Canadian real estate buyers are jumping in head first, since the recession didn’t impact housing. However, since the beginning of the pandemic, experts said no issues would be apparent until the end of the year. The reason is a term only finance and banking nerds have been using – the deferral cliff. The deferral cliff is the expiration of programs that bought distressed owners a few extra months. Until the deferral cliff arrives, we won’t see any of the problems in the housing market. Here’s when it’s coming, and when you should see an impact.
Mortgage Deferral Cliff
The mortgage deferral cliff is when payment deferral plans begin to expire. After the pandemic driven shutdown, Canadian and US governments scrambled to get banks to defer mortgage payments for the unemployed. Starting in April, people without income were allowed to delay payments for up to 6 months. This eliminated the spike in arrears we would normally see during a recession. It also happens to restrain inventory from hitting the market. As the six month deferral period ends, homeowners that aren’t back on their feet, are going to have to deal with their housing woes.
Industry experts warned mortgage deferrals give a false sense of security. Since people haven’t seen any defaults or distressed sales, moral hazard was created. That is, people now think housing markets have no risk. However, this is only temporary. As these deferrals expire, we approach the cliff. Once we get there, a significant number of people that haven’t got back on their feet will start to
Most Canadian Mortgage Payment Deferrals Will Expire In October
Since the longest deferrals are six months, we don’t really see any issues pop up until October. In October, about ~500,000 mortgages should expire. Followed by another 221,000 in November, and a big dip lower to 15,000 in December. There’s a mild bump higher with 24,000 in January, and February won’t be known until the cut off is reached next month.
Canadian Mortgage Deferral Cliff
The estimated number of expirations of payment deferrals for Canadian mortgages.Oct 2020Nov 2020Dec 2020Jan 20210100,000200,000300,000400,000500,000Mortgages
Source: Bank filings, Better Dwelling.
Now, don’t confuse the expiration of payment deferrals with a spike in arrears rates. It takes 90 days of non-payment for a mortgage to fall into arrears. This means October’s surge wouldn’t see any contribution to arrears until January. November would be in February, etc… That said, rising arrear rates depend on liquidity.
If you can’t afford your home, what’s the first thing you do? List it for sale. The inability to pay doesn’t always turn into defaults when there’s buyers. Instead, people list their homes for sale and hope it sells and closes before the lender tries to claim it. Unless you’re not all that smart, this is the first thing you would look to do. In which case, we should see a spike in inventory first.
“Bells and whistles tend not to rank high on ROI,” DiClerico says. “The high-tech home theater might mean hours of fun for you and the family, but it’s probably not going to pay for itself when the time comes to sell.”
Of course, that doesn’t mean you can’t outfit your house with the latest technology—if you’re making an improvement that you’ll love and enjoy, go for it. But if you’re looking to roll up your sleeves and tackle a project that will offer serious bang for the buck, try one of these home improvement projects next weekend.
1. Refresh your kitchen cabinets
“If the cabinets are in good shape, adding a fresh coat of paint or stain will dramatically transform the feel of the entire kitchen,” DiClerico says.
Be warned: Even though painting isn’t very difficult, it’s still time-consuming. You’ll need to remove the doors and drawers to ensure a clean finish. “But in terms of skill level, it’s something even novice DIYers can handle,” DiClerico says.
And remember, slow and steady wins the race when it comes to any painting project.
“You could lose some buyers with a sloppy paint job,” says Scott W. Campbell, a real estate agent in Milwaukee. “If you truly want to increase ROI, a good paint job takes time and patience.”
Making a great first impression on home buyers is one of the quickest ways to boost your home’s value.
“Landscaping and gardening are the biggest ones that also are simple,” says Kendall Bonner, a real estate agent in Lutz, FL. “Curb appeal has a significant impact on buyer’s purchasing decisions.”
Aside from adding tasteful foliage and keeping your lawn manicured, a few strings of café lights can also improve your home’s outdoor space and curb appeal. Don’t forget to paint old fences and prune overgrown plants.
3. Give your front door a makeover
Want to boost your home’s curb appeal but don’t have a green thumb? Spruce up your front door instead. All it takes is a few coats of paint. (The same rules apply: Work slowly and carefully to avoid drips and roller marks.)
“A fresh pop of color at the front door is a great way to enhance your home’s curb appeal for not a lot of money or time,” DiClerico says.
“Outdoor living is hugely popular, even more so since the pandemic, since people are looking to expand their home’s usable living space,” DiClerico says.
Creating a new deck is possible to do yourself, but “it’s not for the faint of heart,” he adds, especially if you’re putting in concrete footings for the deck posts. This project is best for intermediate to advanced renovators, and it helps to have a few friends on board to assist.
Keep the design simple—avoid any tricky changes in elevation—and work with pressure-treated lumber instead of hardwoods that are tough to cut and screw into, DiClerico says.
You don’t need to spring for a fully finished basement to appeal to prospective buyers.
“Spraying the basement unfinished ceiling with flat black latex paint can make big difference to clean up a look, and spraying the walls,” Campbell says.
To take your project to the next level, you can add carpeting and adjustable lighting. By cleaning up the basement, you can help prospective buyers envision a space that will fit their needs, whether it’s as a rec room, play area, or home gym.
“Anytime you add usable living space to the home, you increase its value,” DiClerico says. “That’s true now more so than ever given all the time we’re spending at home.”
Making an addition to your home might not be realistic. But smaller improvements, like adding a pantry in the kitchen, a new storage unit in the garage, or even closet organizers, add valuable storage space to your home and will pay off when you’re ready to sell.
