Raymond C. McMillan, BA., Mortgage and Real Estate Advisor – June 27, 2020
I read somewhere many years ago that “where there is a crisis, there is always opportunity”. You may be wondering where to find this opportunity. Covid 19, completely obliterated the spring housing market and will probably do the same for the summer market. These are possibly the two busiest period for homebuyers and sellers. With the recent physical and social distancing guidelines introduced and enforced by all levels of government, it has certainly crippled the real estate sector and change the way sellers and buyers engage each other. However, all is not lost as we discover new ways to house hunt and view homes.
Savvy realtors have quickly figured out how to market homes online and are doing virtual tours that allow potential home buyers to get a real life feeling of homes they are interested in viewing or purchasing. New home builders have also quickly adapted and have also made the virtual home buying experience very user friendly and interactive. Many of the floor plans can be configured by you to show the placement of furniture and appliances to get a sense of the available space. With resale homes, you can use the placement of furniture and appliances by the current owner and occupant as a guide. In the event the home is empty, it could be a bit more challenging to get a good sense of the space as a first-time home buyer, but a good realtor should be able to help you with this.
In areas where home showings are still permitted, and if you are comfortable doing them, you mayt want to exercise extreme caution when visiting homes for sale to avoid being exposed or infected by Covid 19. A few of my recommendations to keep yourself safe and reduce exposure are:
Always wear a mask and gloves.
If you have a pre-existing health condition, I would recommend avoid doing in-house viewings
Only visit homes where the current owners or occupants have vacated the homes to allow for the viewing.
Avoid touching personal items and appliances as much as possible.
Do not under any circumstances view a home at the same time with another individual or family not connected to you
Ensure your realtor is also wearing personal protective equipment and maintaining physical and social distancing guidelines.
Practice the necessary hygiene once you have completed your viewing and returned home to eradicate any potential exposure.
If you are uncomfortable with doing in-house viewings stick to virtual viewings. There are many homes being offered that way, and you are sure to find one in your preferred neighborhood, at your desired price that you absolutely love. So be patient and enjoy the home buying journey.
The writer: Raymond McMillan is a mortgage broker and real estate consultant who has been in the banking, mortgage and real estate industry since 1994. He has been licensed as a mortgage broker since 1999 and has helped many people purchase their homes and invest in real estate. You can reach him at 1-866-883-0885 or visit www.TheMcMillanGroupInc.com
Fast-forward to April 2020, at which point COVID-19 public health and safety measures had been in effect for a full month and a number of home buyers and sellers opted to remain on the sidelines. Home sale activity slowed considerably, with double digit sales declines in the City of Toronto in April. For the condo apartment segment in particular, the dip in y-o-y sales in April was a steep 70 per cent.
To understand how COVID-19 measures impacted real estate market dynamics, particularly condo apartment prices in the City of Toronto, Zoocasa used data from the Toronto Regional Real Estate Board (TRREB) to compare how median prices changed between February and April 2020 for 35 city neighbourhoods. For neighbourhoods with at least 10 condo apartment sales in April, Zoocasa calculated the dollar and percentage change in the median sold price to get a snapshot of how the market evolved one month after COVID-19 measures were introduced.
The median condo apartment price is defined as the price at which half the condo apartments in an area sold at a higher price than the median, and the other half sold at a price lower than the median price.
City of Toronto Median Condo Price Fell by $65,000 Since February 2020
For the City of Toronto as a whole, the median condo apartment price declined a steep $65,000 (-10 per cent) between February and April 2020 to $574,000. In a true reflection of economic and healthcare measures in place for COVID-19, condo apartment sales dropped 64 per cent since February, with just 482 transactions taking place across the city in April compared to 1,335 in February.
A closer look at all 35 City of Toronto neighbourhoods revealed that 21 city neighbourhoods had fewer than 10 sales during the month of April, which is three times the number of neighbourhoods with a low sales volume in February. In the 14 neighbourhoods with at least 10 sales, the median condo price rose in just one neighbourhood, and fell in all the others. More specifically, the median condo apartment price:
Dropped more than $100,000 in two neighbourhoods
Fell between $50,000 – $100,000 in four neighbourhoods
Declined between $1 – $50,000 in seven neighbourhoods
Rose $34,000 in one neighbourhood to $506,500
Toronto Centre Neighbourhoods Saw Largest Price Declines
Condo apartment prices were significantly impacted in Toronto Centre, with the top five neighbourhoods with the greatest price declines (and at least 10 sales) located in this part of the city. C10 (Mount Pleasant East) topped the list with the median condo apartment price declining $131,500 (-18 per cent) to $617,500.
This was followed by C08 (Regent Park, St. James Town, and Corktown), where the median price dropped $103,400 (-14 per cent) to $611,600. In C14 (Newtonbrooke East, Willowdale East), the median condo apartment price declined 12 per cent to $597,950, marking an $85,050 drop since February. C07 (Willowdale West, Lansing-Wesrgate) and C01 (Downtown, CityPlace, Trinity-Bellwoods, and Harbord Village) rounded out the top five neighbourhoods with price declines of $70,000 and $60,500 respectively.
