In a rather obscure comparison, we could equate the old children’s song, The Skeleton Dance, to the Canadian mortgage trends of 2015 quite nicely – the oil bone’s connected to the dollar bone, the dollar bone’s connected to the interest bone, the interest bone’s connected to the lending bone…. Ok, so that was a little humour but in all seriousness, some Canadian mortgage trends that began in 2014 and have carried into 2015 have had direct impacts to the mortgage industry – both positive and negative.
Towards the end of last year we saw oil prices drop. This led to a crisis in Alberta where the oil and real estate industry is concerned. The direct result: lenders began to tighten up their lending practices in Alberta as one Albertan mortgage brokerage reported to the Mortgage Brokers News: http://www.mortgagebrokernews.ca/news/broker-frustrated-by-tightened-lending-191719.aspx
In addition, the low oil prices led to a reduction in the Canadian dollar which has both helped and hurt the Canadian economy in different ways. On the plus side, it makes the business sector more attractive to other countries who want to spend and do business here. In an article in the Financial Post earlier this year, Rhys Mendes, an economist at the Bank of Canada, spoke about the significant decline in the price of oil as being negative for the Canadian economy and indicated that the decline could reduce aggregate income. Even though the GDP saw growth in the 4th quarter of 2014, the real income of Canadians contracted because the world price of the important export product declined.
The Bank of Canada put out a fantastic article on the topic of oil and the economy which is worth a read http://www.bankofcanada.ca/2015/01/drilling-down-understanding-oil-prices/. This brings us to the next point….
The drop in oil prices also led to a drop in the Canadian interest rate – another double-edged sword. One would hope that a lower interest rate would lead to more competition and even lenders loosening their purse strings but with trends on the borrower side indicating that Canadians have more debt than ever and declining income, it may mean more harm in the long run.
The Canadian Government has done about all it can to protect Canadians from another recession and housing crisis. CMHC guidelines have been tightened up reducing max amortizations from upwards of 40 years down to 25 and the amount one can borrow against their home has also been lowered – yet Canadians just seem to want to keep racking up the debt.
News publications, Statistics Canada, the Bank of Canada and others continue to warn that Canada’s historically high levels of household debt are dangerous for the Canadian economy http://www.theglobeandmail.com/report-on-business/economy/canadian-household-debt-burden-hits-record-high/article23417022/. Even Prime Minister Harper has warned that Canadians must get a handle on their debt.
All of the developments the Canadian market trends show us can help us predict what is to come next and adjust strategies accordingly. Paying attention to world markets, what the economists have to say, house price indexes like the Teranet National Bank House Price Index, and BOC announcements make you more informed as a mortgage broker and in the end more competitive when planning new products, services and marketing strategies.
This blog was produced by the Purview team at Teranet. Have you checked out Purview For Mortgage Brokers yet? If not learn more by visiting www.purviewforbrokers.ca