Tag Archives: first-time buyers

HOUSE HUNTING IN THE MIDST OF A GLOBAL PANDEMIC

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:

  1. Always wear a mask and gloves.
  2. If you have a pre-existing health condition, I would recommend avoid doing in-house viewings
  3. Only visit homes where the current owners or occupants have vacated the homes to allow for the viewing.
  4. Avoid touching personal items and appliances as much as possible.
  5. Do not under any circumstances view a home at the same time with another individual or family not connected to you
  6. Ensure your realtor is also wearing personal protective equipment and maintaining physical and social distancing guidelines.
  7. 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

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Wave of homes could hit market when support programs end: RBC

Photo: James Bombales

Toronto, Vancouver and many other major markets across Canada began the year in seller’s market territory with high demand for housing and tight supply giving home sellers the upper hand in transactions.

The COVID-19 pandemic abruptly changed that, shifting the national market away from favouring sellers and into balanced territory. And more changes are coming, according to RBC, which published a housing report this week that predicted more listings will be coming online in the months ahead, potentially tilting the supply-demand balance into buyer’s market conditions.

In a note titled “Canada’s Housing Market Woke up in May,” RBC Senior Economist Robert Hogue wrote that, to date, listings supply and buyer demand have mostly ebbed in lockstep during the pandemic. This alignment has allowed the market to maintain balance and prices to remain steady, so far.

There were hints that this was shifting in national home sales data for May published by the Canadian Real Estate Association (CREA) this week. New listings spiked 69 percent in May from their April lowpoint while sales rose 57 percent. While this may not appear to be a significant mismatch, Hogue believes there’s further supply and demand “decoupling” ahead for the market.

“The delay in spring listings will likely boost supply during the summer at a time when homebuyer demand will still be soft — albeit recovering. The eventual winding down of financial support programs is also poised to bring more supply to market later this year,” Hogue wrote.

“Economic hardship is no doubt taking a toll on a number of current homeowners — including investors,” the economist continued. “Some of them could be running out of options once government support programs and mortgage payment deferrals end, and may be compelled to sell their property.”

The federal government announced this week that the Canadian Emergency Relief Benefit (CERB) would be extended for another two months, with the scheduled end date now pushed back to early September. The maximum period that one can receive CERB payments was increased from 16 weeks to 24 weeks. Mortgage deferral programs being run by Canada’s large banks are also set to end in the fall.

In commentary published yesterday, Capital Economics’ Senior Canada Economist Stephen Brown wrote that the huge sums paid out through CERB since March have seemingly offset the losses to household income suffered during the same period. This will allow for a stronger economic recovery than was previously anticipated, he wrote.

But even in his relatively upbeat take, Brown said that household income is likely to still fall eventually as employment will remain lower than its pre-pandemic level even when CERB ends in September. He went on to point out that high-earners who lost jobs during the pandemic and are now receiving CERB will have certainly taken a hit to household income, which will bode poorly for the housing market.

When it comes to the anticipated shift from balanced conditions to a buyer’s market for Canadian real estate, Hogue predicted that the timing will be different depending on the market.

“We expect the increase in supply to tip the scale in favour of buyers in many markets across Canada, some sooner than others,” Hogue wrote.

“Vancouver and other BC markets, for example, could see buyers calling the shots as early as this summer. It could take a little longer in Ontario, Quebec and parts of the Atlantic Provinces. Buyers already rule in Alberta and Newfoundland and Labrador.”

Nationally, Hogue predicted a seven percent decline in benchmark home prices from pre-pandemic levels by mid-2021. However, he wrote, “a widespread collapse in property values is unlikely.”

Source: Livabl.com – Sean MacKay Jun 17, 20200

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Genworth and Canada Guaranty Won’t Adopt CMHC’s New Mortgage Rules


Following the announcement of CMHC’s new mortgage rules last week, Canada’s other two mortgage insurers, Genworth Canada and Canada Guaranty, confirmed today they will not be following CMHC’s lead.

“Genworth MI Canada Inc….confirms that it has no plans to change its underwriting policy related to debt service ratio limits, minimum credit score and down payment requirements,” the company said in a release.

Similarly, Canada Guaranty said it “confirms that no changes to underwriting policy are contemplated as a result of recent industry announcements.”

To recap CMHC’s mortgage rule changes, the following will apply to insured mortgages (those with less than 20% down payment) as of July 1, 2020:

  • Maximum Gross Debt Service (GDS) ratios will be lowered to 35% (from 39%)
  • Maximum Total Debt Service (TDS) ratios will be lowered to 42% (from 44%)
  • The minimum credit score needed to qualify will rise to 680 (from 600) for at least one household borrower
  • Many non-traditional sources of down payment that “increase indebtedness” will be banned
    • It has been confirmed, however, that borrowers will continue to be able to use a loan from their RRSP through the Home Buyers Plan, a home equity line of credit (HELOC) on one of their second properties, or a HELOC on a property owned by their parents if the money is gifted.