Emma Pace, a Zoocasa agent in the City of Toronto, noted that new market conditions since COVID-19 have created opportunities for buyers who may have previously remained on the sidelines. Pace said, “due to the competitive nature of the market subsiding, qualified buyers who may have otherwise forgone an attempt at a home search even four to eight weeks ago are now reviewing how they can participate and starting to enter the market.”
Median Condo Apartment Price Rose in One Toronto East Neighbourhood; Prices Fell in Two
When considering neighbourhoods with at least 10 condo apartment sales in April, Toronto East neighbourhoods fall in the middle of the pack when it comes to price declines. The median condo apartment price in E09 (Morningside, Woburn, Bendale) declined exactly $50,000 (-10 per cent) since February to $465,000, and dropped $47,750 (-10 per cent) in E04 (Dorset Park, Kennedy Park).
In E07 (Milliken, Agincourt North) on the other hand, the median price rose by $34,500 (+7 per cent) to $506,000. Of all City of Toronto neighbourhoods with at least 10 condo apartment sales in April, this was the only area that experienced a median price increase. Here, condo apartment sales were down 49 per cent compared to February, representing a less severe sales drop when compared to the City of Toronto’s overall sales decline of 64 per cent for condo apartments.
According to Jelani Smith, a Toronto Zoocasa agent with experience working in Scarborough, showings began to pick up toward the end of April as more buyers started to return to the market. “Properties that were sitting on the market for almost a month started to get sold relatively faster, since showings started to pick up. In some cases, I’ve been involved in bidding wars similar to what we saw before COVID-19,” said Smith.
Median Condo Apartment Prices in Toronto West Neighbourhoods Declined Between $15,000-$45,000
In Toronto West, median condo apartment prices dropped between four per cent and 10 percent since February 2020 in the following neighborhoods with at least 10 sales:
W10 (Rexdale-Kipling, West Humber-Claireville) prices declined $44,500 (-10 per cent) to $418,000
W06 (Mimico, Alderwood) prices dropped $35,500 (-6 per cent) to $577,500
W08 (Islington-City Centre West, Eringate-Centennial-West Deane) prices fell by $25,500 (-4 per cent) to $570,000
W04 (Yorkdale-Glen Park, Weston) prices declined $18,450 (-4 per cent) to $479,000
W05 (Black Creek, York University Heights) prices fell $15,451 (-4 per cent) to $409,999
Carlos Moniz, a Zoocasa agent with Etobicoke and Toronto West expertise noted that when COVID-19 hit, many buyers in the very early stages of their home searches took a step back and slowed down their searches to get a better sense of the impact on the market. According to Moniz, buyers who were further along in their home search recognized this as an opportunity to regain some negotiating power in these new market conditions where there were fewer buyers and less competition.
Here’s a snapshot of how median condo apartment prices changed in Toronto’s 35 neighbourhoods between February and April 2020, including a list of the neighbourhoods with the largest declines. Note: the percentage change in median price is only calculated for neighbourhoods with at least 10 condo apartment sales.
Toronto Neighbourhoods with the Largest Declines in Median Condo Apartment Prices
Based on neighbourhoods with at least 10 condo apartment sales in April 2020.
1. C10 – Mount Pleasant East
Condo apt median price, Apr 2020: $617,500
Condo apt median price change from Feb 2020: -$131,500 (-18%)
Condo apt sales, Apr vs. Feb 2020: 16 vs. 37 (-57%)
2. C08 – Regent Park, St. James Town, Corktown
Condo apt median price, Apr 2020: $611,600
Condo apt median price change from Feb 2020: -$103,400 (-14%)
Condo apt sales, Apr vs. Feb 2020: 74 vs. 127 (-42%)
3. C14 – Newtonbrooke East, Willowdale East
Condo apt median price, Apr 2020: $597,950
Condo apt median price change from Feb 2020: -$85,050 (-12%)
Condo apt sales, Apr vs. Feb 2020: 28 vs. 70 (-60%)
4. C07 – Willowdale West, Lansing-Westgate
Condo apt median price, Apr 2020: $580,000
Condo apt median price change from Feb 2020: -$70,000 (-11%)
Condo apt sales, Apr vs. Feb 2020: 11 vs. 57 (-81%)
5. C01 – Downtown, Entertainment District, CityPlace, Trinity-Bellwoods
Condo apt median price, Apr 2020: $677,500
Condo apt median price change from Feb 2020: -$60,500 (-8%)
Condo apt sales, Apr vs. Feb 2020: 106 vs. 330 (-68%)
Median condo apartment prices and sales for April 2020 and February 2020 were sourced from the Toronto Regional Real Estate Board.