7. Make small repairs and keep up with maintenance
It may not be as satisfying as tackling a big project, but staying on top of your home’s basic maintenance is just as important and promises serious ROI.
“Many of today’s buyers are staying away from fixer-uppers in favor of move-in ready homes that won’t require frequent repairs,” DiClerico says.
Seemingly small problems like a leaky faucet, loose gutter, or missing light fixture can be a red flag.
“When buyers see things like that, they think to themselves, ‘What else is wrong with this house that I can’t see?’” DiClerico says. “Spending a few hundred dollars on these small repairs will let the buyer know that this house has been cared for.”Looking to sell your home? Claim your home and get info on your home’s value.Lauren Sieben is a writer in Milwaukee. Her work has appeared in the Guardian, Washington Post, Milwaukee Magazine, and other outlets. Follow @laurensiebenThe realtor.com® editorial team highlights a curated selection of product recommendations for your consideration; clicking a link to the retailer that sells the product may earn us a commission.
Medical waivers. Masks. Virtual showings. Seven-figure purchases, sight unseen.
Home buying and selling has seen a head-snapping shift during the COVID-19 era, as both parties deal with the demands of physical distancing, virtual showings and previously unheard-of safety considerations.
One thing that hasn’t changed is the competition: Most major Canadian markets are as buoyant as ever after a brief slump and in defiance of gloomy forecasts about the impact the pandemic could have on real estate activity.
But the nuts and bolts of the process – how buyers and sellers interact and how realtors work with both – looks dramatically different than it did a few months ago, forcing years’ worth of sales innovation into just a few months.
Here are a few of the biggest changes:
Say goodbye to open houses
So much for perusing open houses as a weekend pastime. Physical distancing brought group showings to an abrupt halt this spring. As restrictions eased nationwide, open houses slowly started up again. In Ontario, for example, the province lifted its prohibition in most areas on July 17 as part of its Stage 3 reopening.
Still, open houses are nowhere near as common as they once were. Sellers remain wary of inviting large groups of people to traipse through their homes and some renters’ groups have spoken out against them as well.
“Before you could have upwards of two or three different agents with groups, at any given time, showing the same property,” says Darren Josephs, a Toronto Re/Max agent. “Now, the windows are 15-to-30 minutes and no overlap.”
Also, each client goes through individually, following sanitizing protocols before and after each visit. And there’s no such thing as dropping in with a moment’s notice, Mr. Josephs says.
“I think a lot of people were never entirely comfortable with open houses, especially sellers,” he says. “I think we’ll see a real long-term effect from this and more qualified showings, which tend to weed out people who aren’t serious.”
Vancouver-based independent realtor Chris Strand says there’s a “split in the realtor community” on the issue. He points out that realtors can often pick up new clients at open houses. However, he agrees that a decline in open houses – at least as we once knew them – may be one of the biggest long-term changes to emerge from the pandemic.
Better digital sales tools
The era of out-of-focus photos and sparse online listings is over, according to Patti Ross, a Royal LePage realtor in Halifax.
“You’ve always seen listings and asked, ‘Why are the photos so bad?’” she says. “We were proactive in my brokerage years ago in stepping up online marketing and building a photography and video department and it’s really paying off now.”
Realtors have also long been limited in the number of photographs they can use on listings but, from coast-to-coast, those limits have been bumped up, allowing potential buyers to get a better sense of a property before arranging a viewing.
“Our real estate board just upped our photo count from 20 to 40,” Mr. Strand says, “and we’re seeing more people hiring professional videographers and using virtual walk-through tools.”
Sometimes that means 360-degree photos tours and, for high-end properties, it can mean full-blown immersive 3D renders of a property’s interior. That can help drive more selective, qualified showings, and fewer potential buyers arranging a viewing out of curiosity, only to show up and quickly realize the property isn’t right for them.
More safety protocols
When in-person viewings do take place, safety has become a top priority. In most cases, realtors will go into homes in advance, opening every door, cabinet and cupboard for clients.
“We ask that visitors treat the house like a museum,” Mr. Josephs says. “No touching.”
Potential buyers sign waivers attesting to their lack of COVID-19 symptoms and international travel. And everyone – buyers, sellers and agents – wear masks and keep the mandated two-metre distance.
Even Ms. Ross’ photographers and videographers make sure their gear is sanitized before it enters a property and they clean it thoroughly once they leave.
Some realtors hope that better safety protocols can instill more confidence in sellers to list their homes.
Major markets nationwide are currently grappling with a serious imbalance between supply and demand, as buyers return to the market in droves, but sellers remain shy. “
You definitely see people waiting or holding off on listing,” Ms. Ross says. “But once you talk to people and tell them about process, they feel better.”
That imbalance between buyers and sellers has also made markets more competitive. In Halifax, Ms. Ross recently sold one suburban property listed at $229,000 for $55,000 over asking, after entertaining more than 30 offers. In Vancouver, Mr. Strand is seeing similar activity, as is Mr. Josephs in Toronto, where he recently sold one home for $350,000 over asking, after 26 offers.
More buyers are also signing off on purchases remotely. In June, Nanos Research conducted a poll for the Ontario Real Estate Association that revealed 42 per cent of buyers were open to buying a home even if they could only see it online beforehand.
Ms. Ross says she’s noticed more buyers willing to purchase places sight unseen. (Atlantic Canada’s current self-isolation restrictions for out-of-region travellers mean visiting the region to house-hunt is especially impractical).
