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The good, the bad, the Equity Participation Mortgage
The Equity Participation Mortgage program is slated to begin Sept 02, 2019 and there are still few details that have been explained. The government plans to release more information, perhaps as early as next week, however the limited details provided have sparked discussions with the media on what this really does look like. The First-Time Buyer Incentive The government will provide an equity participating mortgage of up to 5 % for an existing house and up to 10 % for a new construction home. No interest or principal reduction payments required on the participating mortgage portion. Can be repaid early Must be repaid within 25 years. When the house is sold the government will participate in the increase in value, or decrease, proportionately with the initial participating mortgage granted. Maximum purchase price is $480,000. Maximum family income is $120,000. The Good First time buyers will have slightly lower mortgage payments, with likely interest savings of up to $60 to $120 per month ( depends upon the amount, new or used house, and interest rates.) The Bad The Home Buyer will have the Federal Government as a partner in the ownership of their property through a participating mortgage. The total home purchase price the borrower qualifies for under this program is less than if the borrower does not use it. There are different qualifying guidelines. The Government will eventually, if the home goes up in value, recoup an equity dividend, the repayment could turn out to be more than what mortgage interest would work out to be. What will the government participating mortgage mean if the homeowner needs to consider, renovations, refinancing, sale to a spouse, late payments, forced sale, sale to a family member, needing a second (or now third ) mortgage, divorce, will the rules be different at renewal for this product..........these and other possible outcomes havent been addressed. We all hope for improved markets, and the addition of programs to help home buyers is always exciting. However, do we really need the governement involvement? Since the government became convinced that the bureaucrats know how to underwrite mortgages, hundreds of thousands ofCanadians are being denied access to mortgage liquidity. Let bankers be bankers, let the government bureaucrats provide high level oversight. Mortgage underwriting should be an industry derived process, not a government dictated and controlled approval. If the government wants to incentiveize first time home purchase activity, simply make mortgage access reasonable. Instead we get some intrusive program costing taxpayers over a billion dollars. Expect the government to announce program details soon...
Almost no annual growth for national HPI
The national HPI has grown at a below-inflation rate of 0.5% over the last 12 months, the smallest gain since November 2009. Moreover, the fact that monthly gains are reported for May and June does not mean that the market recently turned the corner. These two months typically register the strongest growth rates in a year. Indeed, the two latest rises were among the weakest in history for months of May and June. If seasonally adjusted, the national HPI would been down in both months this year. However, the weakness is not regionally broad-based. The national HPI was dragged down by 12-month home price declines in Western Canada metropolitan areas (Vancouver, Calgary, Edmonton and Winnipeg) and a tiny increase in Victoria. In Central Canada and in the East, home price growth ranges from decent to strong (left chart). This is consistent with the state of home resale markets. For example, the Vancouver market turned favorable to buyers at the end of last year, while the Toronto market remained balanced and Montreal’s market has never been this tight since 2005. That being said, a rebound in home sales recently occurred in Canada which was also felt in the largest Western metropolitan areas. This should help limit home-price deflation in these areas. The Teranet–National Bank Composite National House Price Index increased 0.8% in June, a second gain in a row after an eight-month string without a rise. Highlights: On a monthly basis, the index rose in 8 of the 11 markets covered: Winnipeg (0.1%), Quebec City (0.3%), Montreal (0.8%), Toronto (1.3%), Halifax (1.5%), Hamilton (+1.6%), Victoria (+2.1%) and Ottawa-Gatineau (+2.2%). The index was down in Calgary (-0.1%) and Vancouver (-0.3%), and flat in Edmonton. From June 2018 to June 2019, the Composite index rose 0.5%, the smallest 12-month gain in ten years. The HPI declined in Vancouver (-4.9%), Calgary (-3.8%), Edmonton (-2.6%) and Winnipeg (-0.4%). It was up in Victoria (0.3%), Quebec City (1.5%), Halifax (2.7%), Toronto (2.8%), Hamilton (4.8%), Montreal (5.4%) and Ottawa-Gatineau (6.3%). Source: National Bank Financial Markets; Marc Pinsonneault
NORTHERN STAR (FOR NOW...)
In contrast to the US, Canadian growth is accelerating sharply going into the second quarter, following a solid gain in domestic demand to start the year. Fast, and accelerating, population growth, and remarkably strong employment growth are providing a solid underpinning to consumer spending and the housing market. Positive export data suggest that the ongoing strength in domestic demand will be buttressed by net exports in the second quarter, and possibly beyond. Canadian inflation is at the Bank of Canadas target, in sharp contrast to the US, where it has moved away from the Feds objective. This gives the BoC room to keep rates on hold if inflation remains on target. Downside risks remain important and are all linked to US-centric developments, with worries about US trade policy ongoing despite the pause with China. Recent Canadian developments stand in sharp contrast to events in much of the rest of the world. Whereas US growth is clearly decelerating, Canadian growth is on an upswing, with recent indicators pointing to a very sharp rebound from a somewhat sluggish start to the year. Canadians appear to be, for the time being, largely insulated from the broader malaise facing the global economy as consumer and business confidence has improved sharply in recent quarters, owing to strong sales and job creation. While there are a number of factors suggesting that the growth rebound observed will persist through 2020, there is a risk that a divergence between Canadian and US outcomes may not last. Source: Scotiabank Economics