The median price is the price at which half the homes in an area were sold at a higher price and half the homes were sold at a lower price.
The percentage change in median price is only calculated for areas with 10 or more condo apartment sales.
News that Canadian financial institutions were offering some mortgage deferrals sent investors running to the banks in early April, asking for a stay on their payments as personal incomes and investment portfolios were being wiped out by the coronavirus pandemic. Those deferrals seem like a lifeline for investors facing a liquidity crisis, but one leading mortgage broker thinks the impacts of a deferral need to be considered closely.
Dalia Barsoum, president and principal broker at Streetwise Mortgages, says that investors should consider alternatives to mortgage deferrals. She explained that these deferrals aren’t gifts or grants, as they come with a cost, a likely increase to future payments, an impact on future financing availability and a wider implication for an investor’s credit. Barsoum says despite the pain investors are feeling, they shouldn’t just take mortgage deferment as their first line of support.
“We look at mortgage deferrals as a last resort tool for investors to utilize to help ease financial destress,” Barsoum says.
Barsoum outlined what some of those sources of financial distress are. The primary pressure on real estate investors stems from unemployment, both the loss of their own job or, if they own a rental property, the loss of a tenant’s income. The temporary collapse of Airbnb, too, has resulted in an increase to rental stock in some Canadian markets, putting downward pressure on rents. Further, softening property valuations in some markets, have made it more challenging to extract equity when it is needed most. Even committed deals, not yet closed, might be torpedoed by a borrower’s inability to get a mortgage. The financial pressures on a real estate investor are widespread, perhaps enough to make mortgage deferral seem like the right option. Barsoum says investors need to look at the long-term implications of that short-term fix.
Her first concern is cost, explaining that interest will accrue on the deferred amount for the duration of the period. Each lender, too, applies its only methodology of repayment for the accrued amount after the deferral period. Investors need to know what that post-deferral arrangement will look like before they sign off on anything.
That methodology could also result in an increase to future monthly payments. That increase will vary based on the mortgage size, interest, and duration of the deferral. An increase in the debt load will, as well, likely impact an investor’s ability to qualify for future financing, especially if their new payments are higher across several properties within the portfolio.
Though a deferral is different from a default, and should not have any negative impact on credit, that requires an adjustment to lenders’ systems allowing them to report deferrals in the right way. Barsoum thinks that the sheer volume of deferral requests has increased the risk of reporting errors.
“If you are considering a deferral and can wait on it another month, then please do so to allow time for the first round of deferrals to go through the systems and see how that turns out,” Barsoum says. “Further, if you have chosen to defer by now, then please monitor your credit report for the next 3 months.”
Current financing arrangements, too, could prove challenging to obtain for investors with an active deferred payment. The logic, as Barsoum sees it, is that in taking a deferment an investor has told the lender whether they “can or can’t” afford the payment. In such a binary situation, taking the deferment puts you in the “can’t pay” camp, which carried long-term implications.
“My suggestion is to first examine your finances, challenges and plans with your current mortgage advisor,” Barsoum says. “Come up with an action plan before jumping on mortgage deferrals as the first line of support because of panic, fear of the unknown, or fear of missing out on this support tool.”
Source: Canadian Real Estate News – by David Kitai 06 May 2020
There’s a certain level of connectedness that comes from dealing closely with clients’ finances, their families and their dreams for the future. Because of the proximity to a client’s life and everything that makes it unique and worth securing, it’s only natural for brokers to concern themselves with more than just the bottom line.
When COVID-19 came barrelling toward Canada in March and strict social distancing and stay-at-home orders were put in place, one of the many unforeseen disruptions involved couples in the midst of divorces or separations being forced to shelter in place together.
“Pre-COVID-19, couples that were at crossroads in their relationships, someone would just pick up and go. They could easily find accommodations,” says Nathalie Boutet of Boutet Family Law and Mediation in Toronto. “Right now, with COVID-19, it’s very difficult for people to move out quickly. They don’t know where to go, they don’t know what’s available and you can’t see suites in person.”
The inability to separate has put many couples into complex, sometimes violent situations. In those involving domestic abuse, many victims simply have nowhere else to go. Government shelters are full and most short-term solutions, like Airbnb’s, have been taken off the market.
“People are nervous, and they’re accessing mediation services to try and sort out rules and regulations around their current properties,” Boutet says.
For owners bent on selling, one of the ongoing problems is access to a comprehensive appraisal, which is critical in ensuring the separated parties receive a fair share of the proceeds. Realtors can still access data on comparable properties to determine a home’s value, but few would trust the comps established over the last four weeks. Certified home evaluators can provide a more thorough look at a property’s structure – if they can get inside.
Faced with the prospect of selling into an unpredictable market, the advice most mortgage professionals would give would be “Don’t sell!” But Boutet says there may be more at stake than achieving an above-asking sale price.
