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Briefing highlights

  • What new mortgage rules mean
  • Markets at a glance
  • Chinese firm strikes deal for Aecon
  • Twitter surges as it eyes profit
  • ECB curbs bond buying but extends it
  • Potash Corp. profit slips
  • Tim Hortons parent’s profit rises
  • Barclays, Deutsche Bank fall behind U.S. peers
  • Husky profit beats estimates
  • Ford profit perks up


If you're wondering how much more you have to earn under Canada's new mortgage rules, buy a cheaper house.

If you live in British Columbia or Ontario, buy a lottery ticket.

Maybe there's a reason they call it a stress test.

As The Globe and Mail's Janet McFarland and James Bradshaw report, the commercial bank regulator is bringing in new rules under which home buyers have to pass said stress test before they can get a mortgage.

This comes as interest rates are rising, and hence the added concern, as both federal and provincial policy makers also adopt measures to cool certain inflated housing markets and make sure we can handle our ever-swelling debts..

"Arguably the biggest change from the new rules, set to begin Jan. 1, is that every prospective buyer, even those with down payments of more than 20 per cent, must undergo and pass a stress test before the bank can issue the loan," Moody's Analytics economist Paul Matsiras said of the recent change from the Office of the Superintendent of Financial Institutions (OSFI).

"The new measure will help cool the housing market, as potential home buyers are forced to go with more affordable options," he added in a report on OSFI's decision.

Under the new rules, you have to demonstrate that you could still afford your payments by qualifying at the greater of: The Bank of Canada's posted five-year benchmark rate or a rate that's two percentage points above what you've negotiated.

That's for new mortgages, uninsured mortgages – those with a down payment of at least 20 per cent – and anyone who chooses to switch lenders. (A stress test for insured mortgages with lesser down payments already exists).

Using numbers from Brookfield RPS, Mr. Matsiras gave this example:

A woman whose home is valued at the median of $565,960 makes a 20-per-cent down payment, and thus has a mortgage of $452,768. So she's paying $2,085 a month at 2.75 per cent. But at two percentage points higher, 4.75 per cent, that payment would be $2,579 a month.

"So assuming that all other monthly payments stay the same, and assuming that she pays to the hilt so that her debt service-to-income ratio hits [Canada Mortgage and Housing Corp.'s] max of 32 per cent, we can see that her income would need to rise by $18,150 to afford the new monthly payment," Mr. Matsiras said.

"Of course, the amount her income would have to rise depends on where she lives: In British Columbia, her income would need to increase by more than $32,000, while in New Brunswick it would have to rise by around a much more modest $6,500."

Here's a cross-country look by Brookfield and Moody's Analytics:

Homebuyers need more income

Region Median home value Loan amount Monthly payment at 2.75% Monthly payment at 4.75% Increase in income needed
Canada $565,960 $452,768 $2,085 $2,569 $18,150
B.C. 1,003,165 802,532 3,696 4,554 32,175
Alta. 467,307 373,846 1,722 2,121 14,963
Sask. 334,090 267,272 1,231 1,517 10,725
Man. 307,669 246,135 1,133 1,397 9,900
Ont. 657,130 525,704 2,421 2,983 21,075
Que. 315,832 252,665 1,164 1,434 10,125
N.B. 200,840 160,672 740 912 6,450
N.S. 250,761 200,609 924 1,138 8,025
PEI 226,579 181,264 835 1,029 7,275
Nfld. 315,556 252,445 1,163 1,433 10,125

Source: Brookfield RPS, Moody's Analytics

The other way to look at this is to determine what she can afford. Here's another cross-Canada look:

...Or a less expensive home

Region Median home value Monthly payment at 2.75% Loan necessary to make old payment at 4.75% New home value Difference in home values
Canada $565,960 $2,085 $367,500 $459,375 $106,585
B.C. 1,003,165 3,696 651,250 814,063 189,103
Alta. 467,307 1,722 303,500 379,375 87,932
Sask. 334,090 1,231 217,000 271,250 62,840
Man. 307,669 1,133 199,750 249,688 57,981
Ont. 657,130 2,421 426,600 533,250 123,880
Que. 315,832 1,164 205,100 256,375 59,457
N.B. 200,840 740 130,350 162,938 37,902
N.S. 250,761 924 162,750 203,438 47,324
PEI 226,579 835 147,100 183,875 42,704
Nfld. 315,556 1,163 205,000 256,250 59,306

Source: Brookfield RPS, Moody's Analytics

"Of course, these two tables make the big assumption that the individual is mortgaged to the hilt," Mr. Matsiras said.

"However, this example shows that as interest rates begin to rise, consumers must prepare for higher mortgage expenses over the next decade. The new rules will ensure that future owners are better prepared."

The new rules are expected to dampen the housing market, particularly as they come alongside other measures.

"We suspect that the rule change will pull forward some demand ahead of the Jan. 1, 2018, effective date, and slow housing market activity thereafter," said Toronto-Dominion Bank economist Dina Ignjatovic.

"Indeed, we estimate that housing demand could fall by 5 to 10 per cent, while prices could slide by 2 to 4 per cent in 2018 relative to baseline, as a result of the change."

The Bank of Canada also sees the housing market cooling, as The Globe and Mail's Barrie McKenna reports.

It has raised its benchmark overnight rate twice this year, to 1 per cent, but signaled Wednesday that the pace of increases will be slow.

"Taken together, recent interest rate increases and macroprudential policy changes are likely to have a moderating influence on residential investment as some prospective home buyers respond by taking on smaller mortgages while others delay purchases," the central bank said.

Read more

The future now looks more blurry to the BoC hawks

Ipek Ozkardeskaya, senior market analyst, London Capital Group

Markets at a glance

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Chinese firm to buy Aecon

A Chinese company is snapping up Canada's Aecon Group Inc. in a $1.5-billion deal.

CCCC International Holding Ltd., an arm of China Communications Construction Co., is offering $20.37 a share cash for the construction services company.

Aecon's headquarters will stay in Canada, its Canadian employees will be kept on, and CCCC promises "continuity of Canadian management and ongoing adherence to Canadian standards of corporate governance," the companies said.

Aecon chairman Brian Tobin said the deal is "the result of an active and diligent sale process."

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Tech in focus

Twitter Inc. this morning kicked off what Jasper Lawler calls "Tech's Super Thursday," sending its stock up sharply.

It posted a third-quarter loss of $21-million (U.S.), or 3 cents a share, narrowing from the year-earlier loss of $103-million or 15 cents.

Revenue slipped 4 per cent to $590-million.

Twitter also said it expects a fourth-quarter profit.

It said, too, that its user numbers were overstated for three years because it included "certain third-party applications."

Today also brings quarter reports from Alphabet, Amazon and Microsoft.

"Tech has been the best performing sector in the S&P 500 this year," said Mr. Lawler, head of research at London Capital Group.

"The top technology shares are richly priced so surprises during earnings season can cause large price swings."

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