“We acknowledge the potential ‘pro-cyclical’ negative impacts on housing markets of CMHC’s decision to tighten underwriting,” CMHC CEO Evan Siddall wrote on Twitter in response to criticism. “However, the benefits of preventing over-borrowing far exceed these costs. Not acting also exposes young families to the tragic prospect of foreclosure.”

Why the Other Insurers Won’t Adopt the New Rules

In explaining its decision, Genworth Canada President and CEO Stuart Levings said the company’s current underwriting policies for insured mortgages already allow it to “prudently” manage its risk exposure.

“Genworth Canada believes that its risk management framework, its dynamic underwriting policies and processes and its ongoing monitoring of conditions and market developments allow it to prudently adjudicate and manage its mortgage insurance exposure,” Levings noted, “including its exposure to this segment of borrowers with lower credit scores or higher debt service ratios.”

Similarly, Canada Guaranty said it has been well-served by its existing underwriting criteria over the years and sees no need to make adjustments now.

“Canada Guaranty utilizes a dynamic underwriting process where our underwriting policies are consistently updated to reflect evolving economic environments and emerging mortgage default patterns,” Mary Putnam, VP, Sales and Marketing of Canada Guaranty, said in a release, adding this has resulted in the lowest loss ratio in the industry.

“Recent insurer announcements relating to down payment and minimum credit score represent a very small component of Canada Guaranty’s business, and we will continue to be prudent in these areas,” she said. “Given implementation of the qualifying stress test and historic default patterns, Canada Guaranty does not anticipate borrower debt service ratios at time of origination to be a significant predictor of mortgage defaults.”

Observers saw the announcements as a positive for borrowers who will continue to have some options in the markets should they not be able to meet CMHC’s stricter qualification standards.

“We like this decision,” noted National Bank of Canada analyst Jaeme Gloyn. “The decision will help soften potential negative impacts to the housing/mortgage market as we argued against tinkering with mortgage underwriting criteria in light of the COVID-driven housing market slowdown.”

NBC had estimated that CMHC’s new rules relating to debt service ratios and credit scores could have impacted up to 20% of CMHC-insured borrowers.

Impact of CMHC’s New Mortgage Rules

So what are the impacts of CMHC’s new rules on borrowers shopping for high-ratio mortgages?

CIBC’s Benjamin Tal estimates the change will mean about 5% of homebuyers will no longer be able to qualify for a mortgage.

For those who can, it will mean a reduction in their buying power.

“Fewer people will qualify for a mortgage, and if they do, the maximum they can borrow will be around 10% or more less than it is right now, ” wrote Ross Taylor, a mortgage agent with Concierge Mortgage Group.

Taylor notes that a household earning $120,000 would currently qualify for a mortgage of around $565,000 plus insurance. With CMHC’s stricter rules, that same household would only qualify for a mortgage of approximately $502,000 plus insurance costs.

“…keeping good credit hygiene is more important than ever if you want to buy a home, especially if you need mortgage insurance,” Taylor adds.

Source: Steve Huebl· News Mortgage Regulations·June 8, 2020

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Industry Reaction to CMHC’s New Mortgage Rules


Obtaining mortgage insurance for a home purchase is about to become more challenging on July 1, particularly for first-time buyers.

The Canada Mortgage and Housing Corporation (CMHC), Canada’s national mortgage insurance provider, unveiled stricter underwriting policies on Thursday for insured mortgages. The measures include:

  • Limiting Gross Debt Service (GDS) ratios to 35% (from 39%)
  • Limiting Total Debt Service (TDS) ratios to 42% (from 44%)
  • Raising the minimum credit score to 680 (from 600) for at least one borrower
  • Banning non-traditional sources of down payment that “increase indebtedness”

“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” said CMHC CEO Evan Siddall in a statement.

“These actions will protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”

What do the Changes Mean for Buyers?

CMHC’s changes will effectively reduce homebuyers’ purchasing power by up to 11%, according to RateSpy.com.

“Someone earning $60,000 with no other debt and 5% down could afford approximately 10.9% less home under CMHC’s new rules,” the site noted. “That’s like jacking up the minimum stress test rate from 4.94% (where it lies today) to 6.30%!”

Roughly 18% of CMHC’s high loan-to-value originations had a Gross Debt Ratio of more than 35%, according to a report from RBC Economics.

And about 5% of CMHC’s originations had credit scores of less than 680, according to data from Mortgage Professionals Canada.