“It’s really important to figure out what’s going on in the house. Is there a lot of pressure? Is someone really, really unhappy and you can see it?” she says. “If there are children and it’s really, really tense, there should be ways to put the house up for sale.”
That might involve moving more quickly than most mortgage brokers and real estate agents would prefer. Boutet suggests patch-ups over renovations and says sellers could potentially reach out to staging companies for advice rather than waiting for an in-home consultation that can’t legally occur.
Selling rather than waiting out the pandemic may also help alleviate some of the stress involved with selling a home, which will be particularly high in separated households also reeling from COVID-19 layoffs.
“It’s not just a commercial issue right now,” Boutet says. “It’s also an emotional issue, and an energy issue.”
Mortgage brokers don’t have a legal obligation to step in and try to improve a client’s domestic situation, but Boutet urges them to be observant and sensitive and be willing to refer clients to services they may be in need of, whether it’s moderate mediation or full-on therapy.
“Mortgage people are people persons. They have instincts and they’re super good at picking things up,” she says. “Don’t hesitate to refer out to professionals because there are a lot of services that are running efficiently, even under COVID-19.
Source: Mortgage Broker News – by Clayton Jarvis08 May 2020
Up to 6% of Canadian home owners said they missed a mortgage payment recently as a consequence of the COVID-19 pandemic, according to a mid-April poll by Forum Research.
The survey also found that 76% will fail to pay another loan instalment before the crisis ends. Meanwhile, 46% were unable to secure mortgage deferrals and other similar forms of aid from their lenders, CMT reported.
Renters were hit especially hard, with 14% saying that they missed a payment recently.
Mobility restrictions and work stoppages since late March have severely affected householdsand landlords alike. The global outbreak has upended the national economy as a result, said Todd Skinner, TransUnion’s regional president for Canada, Latin America, and Caribbean.
“Whether it’s their health, financial well-being or changes in day-to-day living, the lives of millions of people in Canada and abroad have been dramatically changed,” Skinner said.
Data from TransUnion indicated that 57% of Canadians saw their incomes fall over the past few weeks. Another 10% are bracing themselves for further declines in the near future, with the possible losses pegged at an average of $935.
The most acute effects were seen among millennials and Gen Z-ers, TransUnion said. Approximately 78% and 74%, respectively, of these cohorts expressed fears about not being able to fulfil their monthly bills.
For the last three years or so, many investors have been asking the question, “When is the next recession going to happen?”
My take on it was that it was going to be caused by something unknown or unpredictable.
More specifically, I was thinking a war somewhere could cause some global uncertainty and plunge us into recession. Recently, that tiff with Iran looked like it could do the trick. But it ended up being something even more unpredictable: a war on a virus that knows no borders.
If you are a landlord, you must be thinking of your tenants’ ability to pay rent right now. Just last week we were talking with our property manager and putting together a plan to raise rents to market rates. Now that has been put on hold. Many landlords are offering incentives, credits, or even waiving rent next month.
There are a lot of other questions out there, as well. While the real estate industry hasn’t been hit hard yet, we’re starting to see deals fall out of escrow, sellers wait even longer to put property on the market, and investors wondering if that deal they’ve got locked up would be better put on hold.
Some sellers may panic sell to liquidate assets, but I haven’t seen that quite yet. I’d love to hear in the comments what you’re seeing in your market though!
All this to say, these are uncertain times. So, how is a real estate investor to navigate the treacherous waters ahead? Here are several principles to help you shape your investing strategy in times of uncertainty.
Investing in Uncertain Times: 5 Things to Keep in Mind
Principle #1: Have Patience
Since we can’t predict the future, patience needs to be exercised. If things are worse than expected, then the market may not bottom out for some time. We’ll need to be patient as landlords, as well.
Principle #2: Look for Opportunity
Times like these are when wealth is created. Many people, myself included, wish they would have bought up properties between 2009 to 2014 (give or take). Here’s an oft-cited quote from Warren Buffett:
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
For those who wish to acquire properties—and have the means to save or raise money in the meantime—now is the time to prepare for those opportunities that will most likely be coming down the road. (Of course, the optimal time to prepare is always two years ago.)
Principle #4: Continue to Learn
You should constantly be learning. But in times like these, it’s important to learn from your mistakes or assumptions you’ve made in the past.
The last few years, I thought that affordable housing was bulletproof (or close to it). My rationale was that even if a recession were to hit, the more affordable a place is, the more likely there is to be sufficient demand to maintain solid occupancy rates.
Now I’m not so sure. Blue-collar and hourly workers are most likely to be affected by the latest circumstances, and they are the ones to most likely be renting “affordable” housing.
Further, with schools now closed and children at home, the burden is on parents to care for their children first. Working from home and seeking out new employment will prove difficult.
Those with white-collar jobs or the ability to work remotely uninterrupted will be far less affected—unless the ripple effect in their particular industry hampers their ability to earn.
Principle #5: Be Optimistic
It’s important during tough times to maintain a sense of optimism.
