Thursday, May 26, 2016

Millennials need help with home ownership

Recent reports from two of Canada’s major banks -- CIBC and ScotiaBank -- offer a glimpse into the world of millennials and home ownership as well as the impact of the Internet on mortgage hunting. Bottom-line: Nearly two-thirds of millennials plan to own a home in the next five years, but don’t have the money for a down payment yet. Ninety-six per cent of Canadians rely on the Internet for information but 70% of those still rely on advisors for mortgage advice.

Among Canadians aged 18-24, two thirds (64%) of them plan to make the move to home ownership, with 63% looking to buy in the next five years, but nearly half (44% ) say they have not started to save. The down payment is the biggest obstacle; however, rising prices is seen as having an impact on their ability to buy.

A majority (56%) of Canadians are sympathetic and say something should be done to help the younger generation enter the housing market. Seventy-seven per cent believe that buying a home is more difficult for young Canadians today than it was for previous generations.

Here are the key findings from the CIBC poll about millennials and home ownership:

  1.  64 % of Canadians aged 18–34 say that their future plans include buying a home. Among them: 63% plan to do so within the next five years, and 44% have not started to save yet for their down payment.
  2.  54 % of millennials planning to buy a home say that saving enough for the required down payment is the biggest obstacle to home ownership. Other roadblocks include: Job security and earning enough to afford mortgage payments (53%) and rising real estate prices (46%). 
  3. 56 % of Canadians say something should be done to help young Canadians get into the housing market.
  4. 77 % of Canadians say buying a home today is more difficult for young Canadians than it was for previous generations

Although it may not be easy to get a mortgage, it is doable. Working with a mortgage broker, who can help map out a strategy, is a key step to make the dream of home ownership a reality. In fact, the result of a ScotiaBank poll found that 98% of Canadian now rely on the Internet for information, yet 70% still look to advisors for their mortgage advice. This is likely due to sheer volume of information available online.  The bank also predicts that by 2020, less than 1 in 10 financial transactions will occur in branches, which means that online transactions will increase.

So what does this mean for mortgage brokers and consumers? It’s actually good news for consumers. As competition increases, mortgage products may become more tailored with more options available. Competition is a good thing because it gives you choice. Brokers can help facilitate that choice.

 In the mortgage industry, with historically low interest rates, it’s easy to shop the market to find a low advertised rate, whether from your local bank or from your mortgage broker. However, mortgages are not as simple as some make them out to be, especially when rate is all that is considered.

It’s important that home buyers educate themselves about mortgages including the following areas:  pre-payment terms, penalties, fixed vs. variable, open vs. closed, etc.  Each situation is as unique as each borrower and each needs a unique strategy.

Again, the sheer volume of information online can be overwhelming.  While getting informed through Internet research is a good thing, once armed with that information, it’s still important to work with a licensed mortgage professional who will ask the right questions to tailor a custom-fit mortgage that works for short and long term goals.

Monday, May 02, 2016

Canada set to grow in different ways

The Canadian economy is poised to grow again, but in a very different way according to the Bank of Canada’s (BoC) recently-released Monetary Policy Report.  The BoC expects global economic growth to strengthen…. gradually… and modestly.

Once again, the U.S. market is impacting growth in Canada. While there is demand for our exports, US residential investment and investment in their oil and gas sector, which are key sources of demand for Canadian exports, has changed.  Economic activity there expanded at a modest pace at the end of 2015 and the beginning of 2016, and while it was hoped that there would be strong momentum, it hasn’t happened.  Growth is expected to remain modest for the year.  Not surprising given it’s an election year.

The Loonie
The battered loonie has been showing signs of life. It recently hit 79.50 cents US at one point during the last week in April -- its highest mark since July 2015.

Global economies
Unfortunately, economic recovery in the euro area and Japan continue to yo-yo. Low oil prices and exchange rate depreciations have dampened growth.  In the euro area, growth is also being restrained by ongoing deleveraging, weak investor confidence and tight lending conditions. In Japan, lackluster wage growth is restraining consumption.

The economy there is in transition with movement away from industry and more towards the service sector, which now accounts for just over 50% of China’s GDP.  China’s GDP growth is expected to slow from 6.9% in 2015 to 6.3% in 2018. Fiscal stimulus is expected to be focused on additional infrastructure spending and tax relief for businesses

Canadian Economy 
The inflation rate is projected to stay below 2% through 2016. Core inflation is expected to be around 2% through 2017. The economy is also in transition, moving toward non-resource sectors.  This adjustment is expected to contribute to the moderate growth cycle we are now in for the next two years.
 However, it’s not all bad news.  Economic activity through 2016 and 2017 has been revised up, thanks to measures introduced in the federal budget in March.  The gap between growth and activity is likely to close sometime in the second half of 2017. This adjustment period is expected to last until 2019.

The Housing Market
New construction and activity in the resale market is strong in British Columbia and Ontario, relative stability in Quebec and the Maritime provinces,  although there are declines in housing activity in  oil-producing provinces. The strength in British Columbia and Ontario appears, in part, to reflect local demand stimulated by employment growth. The shift in interprovincial migration in response to the oil price shock is reinforcing the regional divergence in housing market activity as workers leave the oil-producing provinces for Ontario and British Columbia.

The strength of housing demand in Ontario and British Columbia is contributing strongly to growth in residential mortgage credit.

The BoC continues to keep its overnight rate at .05%. Stephen Poloz, President of the BoC, defends his monetary policy and said, “The fact is that policy actions -- monetary and fiscal -- taken in the wake of the global financial crisis, prevented what would have been a second Great Depression. But many of the negative forces that were acting then are still acting now. That’s why ultra-low interest rates are not causing rapid growth and inflation.”

There will be lots to watch in the upcoming year as the world transitions. What that will look like is anyone’s guess.