress Test"?
Most homeowners, real estate professionals and economists would agree that the tweaks to Canadas Mortgage Stress Test just announced will bring a positive change to the housing industry. The new changes take effect on April 6, 2020, and will apply to insured mortgages. The new stress test will affect insured mortgages (those with less than 20% down payment). The rate will now be the weekly median five-year fixed insured mortgage rate plus 2%. If the new stress test changes took effect today, the rate would be 4.89%, says the Department of Finance , down from the current Benchmark Rate of 5.19%. The new Benchmark Rate will be published each Wednesday and come into effect the following Monday. The current Stress Test has seen your favorite Great Big Banks keeping their posted rates artificially high, out of step with the industry norms, in order to capture huge penalties. The posted rates have had little to nothing to do with where the market actually is. Before this new change, Canadas big six banks determined the benchmark rate, which was then adopted by the Bank of Canada and used as the stress test rate. The rate has been kept high, and this has affected borrowers from qualifying for the best possible mortgage. In some cases, they may not have been able to buy a home at all. The new test will allow more people to qualify, which is welcome news for the home buyer. As well, the new rate is more flexible, and this will, in turn, allow it to go with the ebb and flow of the economy. There will be growing pains to start, as there always is in a national program such as this. The changes also adds another layer of complexity as your pre approval rate may change while you are shopping. As more details are released, we can pass information on to you, our clients, and give guidance as to how the changes may affect your buying choices.
Canada's Manufacturing heavily impacted in March
Manufacturing shipments fell 9.2% in March after climbing 0.4% the prior month. This result was more than double the drop expected by consensus (-4.5%). Lower sales were registered in 17 of the 21 industries surveyed, including transportation (-26.5%), petroleum and coal products (-32.2%), and plastics/rubber products (-10.9%). Alternatively, shipments increased for food manufacturing (+8.2%) and paper manufacturing (+8.4%). With the price effect removed, total factory sales decreased 8.3% m/m, while inventories grew 0.8%. As a result, the real inventory-to-sales ratio rose from 1.56 to 1.72, a bad sign for future production. Manufacturing sales came in much worse than expected in March, matching their largest one-month decline on record (December 2008). Sales retraced all the way back to their level in June 2016. It should come as no surprise that disruptions from COVID-19 were the chief cause of the decline. Indeed, 78.3% of manufacturing businesses reported being impacted by the pandemic. Transportation saw a significant decline owing to plant closures, while refineries lowered production as demand and prices waned. Not everyone experienced an adverse shock, as evidenced by marked increases for food (groceries) and paper manufacturing (toilet paper) in the month. This will likely be transitory, however, as households rushed to stock up in March. Eight of the ten provinces reported lower sales, with Ontario and Quebec posting the largest declines. All told, given that confinement measures had been in place for only two weeks in March, the April manufacturing picture can be expected to be even worse. Home sales fell 56.8% from March to April, to the lowest level recorded since the inception of seasonally adjusted data in 1988. The fall was generalized to all the 26 major markets tracked by CREA except Newfoundland and Labrador, where sales rose 13.6%. New listings also fell sharply (-55.7%) but active listings only 8.7%. Therefore, the active-listings-to-sales ratio (our preferred gauge of market conditions) skyrocketed from 4.3 months of inventory in March to 9.2 in April, the largest since the 2008-09 recession. Source: National Bank of Canada
Another strong increase in the Composite Index in March
In March the TeranetNational Bank National Composite House Price IndexTM was up 0.6% from the previous month. As was the case in February, this was double the average March rise of the last 10 years. Leading the advance were the markets of Ottawa-Gatineau (1.1%), Vancouver (1.0%) and Toronto (0.9%). Trailing the countrywide average were rises for Hamilton (0.4%), Quebec City (0.3%), Montreal (0.2%) and Halifax (0.1%). The index for Victoria was essentially flat. Down from the previous month were Calgary (0.1%), Edmonton (0.6%) and Winnipeg (0.8%). The index for Vancouver has now gone six months without a decline. Its previous run of 14 straight months without a rise seems to be definitely over, especially since the Vancouver resale market has returned to balance as measured by ratio of listings to sales. The index for Victoria has move little over the last seven months. Weakness persists in the Prairies: the indexes for Calgary and Winnipeg have declined in five of the last six months, that for Edmonton in four. In central and eastern Canada the story is different. The index for Ottawa-Gatineau has not declined in any of the last 12 months, that for Toronto in only one and those for Montreal, Hamilton and Halifax in two. All of these last five markets were at a historical peak in March.