I’ll be honest. This has been hard for me—I don’t like the disruption of routine and being told what I can or can’t do.
But we can’t dwell on the negative. This too shall pass (hopefully quickly). We’re in this together, so let’s put on a brave face, help each other out, and come out on the other side stronger, more resilient, and more grateful.
Picture your ideal vacation: a getaway from anything and everything that’s stressing you out, a place where you can feel restored, rejuvenated—and, let’s be real, enjoy a drink with a tiny umbrella in it while working on your tan. Aaah. That happy place doesn’t have to only exist in your dreams or require you to save up for a decade to visit it. What if you could go there any time you liked? It’s possible. Truly. Here’s how to create a backyard oasis that may rival any resort vacay.
1. PREP YOUR YARD
The average backyard renovation costs $7,500 to $10,000, according to HomeAdvisor data, and one major way to trim your expenses is to get your hands dirty. That means raking up leaves and clearing your existing planting beds of dead foliage and weeds, so you have a blank canvas to assess what you’re working with—and where your biggest opportunities lie.
MINT IMAGES/JONATHAN KOZOWYK/GETTY IMAGES
2. BEAUTIFY YOUR VEGETABLE GARDEN
Searches for victory gardens have skyrocketed in the past 90 days, according to Google Trends, but that doesn’t mean your new (or existing!) vegetable garden has to be an eyesore. With the help of Miracle-Gro® Performance Organics® consider using raised bed planters, container gardening or intermixing veggies and herbs right into your flower beds so that you maintain a sense of landscaping. It’s all about form and function here, folks.
3. CREATE A DESIGNATED LOUNGE AREA
Fact: To create a true getaway, you need a spot where you can kick back and put your feet up. Here are a few ideas to consider:
Whether it’s a long, rectangular table the whole family can gather round or a fold-up bistro table and chairs that can squeeze into the tiniest of spaces, a spot for enjoying dinner—or an early morning cup of coffee—is crucial. Two things that can take that experience to the next level? Upgrade the chairs with extra-cushy cushions (because the standard-issue ones are often pancake-like) and a tabletop pizza oven, which cost a fraction of the price of freestanding brick ones.
DAVE BOLTON/GETTY IMAGES
5. JUST ADD WATER(FALL)
Just like you design a room, your yard should have a focal point and nothing draws your eye quite like a small waterfall or fountain. (Plus, how soothing are the sounds of a babbling brook?) It doesn’t have to be a huge undertaking, either—dozens of styles, from faux-rock formations designed to complement your surroundings to sleek, ultra-modern models, are available online and require minimal setup.
ANNIE OTZEN/GETTY IMAGES
6. BRING ALL THE BUTTERFLIES TO YOUR YARD
Sweet alyssum, salvia and torenia are just three of the many flowering plants that will add color to your yard—and attract all kinds of hummingbirds, butterflies and bees. To help decide which plants are right for your landscape, check out the USDA’s hardiness zone map, which reveals what types of greenery can survive in your area, based on how cold it gets.
7. LIGHT THINGS UP
Just because the sun’s gone down doesn’t mean the party has to end. Low landscape lights along pathways, a trio of LED-filled lanterns near the patio furniture and a simple set of string lights overhead can create a romantic ambience that won’t leave your guests busting out their phone’s flashlights to move around. With these areas covered, you may very well become a staycation person. Just don’t be surprised if your neighbors keep finding excuses to drop by, too.
Mortgage refinancing in Canada is the latest domino to topple in the wake of the COVID-19 pandemic’s impact on our economy.
In fact, all forms of mortgage financing have been increasingly more challenging the past several weeks. Fortunately, most purchase transactions already committed to during these early transition stages are still going through.
Refinances are another matter though. They are uninsurable, so the lending risk sits squarely with the lenders; whereas purchase transactions facilitate changes of ownership, and the associated mortgages are a necessary and essential part of that process. Mortgage refinances are arguably a non-essential process.
When people refinance their mortgage, it is quite simply to get to a better place financially. For some, it is to reduce the mortgage interest rate, lower the monthly payment, and extend the term. For others, it is to extract equity from the home, often for one of the following reasons:
consolidating high-cost consumer debt
combining a second and first mortgage
financing home renovation projects
funding post-secondary education
assisting with a down payment for children buying their first home
paying off a consumer proposal early
funds to pay CRA tax arrears
tapping into home equity to help children with the down payment or closing costs on their first home
Market uncertainties have rendered most of these more difficult than a month ago, and in some cases impossible.
Three Reasons Why Mortgage Refinances Are Tougher For Canadians
The other day one major chartered bank announced:
“In view of the ongoing COVID-19 situation, the following changes are being made to lending policies affecting new applications submitted to us on or after Thursday, April 9, 2020. These changes are required due to declining employment, energy sector impacts, unstable property values, and restrictions on appraisers being able to access properties for appraisal reports.”