“We’re doing virtual tours that allow people to shop from Ontario or Vancouver,” she says, “and walk through the house remotely.”
She’s also begun doing walk-through video tours of neighbourhoods. A video tour showcasing sports facilities and outdoor trails near one property recently helped seal the deal with one out-of-province family.
Mr. Strand is seeing the same kind of activity in Vancouver.
“We’re using FaceTime, and I’ve had potential buyers from Ontario, Alberta, and several from Hong Kong,” he says.
Mr. Strand says some of that activity may be due to the current bull market in housing. But most industry watchers, including major banks and the Canadian Mortgage and Housing Corporation, are still forecasting at least a modest decline in home prices over the coming year. As sellers re-enter the market, spiralling prices may well simmer down – good news for buyers already struggling with deteriorating affordability.
But even if markets re-balance, there seems little doubt that COVID-19 will result in lasting changes to the way Canadians buy and sell homes.
“Anything could happen in the next few months,” Mr. Strand says. “We’re all just waiting to see what sticks as we keep going through this and what goes back to the way it was before.”
Source: Globe and Mail MATTHEW HALLIDAYSPECIAL TO THE GLOBE AND MAILPUBLISHED AUGUST 17, 2020
As the new year approaches, we’re all probably looking to make some life changes. Maybe you just want to eat more vegetables, or maybe you’re thinking bigger. Your income isn’t cutting it anymore, and it’s time to move on from your job. You really want to pursue another academic degree. Or maybe it’s time for you to relocate, and you’re asking yourself, “where should I live?”
Moving to a new city is one of the hardest things to do. Uprooting your life and starting another one comes with a mixture of feelings: part of you might feel optimism for opening a new chapter in your life while another part of you may feel like you’ve quit or failed. Regardless of whether you get a job in a new place or just need a change from the same old shit, there comes a time when you have no choice but to relocate.ADVERTISINGAds by Teads
Timing a move is tricky. You’ll be hesitant to leave behind the life you’ve built for yourself in your current city, the relationships you’ve forged while living there, and the job it took you forever to get. On the other hand, you’d hate to miss out on new opportunities because you dragged your feet. No one can tell you when it’s time to seek greener pastures, but we can provide some signs that it might be time to go. Sometimes a change of scenery is just what you need. Here are 10 signs you should think about moving to a new city.
Your Passion Lives Elsewhere
It is really easy to bargain with yourself when it comes to your dreams. No matter which way you cut it, the television industry lives in Los Angeles and New York, web start-ups congregate in San Francisco, and oil men reside in Texas. Though it is possible to be a huge fish in a smaller pond (just ask some of the best filmmakers in New Orleans and Austin), it isn’t necessarily the best move. If there is a better place to be to do what you love, whether it be composing sonnets or catching trophy winning trout, it might be time to find your Mecca. We all know that the Internet has put careers within reach of people working remotely, but be real about what you’re giving up if you don’t live where the action is. Yes, you can design apps in your shack in rural North Dakota, but is that giving you the best chance at success?
You Haven’t Lived Anywhere Else
You don’t know if you don’t try. Though this sounds like the sort of thing your mother would say in an attempt to get you to join marching band or math club, it’s still good advice. There are people out there (we all know at least a few of them) who know deep down that they want to live their entire life in their hometown. There are also those people who graduate college and decide that they’ll live out their days in their college town. There’s nothing wrong with a decision like this, but if you aren’t absolutely sure where you want to spend your life, it can’t hurt to try something new. The worst thing that can happen is that you don’t like it and opt to move back. If you move back, at least you’ll be able to replace “What if?” with “I tried it and it sucked.”
There’s Some Place You’ve Always Wanted to Live
When I moved to New York City, a friend said to me, “You know, there are New York people, there are L.A. people, and there are career people.” I often find myself thinking about how right he was. One of the most annoying parts of living in New York City is listening to people who “just love New York,” and believe that it is “the greatest city in the world.” I like to think I’m a “career person,” in that I could make rural Minnesota work if I had to. The point is, if there’s a place that you love, why not live there? We’ve all met some older person who constantly sings the praises of their favorite city and has never spent a meaningful amount of time there. They love London or Paris or Beijing so much, yet they’ve only been once or twice. If there is a place you want nothing more than to spend your time in, why aren’t you there? Regardless of your concept of the afterlife, you likely don’t believe you’ll be spending it in San Francisco or Seattle, so if that’s where you want to be, hop to it.
Your Goals Have Changed
In a society where we pour years of study and thousands of dollars into our chosen fields, it almost feels like a sin to abandon your path. Never mind that you likely chose your career at eighteen years old. Think about the other things you liked when you were eighteen. Do you like any of the foods, bands, or clothes you were into back then? For those of you who aren’t yet eighteen, think back to when you were twelve to get an accurate picture of what I’m talking about. Unless you suffer a worse case of arrested development than Buster Bluth, the answer is likely no. What reason do you have to stay a veterinarian now that you are a decade removed from that transformational experience you had rescuing a cat from a tree as a teenager? If you decide that what you really want to do (this year) is handcraft scented candles, then by all means go to the best city for candle crafting and give it your best shot. If you go back to being a veterinarian, at least you’ll have cool stories to tell about that one year you spent crafting candles.
