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Home Owner Dreams Dead.... or not?
Are you thinking about purchasing a home this year or know someone else that might be? One of the top banks is advocating to increase the minimum down payment from 5% to 7% and decreasing the amortization from 30 years to 25. So what does that mean for you? Some people might not qualify under the new rules if they are implemented. If you are looking at purchasing a place at $200,000.00 under the current rules, you would need $10,000 as a minimum down payment (or 5% of $200,000). At 7% you would have to come up with an additional $4,000.00 for a total of $14,000.00 as your down payment. As well, by reducing your amortization your monthly payments would increase as well. You would be looking at an additional $104.00 per month which for some could make a significant difference for their budget. Below is an article by Vernon Clement Jones that explains the changes they are considering. If you are sitting on the fence about whether to get into the housing marketing or thinking of refinancing, you may want to take that leap sooner than later and take advantage of our super low rate specials that won’t last long. Give us a call at VERICO ZANDERS Associates Mortgage Brokers Inc. to discuss strategies to ensure your dream of homeownership can become a reality. We can get the BEST mortgage for you! TD economist to Govt: Raise minimum down payment By Vernon Clement Jones | 18/03/2012 5:00:00 PM |15 comments Brokers are guaranteed to bristle at the suggestion, but a top bank economist is among the first to advocate for an increase in the minimum down payment to 7 per cent instead of 5 – an option with significant implications for first-time and cash-back clients. We need to acknowledge that a significant imbalance has developed and it poses a clear and present danger to Canada's medium-term economic outlook,” Craig Alexander, chief economist with TD Bank, said in a report late last week. “It also suggests that further actions to constrain lending growth may be prudent. If the overvaluation was fully unwound rapidly, it would be three times the correction in the early 1990s. While other economists have called for further tightening of the country’s mortgage rules, Alexander is among the first to call for an increase in the minimum down payment to 7 per cent from 5 per cent. He has also broached the idea of instituting a minimum interest-rate floor for income tests, focused on ensuring borrowers can handle a higher rate environment. Another, more commonly debated option, is shortening the maximum amortization to 25 years from 30. Brokers, and their associations, have roundly rejected the need for more stringent mortgage rules, despite near-record high levels of household debt relative to income. That situation became even less sustainable after the Central Bank decided to hold its overnight rate steady last month, further raising concerns that consumers would move to raise their debt levels instead of cutting them. Alexander is now pegging the overvaluation of Canadian home prices at between 10 and 15 per cent. He argues that the real culprit in spiking debt levels has been growing home purchases in the current low interest-rate environment. The outlook is for mild employment and income growth in the coming year, implying that households will gradually become more lever-aged over time, he said.
Forecast Update: Economies Shutting Down
Rapidly evolving developments necessitate an update to the forecasts we published just last Friday. Additional quarantine or shut-down measures have been put in place in a number of countries in the last few days. As a result, we now anticipate global GDP growth to be 0% in 2020, followed by a sizeable rebound in activity in 2021 given our view that economic activity will rebound quickly once the virus is no longer a serious threat to public health. At present, we believe activity will begin to return to normal in the third quarter, except in countries where containment measures were aggressively deployed in the first quarter (essentially the Asian economies), where activity resumes in the second quarter. In Canada, the closure of non-essential business in Quebec and Ontario announced earlier this week will have large economic consequences. At present, we believe Canadian economic activity will fall by 28% in Q2 as these measures are felt. If other provinces follow, the fall in Q2 economic activity would be in the 35% range. We now assume that economic activity resumes by the start of the third quarter and that growth rebounds sharply at that time. However, the 20% drop in US economic activity in the second quarter will restrain the rebound in Canadian activity in the third quarter owing to the usual lags between US and Canadian economic outcomes. Under these assumptions, Canadian GDP would fall by slightly more than 4% in 2020 and rebound by 5.1% in 2021. Though we have not included any additional measures in this update beyond those already announced, we believe a substantial ramping up of fiscal support measures in Canada is forthcoming. There is a chance that aggressive virus management measures are required beyond Q2 to ensure the virus is truly well-contained. Evidence in Asia this week suggests that even in countries where aggressive management measures have been put in place, COVID-19 can come back quite quickly. If measures in Canada are not lifted by the end of Q2, growth would fall again in Q3, and GDP would fall by 6.3% in 2020 instead of the 4.1% we currently expect. A key question for forecasters is the length of the virus-related restrictions on firms and households. As noted above, a shift of one quarter in the resumption of normal operating conditions can have a large impact on growth outcomes. Since we do not have a good handle on the ultimate length of the interruptions, we consider it more informative to assign probabilities to the time at which virus containment measures end. At this time, we believe there is a 75% chance that activity resumes by Q3 and a 25% chance that activity returns to more normal levels by Q4. How officials manage virus containment internationally, as well as the evolution of the virus, will inform our assessment of probabilities going forward.
Source: Scotiabank Economics
Home resale market was gaining momentum prior to Covid-19
At the national level, resale home prices were gaining momentum in February. The 0.4% monthly gain in the Composite index was double the average of the previous ten years for a month of February. In particular, after 12 consecutive monthly declines, Vancouver HPI rose in each of the last five months, reflecting the fact that Vancouver resale market recently returned to balance. Sure, we still saw weakness in other regions, such as the Prairie Provinces (Alberta, Manitoba and Saskatchewan) where markets were still favorable to buyers. But CREA just reported a rather generalized increase in home sales in February, including for Calgary and Edmonton. Unfortunately, then came the outbreak of Covid-19 and its impact on oil prices and disruptions in the supply chain. The unprecedented sanitary measures imposed by the authorities to tackle the pandemic will severely impact business activity and jobs over the coming months. In that situation, the home resale market should be heavily curtailed for the coming months.
Source: Teranet Inc., and National Bank of Canada