But as a result of COVID-19, there are three main reasons why mortgage refinances have become much tougher for Canadians…
More Stringent Scrutiny of Applicants’ Income and Employment
Lower Appraisal Valuations Than Expected
Lender Cutbacks in Maximum Loan-to-Value Ratio
1. Tougher Scrutiny on Applicants’ Income and Employment
Lenders are understandably skittish about income stability in the current market. They aren’t just worried about whether you have sufficient income today, but also whether your employment is safe and you will continue to have an income in the months ahead.
Canada lost a record one million jobs in March 2020 according to BBC News, and you can expect more layoffs and job losses as the full impact of COVID-19 becomes known. The Conference Board of Canada said on April 6th that a combined 2.8 million jobs could be lost during March and April, equal to nearly 15% of total employment.
Even though many of these job losses may prove to be temporary, no one knows.
And if you are in the business of lending money to people, you are going to be looking very carefully at all applicants’ employment income – both for what it is now, and what it might become when the current stay-at-home policy runs well past the month of April, as many experts feel it will.
Prime Minister Trudeau said recently [there will be] “No return to ‘normality’ until a coronavirus vaccine is available.” And that might not be till 2021!
What this means is that even if you had sufficient income to qualify for the desired mortgage amount two months ago, that might not be the case now, and as such, lenders have become more conservative and risk averse.
Mortgage Lenders Now Want to See All Income Documents Upfront.
If the borrower’s income and employment cannot stand up to scrutiny, there is no point going further. Here is what lenders are saying right now:
One Chartered Bank Says:
For any application using self-employed (BFS) income, in addition to standard income documents, the broker must provide us with a description of the business, when established, number of employees, and its current status (e.g., operating, shut down).
Note: we may request additional income documents or conduct additional due diligence at our discretion to verify current income/employment status.
Additional due diligence will be required to assess the viability of the business post COVID-19. To assist in the assessment, please consider asking your client for their most recent financial reporting, i.e., interim tax reporting.
One Monoline Lender Says:
If a borrower has been laid off, we will not use their income to service the file unless an exception is granted by us and the mortgage insurer (if required). Neither EI nor the Government of Canada Emergency Response Benefit are eligible for inclusion in qualifying income.
As you would expect, if your applicants do not work in one of these essential service sectors, we will require additional confirmation of their employer’s commitment for continued pay during the COVID lockdown.
We will not utilize any temporary Canada Emergency Response Benefits in qualifying calculations.
2. Appraisal Valuations Are Coming In Lower Than Expected
Appraisers rely on recent sales data to come up with comparable properties for their appraisal reports. But sales are down so much since mid March there are fewer to compare to. As reported in the Globe and Mail, Carolyn Ireland on March 31, 2020, wrote:
“Ontario remains under a state of emergency, and while the provincial government deemed most of the real estate industry “essential,” it did so in order to permit transactions to close – not to allow the industry to carry on with business as usual.”
And there is no incentive for appraisers to go high on their estimates – in the teeth of so much pessimism and conservatism. I think we will start to see more and more transactions fall off the rails because of low appraisal values.
Anecdotally, I’m seeing behavioural changes among appraisers that will lead to more values coming in lower than would have been expected a short while ago.
For example, some appraisal values are being submitted with a low, medium and high value. The other day a colleague had a mortgage amount cut back with a major chartered bank. The low was $1.5 million; the medium value was $1.6 million and the high value was $1.7 million. The bank had to take the medium value and the loan was cut back by 130k.
And, Actual Resale Values Are Starting to Drop
Rob McLister over at RateSpy notes, “If HouseSigma is in the ballpark, median GTA home prices are sliding hard in April. It estimates the median GTA home value is down to $740,000. That’s a 6% drop from the February peak of $789,000. Of course, these are just estimates and the data for April is volatile and incomplete.
“A couple of my sellers are nervous that things are going to get worse, so they’re taking what they can get.”
The fact is listings are down dramatically, and there are no open houses anymore. Buying a home for many is a luxury to be deferred till things settle down.
So the net is, it appears appraisers are being more cautious today, and there is nothing on the horizon that’s likely to change this. No one knows how fast buying activity will pick up when the dust settles from COVID-19, so cautious valuations are probably the new normal.
3. Lower Loan-to-Value Ratio Lending Maximums
Before COVID-19, only private mortgage lenders could refinance higher than 80% of the appraised value of a property. It’s against the rules for institutional lenders. Mind you, there are not many brave souls who want to lend over 80% these days.
One small bank has quietly announced they will only refinance to 75% of the appraised value. And many B-lenders, on their own volition, have already cut their maximum loan to value (LTV) to 75%, and that is in densely populated urban areas.
Their maximum LTV is less in rural areas and smaller cities. This percentage will face further downward pressure in the coming months.
