The trifecta: Interest rates, Niagara home sales, debt

BY JIM PITT
Special to the VOICE

Predictions Update

A couple of weeks ago I made some predictions about interest rates. I reported that there was a 50% chance rates would start going back to normal in mid-July. That chance has now climbed to 84%. The June housing statistics show continuing sales declines— sales were down 37% year-over-year and prices are continuing to drop. Listings climbed 16%. Soon this past year’s price increases will be wiped out. Here are some new predictions. The Office of the Superintendent of Financial Institutions, the regulator of our banks and other financial organizations, will be changing a few rules, possibly by late fall. All mortgages, even those with 20% or more as a down payment, will have to be stress-tested at the bank rate of 4.64% to be approved. Stress-testing will have to be extended to uninsured mortgages. Co-lending arrangements, designed to circumvent regulatory requirements, will be prohibited. HELOCs (home equity loans) will be evaluated on the household’s ability to pay in a regular and timely manner and not on the value of the asset. The Finance ministry and the Bank of Canada are determined to put an end to the dangerous level of debt so many have accumulated in this country. An alarming 29% of the growth in the Ontario economy is attributed to housing, up from the historical average of 7%. Ontario manufacturing has fallen from 21% of the 2002 economy to 12% in 2015, while Quebec’s manufacturing sector has climbed to 14%, B.C.’s to 20% and Alberta’s to 40%. Over-regulation and the highest electricity rates in North America are cited as reasons. The consequences of these changes should be monitored with great interest by anyone with a lot of debt.

Niagara house sales, June 2017

The prices of homes in Niagara Region continued to climb. The average home cost $457,456 in June, up from $448,225 in May. Closer to home, prices in Pelham rose from $573,913 to $588,906,

May to June. Region-wide listings were up from 1,073 to 1,273 comparing June 2016 to June 2017, an increase of 16.6%, while sales were down from 959 to 740, a decline of 23%. In Pelham, listings climbed from 49 to 59, or 20% up from last June, while sales fell from 43 to 34, down 20%. A mortgage broker commenting on Global News stated that the number of home owners in financial trouble has gone up tenfold. Power-of sales (foreclosures) have increased from around 250 in January to 2,500 in June, with the expectation that this is just getting started as interest rates climb and house prices drop in the GTA. He stated that many recent home buyers are in over their heads and were carrying far too much debt.

We’ll see your debt and raise it

I received some information from the good citizens of the DEBT group here in town. They did some calculations and their findings were as follows. They compared eight municipalities in Niagara: Fort Erie, Grimsby, Lincoln, West Lincoln, Wainfleet, Thorold NOTL and Port Colborne. These municipalities have a combined debt load of $31,390,000 and a combined population of 157,281. Pelham has a debt load of $32,906,000 and a population of 17,100. Pelham, with 11% of the population of the above-mentioned towns, is carrying the same amount of total debt. Food for thought, if you still have an appetite.

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The Voice of Pelham
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