You Hate the Weather
If you absolutely hate the cold, can’t stand the heat, or can’t bear the wind, why are you still putting up with it? I can’t count the number of times someone from L.A. has moaned to me how much they “miss seasons.” If you’ve ever spent a winter in a Northeastern city, between the chattering teeth and strings of curse words, you’ll hear people swear they are moving before next winter. Obviously, there are probably higher priorities when choosing where to live than the climate, but if it will make you happier, why not at least consider whether weather might further your life satisfaction? Now consider it three times fast.
Someone You Care About Is There
No one likes long distance relationships. That’s why most of them end with one party hooking up with a fellow graduate student, co-worker, or cult member. That doesn’t mean they can’t work, but by definition, they aren’t ideal. If you work for a multi-national corporation with campuses in every major city or you work from home, it might be time to consider moving where your partner needs to be to succeed. If they get into the best graduate school, lands their dream job, or have a burning desire to start a deep sea fishing business, why not try it with them? You can collect unemployment in any state, dawg.
You’re Ready To Start A Family
The last thing most young people want to think about is starting a family. Anyway, if you’ve graduated college, you’re going to see a few couples move to the suburbs and take on mortgages in the next year or so. If you’re an artist type or super career-driven, you’ll tend to associate this with giving up or failure. Just a heads up: when you visit the people that make this choice and you see their huge houses and their happy children, you won’t feel like it’s them who failed. I’m not here to tell you that if you don’t start a family you’ll end up an empty husk on the corporate ladder. All I’m saying is if you’re feeling it’s time to pull the “house and two kids” card, no one is going to fault you for it. In fact, your friends who are still downing beer by the pitcher and having one-night stands might even be a little bit jealous.
You Realize You Were Running Away
Living in New York, every three months or so, you help pack a U-Haul for someone moving back to where they grew up. Even in our constantly changing world, 60% of people stay in the same state where they were born in, and it’s okay to join them. You’ll meet a fair number of people who realize, after some time spent in distant locales, that they were always running away from something, and that it’s time to go home. The fear of stagnation motivates many people to up and leave their hometown and try something else. Sometimes the drive to escape parents, ex-girlfriends, or slacker friends who hang out at the gas station leads them to pack up their parents’ station wagon and head elsewhere. For many people, there comes a time to return after they’ve gained knowledge that they couldn’t find around the block from their childhood home. There’s no shame in moving back to where you lived before, as long as you come back having learned something about yourself.
You Have No Reason to Stay
You might look around some day and realize that the reason you moved somewhere no longer exists. Maybe you moved to Chicago with your college buddies after school, and one by one they have left. It could be that you moved to New York to act, but you’ve done a hell of a lot more waiting tables than acting over the last five years. Maybe the girlfriend you moved to Philadelphia for has become your ex-girlfriend. I’m not advocating running way from your problems, or hopping a few exits down the interstate every time a relationship implodes or you’re handed a pink slip. On the other hand, if you’re sitting at the coffee shop one day and your realize that your life would be no different sitting in a coffee shop in Austin or Boulder, maybe it is time to find a place that feels like it matters.
You Complain About Your City All the Time
Don’t get me wrong: everyone hates where they live a little bit. In New York, bitching about your rent and the subway’s tardiness are as common as complaining about the weather. In order to live in Los Angeles, you are contractually obligated to bemoan the shallowness of the populace twice a day. In Pittsburgh, you either complain about how the Steelers are playing or you complain that everyone is obsessed with the Steelers. If your complaints about a city go beyond your standard bitching and you start to sound like the bitter old guy who sits at the diner alone yelling at no one in particular, it might be time to check in with yourself. If you hate the transportation, the politics, or how nothing happens after 10 p.m., those things aren’t likely to change any time soon. Maybe absence will make the heart grow fonder, and if that happens, you can return to hating everything about your city with a renewed energy and vigor—once you’ve tried a new place and hated it, too.Sign up for the Complex Newsletter for breaking news, events, and unique stories.SUBSCRIBE
Getting ready to buy your own home? There are a lot of boxes new homeowners have to tick off, and one of the most confusing can be insurance. Certain types of insurance are mandatory and others are optional…. but highly advisable. Here are 5 types of insurance the experts want every homeowner to have.
While not legally required, it’s nearly impossible to get a mortgage without proof of home insurance. But why would you want to leave your biggest investment unprotected? Home insurance covers the rebuilding or replacement value of your house, detached structures such as a garage, your contents, plus personal liability if anyone gets hurt on your property.
The cost: Varies depending on coverage, home value and additional factors
Many condo owners think their condo corporation’s commercial condo insurance covers their unit, too. This is not the case. It is limited to common areas like the building structure, its exterior and shared spaces like the lobby or elevators. You’ll need a personal condo policy to protect your own unit, its upgrades and contents (including those stored in your locker).
Personal condo insurance isn’t legally required, but most mortgage lenders consider it mandatory. You should too, says Steve Totani, a real estate broker with Zolo Realty in Toronto.
Totani provides the example of a small condo building that experienced massive flooding as the result of a plumbing problem. Owners’ homes were ruined as were their belongings. “Once the units were repaired, they each got an empty unit with four dry walls. Property insurance would have brought a condo owner’s unit back to how it was, for example, granite countertops and better appliances. Just relying on the condo’s [building] insurance is a big mistake. Paying $20 or $30 a month extra can save you tens of thousands of dollars in that sort of situation,” explains Totani.
The cost: Varies depending on coverage, condo value and additional factors
A property’s title is the legal proof of its ownership. When you buy a home, the owner signs the deed over to you. Title insurance protects you against challenges to your ownership or issues relating to your home’s title, such unpaid liens, encroachment issues, fraud, and other issues that could prevent you from selling, leasing or mortgaging your property. (You can read more details here.)