And right now, private lenders are also exercising more caution than usual, pulling back on their maximum LTV. The individual retail lender has already gotten cold feet and isn’t at all happy over 50% LTV. Mortgage Investment Corporations (MICs) remain open for business at decent LTVs, but many are expecting higher overall returns on their capital.
These lower loan-to-value ratios, coupled with declining appraisal values, are shrinking the number of fundable mortgage refinance transactions.
Is There a Bright Spot for Refinances?
There’s an old adage that lenders like to give loans to people that don’t need it. That is probably more true today than ever, including for refinances.
In the United States, mortgage rates have already begun to fall quickly, especially for terms of 10 and 15 years, and there is rising interest among many to take advantage of a once-in-a-lifetime opportunity to refinance for a lower rate and radically reduce the remaining term of their mortgage. If you have sufficient equity that a light valuation doesn’t matter, and secure income, this could be a really great time to refinance.
This hasn’t happened yet in Canada, but could be the next phase for us as well. And, in general, if you have good enough income, have lived in your home for a while, and haven’t borrowed against your growth in equity, you may still be a good candidate for refinancing. (I’ll write more about this in a future article).
It’s a completely different world for mortgage refinancing than just a month ago.
Factoring together loss of income, lower real estate values, tougher appraisals, and lower loan-to-value ratios, it’s not hard to understand why the landscape for mortgage refinances has cooled considerably. Some refinances for specific types of borrowers will still be possible, but most of the typical cash-out deals we’ve seen for the last several years using home equity to solve debt problems, or large cash needs, are going to be fewer, and much harder to do.
Final word on this topic comes from respected industry veteran Ron Butler, who says, “Nothing will be the same for maybe the next two years. The old world of lending is gone.”
With incessant videoconferencing, the opportunity to recharge and rest your eyes between meetings is increasingly important.
I knew that working from home would be a massive shift, especially as spouses and kids became new “coworkers” for many individuals.
A problem I didn’t anticipate, which is coming up frequently for my time management clients with heavy meeting schedules, is Zoom fatigue.
Individuals that could make it through a day of in-person meetings with minimal issues have found themselves incredibly drained by a full docket of video calls. Many of us have been problem-solving for solutions to reduce the fatigue that can hit hard at the end of the day. Here are some of the most common culprits of the remote-work energy drain, as well as ways you can combat it.
A “ZERO BREAK” SCHEDULE
Even if it felt like you had no breaks between meetings before the coronavirus—you did. In order to get from one room to another, you had at least a few minutes of physical movement and a quick mental break. Now, with videoconferencing, you literally have no time between meetings and to go from one call to the next.
This marginless schedule saps your mental batteries. To avoid this issue, schedule your meetings with some short gaps in between, or make it a rule to wrap up one call 5-10 minutes before the next one begins. This gives your brain a short span of time to process the meeting’s substance, make note of next steps, and prepare for the next conversation.
ONE POSITION FOR ONE SCREEN
Another reason that video calls can be exceptionally tiring is that you need to physically hold yourself in one position. In an in-person meeting, you’d likely shift from side to side, tilt back in your chair, swivel from looking one way to another depending on who is speaking, and lean over to take notes. Unfortunately in a video call, you’re stuck in one place trying to stay in the center of the screen, and moving in any other direction can cause your face to become awkwardly cropped. Furthermore, if you move backward and have a virtual background on Zoom, your face will literally disappear into the ether.
There aren’t a whole lot of ways you can overcome this challenge during your calls unless you shut off your camera for a while. But you can work on intentionally moving your body more. One small shift is to alternate between standing and sitting during your video calls. You can do this using a standing desk or simply place your computer on a bureau to elevate it. Also in between calls, walk around and do some gentle stretching of your back, neck, shoulders, and arms. This will get your blood flowing and reduce mental fatigue caused by the physical fatigue of your muscles.
With the shift to virtual, you’re all of a sudden receiving a double dose of time in front of the computer. Not only are your work meetings shifted to all virtual meetings, but your personal time may be filled with video calls, as well.
Research says we blink half as often when we watch things on screens as we normally would with face-to-face interactions. This means our eyes have a higher probability of getting dry, irritated, and tired. A few suggestions seem to help. One is to practice the “20-20-20” rule where every 20 minutes you take 20 seconds to look at something 20 feet away. Another recommended tip is to take a break every two hours for 15 minutes so your eyes can have a rest.
VISUAL OVERLOAD FROM CONSTANT STARING (EVEN AT YOURSELF)
Unless you’re watching a panel discussion, it’s usually impossible to look at everyone in a group during in-person interactions. Typically, your gaze rests on the one main speaker and then everyone else is in the periphery or even behind you. But thanks to the glories (and more concerning attributes) of Zoom, you can see everyone all at once, along with one person you never usually observe—yourself.
