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Housing Market Overview
Toronto and Ontario Housing Market Forecast Canadian Real Estate Market Report Greater Toronto Area Real Estate Market Ontario Real Estate MArket Update Canada’s housing market displayed signs of cooling during the first quarter of 2013, as total sales declined 15.3% year-over-year. Prices remain higher year-over-year as the overall market remains in balanced territory with stable supply/demand dynamics. While comparing year-over-year metrics can be useful, we believe it can be misleading given we are coming off record volume years. The CMHC expects total sales for 2013 to reach 451,100, unchanged vs 2012 and 3.4% below the long term average of 467,100. Industry experts fully expect that headlines will continue to focus on how sales remain down from last year, but are quick to point out that those same numbers have held steady since the last round of mortgage regulations took effect in July 2012. Although transactions remained down from year ago levels in more than 90% of all local markets, the gap diminished in a number of large urban markets including Greater Vancouver, Calgary and Montreal. Edmonton was the only large urban market which had sales that surpassed those of a year ago. The national market remains firmly in balanced territory as inventory declined to 6.6 months at the end of April from 6.7 months in December. The decline was a result of an increase in sales combined with a decline in the overall supply of homes for sale. The national average price for homes sold in April was $380,588, which represents a 1.3% increase from the same month last year and a 4.6% increase from the average sale price in 2012. Greater Toronto Area Real Estate Market In the GTA, resale activity slowed during the first four months of the year with a 11% decline in total sales compared with the first four months of 2012. Shortage of listings in some market segments, stricter lending guidelines and the additional land transfer tax is likely to have played a role in the decline. The largest year-over-year decline amongst any segment was the resale condo market which was down 13.9% from the first four months of 2012. This decline was spread evenly between the “416” and “905” regions in the GTA. Prices continue to be supported by overall supply/demand dynamics as the average selling price during the first four months was $513,895 which represented a 2.8% increase from the same period one year ago. The average selling price in April was led by townhomes and highrise condo apartments which both saw a 3.1% year-over-year price increase followed by semi-detached homes where there was a 2.7% increase. The average selling price has rebounded to start the year after experiencing two consecutive down months to close 2012. GTA Year-Over-Year Summary For April Source: TREB Taking a closer look at the condo market in the GTA, there was a total of 4,133 sales reported through the MLS System in the first 3 months which was down 17% from the first quarter of 2012. New listings were also down 5.3% year-over-year. According to the Toronto Real Estate Board, condo buyers benefited from a substantial amount of choice in the market especially in comparison to low-rise home types. But given that new listings were down in the first quarter, this suggests that the market may become tighter moving forward. Inventory numbers continue to remain low amongst low-rise homes as the number of newly listed homes continue to decrease. At the end of April, there was just 1.8 months of inventory in this segment compared to over 3 months at the end of 2012. Condo inventories also felt the effects of fewer listings, as inventory fell to under 3.5 months for the first time since May 2012. The national inventory number is 6.6 months. Historical Home Sales and Average Price in the GTA Source: TREB Months of Inventory Between Highrise Lowrise Housing in GTA Source: TREB Ontario Real Estate Market Update Existing home sales in Ontario stabilized during the first quarter of 2013 after trending lower in each of the prior four quarters. A total of 39,330 homes were sold during the first three months which represented a 4.9% increase from the fourth quarter of 2012 and a 13.6% decline from the same period one year earlier. Modest job growth across the province coupled with more out-migration over the past year contributed to sluggish resale demand. New home listings dropped province wide for a third consecutive quarter as weather conditions and less upward pressure on prices discouraged homeowners from putting homes on the market. Row and apartment housing remained well supplied while single and semi-detached housing experienced less obliging supply conditions. The hottest market was Thunder Bay due in large part to lack of supply options. Hamilton, Barrie and Oshawa are markets which have tightened due to incoming demand from households bypassing the more expensive GTA market. Despite the presence of balanced market conditions, Ontario home prices still managed to grow above the general rate of inflation during the early part of 2013. The average selling price during the first three months was $393,170 which was a 2.4% increase over the first quarter of 2012. The price gain was supported by the fact that mid to higher end homes continue to dominate a large part of the entire market. This phenomenon is consistent with the tighter market conditions for singles and semi-detached housing in some of the major markets across the province. Ontario’s tightest resale markets posted the strongest price gains so far this year with Thunder Bay leading the way. Comparison of Select Markets in Ontario Source: CMHC Ontario saw a decline in the number of newly constructed residential homes during the quarter with most of the weakness concentrated in the multi-family home sector, with singles posting modest declines. Momentum in the residential construction sector has been less intense since last spring due to better supplied resale markets and high level of units under construction. Residential construction has declined most in Kitchener, Kingston and Windsor while holding up better in Barrie, Thunder Bay and St. Catharines-Niagara. Average Annual Home Prices in Ontario Source: CMHC
The Contagion of Fear
Fears of a possible coronavirus pandemic are sweeping the world. Markets are jittery with little hard data to go on.
With the first case now reported in Canada, many are recalling the 2003 SARS where Canada was one of the epicenters. Arguably the biggest (economic) lesson from that experience is that fear is the biggest risk to the outlook.
The impact of the SARS pandemic on the Canadian economy is difficult to estimate, confounded as it was by the slowing US economy, the invasion of Iraq and other events, but the Bank of Canada estimated -0.6ppt hit to annualized growth in Q2-2003, or just over 0.1% on the level of GDP.
While it is premature to predict the path of todays coronavirus outbreak, we estimate that a SARS-equivalent pandemic today could have a similar impact on the Canadian economy with an estimated hit of just over 0.1% on the level of GDP by mid-2020, at which point a pandemic should be contained. This estimate is subject to a significant degree of uncertainty with risks skewed to a potentially larger impact.
The effect should not be significant enough to trigger a broader economic malaise, but could this finally push Governor Poloz over the line to proactively stimulate the economy in his next rate call?
Bank of Canada maintains overnight rate target at 1 ¾ percent
The Bank of Canada today maintained its target for the overnight rate at 1 percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 percent.
The global economy is showing signs of stabilization, and some recent trade developments have been positive. However, there remains a high degree of uncertainty and geopolitical tensions have re-emerged, with tragic consequences. The Canadian economy has been resilient but indicators since the October Monetary Policy Report(MPR) have been mixed.
Data for Canada indicate that growth in the near term will be weaker, and the output gap wider, than the Bank projected in October. The Bank now estimates growth of 0.3 percent in the fourth quarter of 2019 and 1.3 percent in the first quarter of 2020. Exports fell in late 2019, and business investment appears to have weakened after a strong third quarter. Job creation has slowed and indicators of consumer confidence and spending have been unexpectedly soft. In contrast, residential investment was robust through most of 2019, moderating to a still-solid pace in the fourth quarter.