Toronto real estate lawyer Bob Aron writes that “most real estate lawyers today regard title insurance as a critical component of the [real estate] transaction and will usually not close a purchase without it.” Likewise, most lenders make it a requirement for financing.
The cost: A one-time premium based on the value and location of the property, generally in the $225 to $325 range.
MORTGAGE DEFAULT INSURANCE
Mortgage default insurance (also known as “mortgage insurance”) is mandatory on all high ratio mortgages. Those are mortgages with a down payment of less than 20 percent of a home’s purchase price.
This insurance protects lenders in return for qualifying borrowers with as little as 5 percent down, making it a win for both parties. Without mortgage insurance, homeownership would be impossible without a sizeable down payment.
The cost: Between 2.8% to 4% of the mortgage amount. This can be rolled onto the mortgage so it’s not an out-of-pocket expense.
“Life insurance is the type of insurance that’s overlooked the most often” says Totani, the Zolo Realty broker.
“People ask about mortgage rates, property tax, property insurance, and their monthly payments, but I hardly ever hear anyone asking, ‘Should I top up my life insurance policy?’ to ensure their mortgage is paid off and their family is not going to be out of their home,” in the event of a tragedy, says Totani.
Totani advises checking your policy and upgrading it if needed, to reflect your homeownership situation. The peace of mind this provides will be worth the effort.
The cost: Varies depending on life insurance type, coverage, and personal factors.
TORONTO — Hundreds of thousands of Canadians have been negotiating with lenders over the past few months, hoping to hold off paying debt amid the COVID-19 pandemic.
Now, those payments are beginning to filter through the credit reporting system.
“We have seen the average number of accounts that are in a payment deferral status triple since before the pandemic,” says Eva Wong, co-founder and chief operating officer of Borrowell, which offers free credit scores and reports.
“It shouldn’t impact the credit score, but it should show up on the credit report.”
The Canadian Bankers Association said that as of June 30, 760,000 account holders had negotiated mortgage deferrals or skipped payments, while 445,000 had requested deferral for credit card debt.
According to Equifax, deferred payments — many agreed to as part of COVID-19 relief programs — don’t harm borrowers’ credit scores. But the payments must be reported in a certain way, and the status of these payments may not get reported to Equifax for up to 30 days.
It’s important to make sure these deferred payments are reported correctly to credit bureaus, because even one false late payment can drop a credit score by as much as 150 points, says Wong. Credit scores are used not only by lenders, but also checked by cellphone carriers, employers and landlords, Wong says. Because it takes time to correct a credit score error, waiting until you “need” your high credit score is a risky move, she says.
“Depending on the type of error, the longer it persists, the more negative the impact,” says Wong. “If it’s showing up as a late payment and it goes to month two, then it’s two months of missed payments as opposed to just one. So I would encourage people to check their credit report and make sure that everything on there looks right.”
Anne Arbour, a financial educator at the Credit Counselling Society in Toronto, says that Canada’s two credit-reporting agencies, Equifax Canada and TransUnion Canada, are data aggregators, and it is up to the lenders to create policies on how they report the deferred payments. It’s important for consumers to get clear documentation of their agreement with their lender — such as a bank — when it comes to how they are reporting deferred payments, she says.
“Get as much detail from the lender, from the creditor, as possible about what a deferral will mean and what their practices as far as reporting it — so, whether it will impact somebody’s rating or their score or not,” says Arbour. “And if there is any issue or concern, deal with the creditor first, getting as much written information as possible.”
Arbour noted that deferrals are not an automatic license to skip payments — not only must a formal agreement be struck, but many lenders may have explicit instructions on how interest or even late fees accrues while payments are halted.
Taylor Little, chief of Vancouver-based alternative lender, Neighbourhood Holdings, says that many people skipped payments based on reading about deferral programs, without actually checking to make sure whether the lender was offering deferrals or some other type of payment plan instead. Doing that can hurt a credit score, and likely won’t be counted as an error, he says.
When checking with lenders, Arbour says people should collect a copy of the agreement, a file ID or reference number, and the name of the agent with whom they spoke, in case this information is needed to file a credit score dispute down the road.
If a consumer notices something that might be wrong on their credit score —such as a deferred payment being counted as “late” — the lender is once again the first stop, she says.
“Going back to the creditor themselves is a good first step,” she says. “[Equifax and TransUnion] have worked closely with the Canadian Bankers Association, with the lenders, everybody to try and come up with a way to report any deferrals, whether it was mortgages or credit cards, in a way that wouldn’t penalize the consumer. But the onus ultimately was on and is on the creditors to change their systems.”
In addition to requesting a fix from the lender, consumers can ask Equifax or TransUnion to investigate a mismarked payment, through a credit report update form or investigation request form. Separately, consumers can also now put a “consumer statement” to a credit report to signal to lenders that something is being disputed. Equifax Canada gives an example: “Be advised that the negative accounts on my credit report are related to the Covid-19 pandemic. I intend to make these up as soon as I can find a job.”
Keeping on top of errors — and being quick to correct them if they happen — is easier if consumers stick with a routine and understand the parts of the credit scoring process, says Arbour. For example, free services that offer credit monitoring offer more frequent updates and are different from Equifax or TransUnion’s free yearly reports. Those annual reports from Equifax or TransUnion are also different from the formal scores checked by lenders in a “hard” credit check, she says.