This creates visual overload because when we look at a screen, whether it’s a computer or a TV screen, our minds are accustomed to processing what is in front of us as a unified whole. But a Zoom meeting in gallery view isn’t one unified whole. It’s the equivalent of trying to watch 5, 10, 20, or more different TV shows, side-by-side, meanwhile checking a mirror to see how you look. This is incredibly exhausting.
To overcome this visual fatigue, you can start by putting your Zoom into speaker view instead of gallery view. That way you’ll have the more “natural” sensation of having your focus on one main person at a time.
Another step you can take, depending on the meeting and your role within in it, is to stop your video camera for part or all of the call. This can give you the ability to change position in your chair like you normally would in a meeting and reduce the visual overload from looking in a tiny mirror throughout the call.
Finally, if it’s possible, do a phone call. When you’re looking to connect, video calls help a great deal. But when you just need to work through some practical items, oftentimes a phone call suffices and takes much less energy. With a phone call, you automatically eliminate three of these four issues. You’re not stuck in one place; instead you can at least shift in your chair or at times walk around the room while you talk. You don’t need to look at a screen. Most importantly, you don’t need to take in anything visually.
Until we can go back to in-person interactions, the increased fatigue from video calls won’t be fully eliminated. But by paying attention to these top drains to our reserves and appropriately addressing them, you can end your day on a higher, more productive energy level.
Source: Fast Company – BY ELIZABETH GRACE SAUNDERS April 14, 2020
Nearly 600,000 Canadians have so far taken advantage of some form of mortgage deferral assistance due to the COVID-19 crisis, according to the Canadian Bankers Association (CBC).
With the average mortgage payment amounting to $1,326, this has freed up roughly $778 million per month, according to the Canada Mortgage and Housing Corporation.
“This keeps money in the pockets of people who need it now,” the CBA noted. “Banks have publicly reported that more than 90% of those seeking a deferral are approved.”
But, of course, taking advantage of mortgage payment deferrals naturally comes at a cost. And that has been calculated at up to $12,000 in extra interest costs for those taking the full six-month deferrals, according to math from Integrated Mortgage Planners Inc. mortgage broker Dave Larock, published recently in the Globe and Mail.
Mortgage deferral costs for someone with a mortgage rate of 3% and amortized over 25 years (and assuming they just bought a house and immediately deferred payments) would amount to $2,082 in additional interest for a one-month deferral, $6,217 for six months and $12,346 for a six-month deferral, when added back into the life of the mortgage and assuming no extra repayments.
House Sales Down 14% in March
Home sales were down 14% nationally in March on the heels of the COVID-19 pandemic, according to the Canadian Real Estate Association (CREA).
The declines in sales volumes varied by region, with drops of up to 24.9% in Hamilton-Burlington, 20.8% in the Greater Toronto Area, 26.3% in Calgary and 7.9% in Ottawa.
“March 2020 will be remembered around the planet for a long time,” said Jason Stephen, president of CREA. “Canadian home sales and listings were increasing heading into what was expected to be a busy spring [but] after Friday the 13th, everything went sideways.”
Average prices came in at $540,000, unchanged from February and up 12.5% from last year. Excluding the higher priced markets of the Greater Toronto and Vancouver Areas, the average price comes in at $410,000.
Looking ahead to April, CREA senior economist Shawn Cathcart said this: “Preliminary data from the first week of April suggest both sales and new listings were only about half of what would be normal for that time of year.”
Mortgage Rates Falling
After a recent rise in fixed mortgage rates, they have since started to fall back down, with a number of big lenders cutting rates between 5 and 20 bps.
Rates are declining due to falling bond yields (which lead fixed mortgages), as well as a decline in risk premium costs for borrowers, according to a recent post on RateSpy.com.
“…the trend implies we could see conventional 5-year fixed rates dip at least 20 more basis points (under 2.50%), if funding costs don’t shoot much higher,” the rate-comparison site noted. “Few would have expected that a month ago. At the time, spooked investors were forcing banks to pay far more for their funding. Since then, the Bank of Canada, Finance Department and CMHC have committed to buying hundreds of billions in money market instruments, bonds and mortgage securities, putting a lid on rates.”
HELOC Borrowing Down
Home Equity Line of Credit (HELOC) borrowing growth continued to decelerate in February, falling to a rate of 1.6% year-over-year, according to data from OSFI.
That’s down from an annual rate of more than 7% in 2018.
“Despite the overall stabilization of home prices in recent years, HELOC borrowing has been persistently slowing since the start of 2019, noted a recent Scotiabank report. “It is unclear if borrowing has been actively declining due to a change of consumer preferences or due to limited ease of accessing these funds.”
Overall mortgage growth remained strong in February, although that will certainly decline as data post-COVID-19 starts to roll in.
“Recent economic turmoil will likely lead to weaker mortgage credit growth in the months ahead,” Scotiabank noted. “In March, the Canadian labour market lost over 1 million jobs and home sales rapidly declined in the month. Mortgage credit growth is expected to stall in the coming months as the Canadian economy remains impacted by the pandemic.”