She advised that consumers can take advantage of both credit monitoring services and free yearly reports.
“There’s no sort of one size fits all answer — very often mortgages don’t actually appear on credit reports,” says Arbour. “[Mismarked deferrals] haven’t been brought up as a concern just yet. . . . I think come September, it might be a different story. Once deferrals are over, unless people are checking their credit report, they won’t notice it unless they’re in a situation where they’re having to renew their term or renegotiate a rate or a debt management program.”
Source: Anita Balakrishnan, The Canadian Press – August 13, 2020
The head of Canada’s national housing agency is asking banks and mortgage companies to stop offering higher-risk mortgages to over-leveraged first-time buyers, because they represent a threat to the economy.
In a letter to officials in the federal government and representatives of Canada’s banking and credit union industry, Evan Siddall, the CEO of the Canada Mortgage and Housing Corporation, asked lenders to be more strict about how much money they are willing to lend to fund home purchases, and more diligent about who they are lending to.
The letter was first reported on by financial news channel BNNBloomberg before Siddall released the letter publicly on social media.
“I am asking you to continue to support CMHC’s mortgage insurance activity in preserving a healthy mortgage sector in Canada,” Siddall wrote to the banks, credit unions and other mortgage lenders that make up his customer base.
While the CMHC does not directly loan out money to buy homes, it has a massive influence on Canada’s housing market because it insures a big chunk of the loans that lenders give out.
By law, borrowers with down payments of less than 20 per cent must purchase mortgage insurance to cover potential losses if they default on their loans. Premiums that borrowers must pay for that insurance can add thousands of dollars to the cost of the loan.
The goal was to make it harder to get an insured loan, in the hopes that borrowers already stretched thin would not be able to get one and thus not be able to get in even further over their heads by buying a house they may not be able to afford. But things didn’t quite work out that way.
CMHC is the dominant mortgage insurer, but they do compete with private companies Genworth and Canada Guaranty for business. It’s impossible to downplay CMHC’s outsized impact on the market, however — as of the end of 2019, the crown corporation was on the hook for $429 billion worth of Canadian real estate, by insuring the mortgages on it.
The insurers often move in unison, so in the past any change at CMHC was quickly matched by the other two. But that didn’t happen this time, which means the CMHC’s moves had little impact beyond moving borrowers from CMHC to a competitor. Anyone who was locked out by the CMHC’s higher standards simply got insurance elsewhere where the standards were lower.
In his letter, Siddall pleaded with lenders to work with CMHC to make sure lending standards don’t become even more lax.
“There is no doubt that we have willingly chosen to forego some profitable business that our competitors would find appealing,” Siddall said.
“While we would prefer that our competitors followed our lead for the good of our economy, they nevertheless remain free to offer insurance to those for whom we would not.”
By not tightening lending standards, Siddall warned that the entire economy could be put at risk.
The Switzerland-based Bank of International Settlements, an industry group for central banks around the world, warns that as a rule of thumb, when households have debt loads above 80 per cent of their gross income, it’s bad for the economy.
Canada’s ratio on that front has blown past 100 per cent and is approaching 115 per cent, Siddall warns.
“Too much debt not only increases risk, it therefore slows economic growth.”
CMHC expects house prices to fall
COVID-19 has walloped every facet of the Canadian economy, but broadly speaking, house prices have yet to fall in any meaningful way. Compared to last year, average prices were flat in March and April, before ticking higher, in May and into June.https://datawrapper.dwcdn.net/6GnwF/1/
But that is unlikely to continue forever, Siddall warns.
He suggests a big reason that prices are staying high is because massive government spending programs like CERB and CEWS have allowed people to keep their heads above water for now.
But those are set to expire in the coming months, as will the hundreds of thousands of mortgage interest deferrals that banks have doled out.
Once those programs end, bankruptcies and defaults may follow, and that is when prices may decline as new buyers are unable or unwilling to pay ever-higher prices, and sellers behind on their mortgages could become desperate to sell.
“The economic cost of COVID-19 has been postponed by effective government intervention,” he said. “It has not been avoided.”
House prices could fall by about 18 per cent and the impact of COVID-19 will be felt into 2022, the CMHC said recently.
Siddall said that under the current rules, there are loopholes that could allow people to buy houses with negative equity.
Although rare, mortgages for 95 per cent of the home’s value are allowed, and that loan would come with a four per cent capitalized insurance fee. Even a tiny fall in the housing market for someone with that loan would be onerous to withstand, as the homeowner would owe far more on their home than it is worth in reality.
‘Dark economic underbelly’
“In the midst of an economic calamity,” Siddall said, “we risk exposing too many people to foreclosure. These are individual tragedies that also create conditions for exacerbating feedback loops and house price crashes.”
Without naming names, Siddall accuses some in the industry of handing out too many risky loans while ignoring the long-term cost of doing so.
“Please put our country’s long-term outlook ahead of short-term profitablility,” he said.
“There is a dark economic underbelly to this business that I want to expose.
If mortgage loans are ships at sea, they are locked on a course that’s taking them directly into a storm. Reports released since COVID-19 hit the Canadian economy tell us that that storm – a nauseating combination of rising mortgage defaults and crashing real estate prices – is coming.
This knowledge leaves mortgage lenders with three questions: What should they do to prepare? How should they navigate the situation? And will their investments survive?
Early warnings of mortgage defaults arrived shortly after COVID-19. In April, a Dart & Maru/Blue survey found that one in 10 Canadian mortgage holders believed they would soon default. A majority of Canadians also believed that housing prices would depreciate in the months to come.
In May, CMHC CEO Evan Siddall warned the country that a growing debt “deferral cliff” is looming in the fall, when borrowers will have to start paying their mortgages again after a six-month respite. When the deferred debt comes due, as much as 20% of mortgages could be in arrears. Soon after, the Bank of Canada echoed Siddall’s warning in a financial system review released on May 26.
The risk of default is compounded by falling real estate prices. According to the experts, Canadian housing prices are set to fall by between 9% and 18%. A full return to pre-COVID levels is not expected before the end of 2022.
Thanks to two decades of low unemployment and rising real estate values, many private lenders have never experienced a default. If they have, the borrower has typically been able to remedy the default or refinance the mortgage loan before enforcement became necessary.
Mortgage lenders can take practical steps to protect their loan investments before they are lost at sea. While no amount of planning can guarantee that a determined borrower will not bring endless motions or break the locks to re-enter the property, lenders can mitigate much of the risk related to mortgage enforcement through preparation.
First, assess the likelihood that the borrower will default on the loan. Gather all available information about the borrower from the mortgage application, publicly available documents and even from the borrower themselves. If a borrower has lost a job or had to shut down a business, the lender needs to know. For corporate borrowers, obtain an updated corporation profile report to see if the corporation has been dissolved. If it has, the land securing its mortgage loan may become vested in the Crown, and the lender will face a special set of challenges.
Second, determine whether the security sufficiently ensures repayment of the loan. Factors will include an assessment of the current value of the property, the position the mortgage is in, whether the property generates income, whether an assignment of rents was provided and whether any personal guarantees were given. A lender that is not in first position should consider how much equity might be available if the property is sold and what it will do if there is a shortfall. Second and subsequent mortgagees might also wish to consider whether they have or can get enough capital to pay out prior mortgage lenders to get control of the mortgage enforcement process.
Third, work with knowledgeable legal counsel to develop a mortgage enforcement strategy. Several remedies are available; there’s no simple answer to the question of which one will be most effective. In every case, the lender must weigh the merits of all available remedies with the help of experienced legal counsel.
As housing prices fall, distressed borrowers will have limited ability to refinance a mortgage in default. Some highly leveraged borrowers will choose to walk away from real estate investments once their equity dwindles down to nothing. Compared to recent decades, we can expect more contested proceedings and difficult choices about the best remedy.
The good news is that mortgage lenders can improve the odds of reaching safe harbour with strategic preparation and sound advice. The storm is coming. The time to prepare is already here.
Source: MortgageBrokerNews.ca Michael McWilliams is a partner and head of the commercial litigation group at TK law firm Loopstra Nixon. Tamara Watson is a student-at-law at Loopstra Nixon who will be called to the bar in 2020
It’s easy to feel overwhelmed by all the decisions that go into buying a new home. Brand new or existing? Cottage or McMansion? Fixer-upper or move-in ready? City or country? After all, a home is a big purchase, and you want it to be a blessing for many years to come.
Lucky for you, you don’t need a degree in rocket science to find the answer. You just need to know how to budget. Here are five steps to buying a home Dave Ramsey recommends to make the process smoother.
Step 1: Add Up Your Income
You can’t make a budget if you don’t know how much you can spend. So sit down and add up every source of income you receive each month.
Let’s crunch numbers based on a two-earner household. In our example, John brings home two paychecks a month, while his wife Jane receives one.
John and Jane rent a one-bedroom apartment in the heart of town so they can be close to work. A big chunk of their budget goes toward saving for retirement and a down payment on their new home. Here’s how their current budget looks:
John and Jane’s Pre-Home Budget Charitable Gifts = $600 Savings = $2,200 Rent = $900 Utilities = $300 Food = $400 Clothing = $100 Transportation = $450 Medical = $400 Personal = $450 Recreation = $200
Total Expenses = $6,000
Of course, everybody’s budget is going to be different. We’ve assumed some things in this sample. If some of these categories don’t fit, feel free to make them your own.
Step 3: Calculate Home-Ownership Costs
Dave Ramsey recommends your housing payment, including property taxes and insurance, to be no more than 25% of your take-home income.
To maximize your savings, you should get a 15-year, fixed rate mortgage.
That means the maximum amount John and Jane should spend on their home payment each month is $1,500. Of course, home ownership isn’t limited to a house note. John and Jane make room for expenses like HOA fees, maintenance and repair, furniture and décor, and lawn care in their budget. They also add extra heft to utilities and transportation since they’ll have more square footage and a longer commute in their new home.
John and Jane’s down-payment goal will be complete when they purchase a home, so they reduce the amount they allot to savings.
John and Jane’s Budget: Changes Made With Home Ownership in Mind Savings = $2,200 $900 Rent Mortgage = $900 $1,500 Other Housing Expenses = $250 Utilities = $300 $400 Transportation = $450 $550
Total Expenses = $6,000 $5,750
With these adjustments, John and Jane still have money left over—but the budgeting doesn’t stop here.
Step 4: Give Your Budget Room to Grow
Life is going to happen in the years you occupy your home. Before you get married to a mortgage, look ahead and consider events that might increase your living expenses down the road.
John and Jane don’t have children yet but hope to start a family next year. Guess what? Kids cost money! According to the USDA, a middle-income married couple spends an average of $727 a month on non-housing expenses in a child’s first years of life. Depending on what you make or where you live, it could be more, it could be less.
John and Jane build cushion for Junior into their budget by parking an additional $750 into their savings account each month. That puts their savings total at $1,650 and bumps their monthly expenses up to $6,500.
John and Jane’s Budget: Changes Made With Junior in Mind Savings = $900 $1,650
Total Expenses = $5,750 $6,500
Step 5: Make Adjustments
Right now, John and Jane’s expenses outweigh their income by $500, so they’ve got some balancing to do. John and Jane realize that spending 25% of their income on a mortgage will squeeze out their ability to afford diapers and daycare. So they aim for a more conservative home payment and tighten the purse strings in a few other areas.
John and Jane’s Final Home-Buying Budget Charitable Gifts = $600 Savings = $1,650 Mortgage = $1,500 $1,250 Other Housing Expenses = $250 Utilities = $400 Food = $400 Clothing = $100 $50 Transportation = $550 Medical = $400 Personal = $450 $400 Recreation = $200 $50
Total Expenses = $6,600 $6,000
When income minus outgo equals zero, your job is done because every dollar has a name.
$6,000 – $6,000 = $0
That means you can feel confident buying a home that won’t bust your budget. Just keep your mortgage to 25%—or less!—of your monthly income and don’t borrow so much that you can’t breathe if life changes down the road.
Boost Your Buying Power
Now that you know the secret to being a happy homeowner, it’s time to go out and get the most home for your money! All you need is an expert negotiator by your side. A buyer’s agent brings your best interests to the table so you can get the best deal on a home that’s right for you and your budget.
It’s a route to ownership that may make sense if you’re a renter who wants to buy but you’re concerned about job stability and need a way out if necessary.iStock
It’s fair to say that most New York City renters have the same real estate fantasy: Instead of throwing away their money every month—and agonizing over it—they could be applying their payments toward ownership.
Luxury condo are nice of course, if you can afford them, but for most buyers a condo that starts at, for example, $4,485,000 at 100 Barclay or $1,395,000 at 196 Orchard is out of reach. So you might be wondering: Is it possible to approach someone selling an apartment or a house and ask if the owner will allow you to rent first and buy later—and apply your rent payments to the purchase price?
Market decline brings back rent to own
The answer is yes. Rent-to-own purchases of apartments or houses from a seller (not a condo developer) come back in fashion when sales are slow, like they are now. But it is not typically a widespread phenomenon.
“In the last downturn there was buzz about rent-to-own and very few deals happened—it was talk, talk, talk, and at the end of the day, very few happened,” says Mark Chin, CEO of real estate brokerage KWNYC.
These deals don’t end up converting many sellers, however, with more programs available from condo developers, rent-to-own may gain some more traction. And as sellers are forced to compete with developers of new condos, taking a page out of their playbook is one way to level the field.
Why would you rent to own?
It’s a route to ownership that may make sense if you’re a renter who wants to buy but you’re concerned about your job stability in this economy, for example, and want the ability to cancel the deal without penalty. Like rent-to-own condo programs, rent-to-own deals for resales give you a period of time to decide whether to buy.
So, if you are renting for one year, you may have to let the owner know by the eighth month if you intend to buy. Depending on the agreement, you can apply a portion or the full amount of your rent toward the purchase price. The deal allows you to chip away at the price of the house while giving sellers the rental payments they can use to pay their mortgage or common charges.
A rare kind of real estate deal
They’re not a straightforward path to ownership though. In fact they remind Jonathan Miller, president and CEO of appraisal firm Miller Samuel, of a reverse mortgage, another rarity for NYC. And, if you think about it, they are also somewhat mind bending when you consider what happens when a tenant ultimately decides to buy, and has their rent deducted from the sales price. “You could argue that they paid no rent,” Miller says.
It’s not necessarily a way to get a deal either. Usually, the seller is asking for a price they couldn’t get on the open market, Miller says.
To Miller, they make up a nominal, niche part of the market.
Where to find a rent-to-own property?
Rent to own can be negotiated with any type of building—townhouse, condo, or co-op, says Steve Wagner, partner at the Manhattan law firm Wagner, Berkow & Brandt, who represents co-op and condo owners (and is a Brick sponsor, FYI).
“I’ve done a couple of them,” he says, emphasizing that the deals were not new construction but apartments that were converted long ago and were rented to someone who is interested in buying.
“With a condo or co-op, it is likely you’d be approved to buy but not guaranteed. Generally with condos, the board has a right of first refusal and co-ops have the right to consent. This is handled in the contract, as well as financing, approval, representations, all the stuff you’d normally have in an agreement,” Wagner says.
To Craig L. Price, a partner at the law firm of Belkin, Burden, Goldman, this mode of buying “has become more than niche” recently. He’s seeing an uptick now because of the pandemic and in the last month worked on four such agreements (one didn’t pan out because of the complexity of the deal and became a regular rental).
These arrangements are easier to do in a condo than in a co-op, he says, which will require jumping through many hoops to gain approval from the board.
Price recommends pre-negotiating a purchase agreement before you occupy the apartment or house—you’ll have more leverage with an owner of an empty place. An attorney will need to work out protections for you to prevent the owner from selling to someone else before you exercise your option, he says.
“The downside for tenant is that they may overpay,” Price says. You are negotiating a price without knowing where the market will be in eight months or a year from now when it is time to pay up. You may be locking in a premium price for the property, he explains.
He recommends tenant buyers get a financing contingency as part of the deal (aka a mortgage contingency), which offers you a way out if you can’t get a mortgage.
Source: Brick Underground – JULY 27, 2020 – 9:30 AM