CMHC Going It Alone?

One of the biggest questions since a leak of the new rules made the rounds on Thursday has been whether CMHC’s competitors, Canada Guaranty and Genworth Canada, would have to adopt the stricter underwriting measures as well.

According to the RBC Economics report, they won’t, at least not for now.

“Genworth Canada (MIC) and Canada Guaranty (CG) confirmed to us that they have not been told to adopt any or all of the same underwriting changes,” the report notes. “…although we would not be surprised if they were to eventually adopt some (e.g., down payment sources, credit score) or even all of the changes.”

For what it’s worth, that same report notes that it’s “interesting” that CMHC delivered the announcement, since mortgage insurance market changes have historically been announced by the Department of Finance.

Mortgage Industry Reaction

The announcement elicited wide-ranging opinions from throughout the mortgage industry. Here are some of them…

“I think the changes are well-intentioned, but poorly timed. I understand the rationale, but the people most at risk of default are already in their first home and insured. Disqualifying purchasers now won’t improve the quality of the portfolio already at risk,” Mortgage Professionals Canada CEO Paul Taylor told CMT.

“If house prices do soften, from a public policy perspective, that’s precisely the time to bolster support for first-time buyers. Making homes more difficult to finance will, once again, reserve properties for purchase by the already well-capitalized.”

Taylor added that the timing of the announcement, in the midst of a global pandemic, could further slow the market, on top of the 9-18% home price reductions forecast by CMHC.

“The Federal government is spending billions of dollars to support a struggling economy,” Taylor said. “These changes actively suppress activity.”

Ron Butler of Butler Mortgages Inc. also understands CMHC’s motive, acting essentially as an insurance company.

“They must be prudent in the face of an economic disaster,” he said. “It’s hard to argue against better credit scores when you’re insuring a $940K mortgage. (And) 680 is simply a proper credit score.”

And while first-time buyers may face the brunt of this policy change, Butler noted they can easily choose a lower-cost property, which may be easier in certain regions compared to others.

“Ultimately, I’ll  take these changes over a 10% minimum down payment any day,” Butler said, referring to the policy change floated by Siddall several weeks ago.

Wrong Time to “Tinker” With Policy

While many understand where the policy adjustments are coming from, others are adamant that now is the worst time to implement such changes.

“I would argue against tinkering with mortgage underwriting criteria in light of the pandemic-driven housing market slowdown,” True North Mortgage Founder and CEO Dan Eisner told CMT. “Some of these changes may be needed, but the timing is questionable…it’s as silly as buying an umbrella after a flood. Now is the time to be encouraging economic activity.”

Asked which measure will be the most restrictive for first-time buyers, Eisner said first-time buyers will be most-impacted by the increased income requirements.

“Keep in mind, this change arrives not too long after the Department of Finance implemented the qualifying rate stress test, which already pushed many homebuyers out of the market.”

Responding to critics, CMHC CEO Evan Siddall wrote on Twitter: “We acknowledge the potential ‘pro-cyclical’ negative impacts on housing markets of CMHC’s decision to tighten underwriting. However, the benefits of preventing over-borrowing far exceed these costs. Not acting also exposes young families to the tragic prospect of foreclosure.”

Some, including Butler, foresee a brief increase in home-buying as people rush to purchase before the new rules take effect.

“There will be a minor spike in sales based on this change, and then comes the September Cliff,” Butler said, referring to an expected drop in activity once the widespread mortgage deferral programs come to an end this fall.


Source: Steve Huebl · Mortgage Broker News · June 5, 2020

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FOUR STEPS TO BUYING YOUR FIRST HOME

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Raymond C. McMillan BA., Mortgage and Real Estate Advisor – May 4, 2020

A few years ago, I was listening to a program on a local television station and they were discussing the benefits of investing in the stock market and renting over buying your own home. The guest on the program believed it made more sense to pay rent and invest in the stock market, than purchase a home. Then the TV host asked him if he owned his own home, and he responded “yes”. At that point, I turned the television off.

Many will say that in some cases homeownership is overrated. I strongly disagree. Owning a home is one of the fastest ways to grow your net worth and start the journey to creating generational wealth. Not only is growing your net worth important but it is a proven fact that children who grow up in homes, display better overall social character traits.

Buying your first home is much easier than you think, if you have a plan. There are four basic steps in the journey of homeownership. These are: understanding your credit and debt, your down payment, your employment and sources of income, and finding the right home

Understanding Your Credit and Debt: Your credit plays an important role in purchasing your home. Your credit profile or credit report gives the lender a snapshot of the way you manage your finances which determines if you are a good or bad credit risk when it comes to lending you money. This is done by reviewing your credit report. Your credit report is made up of information collected by three agencies and is shared with lenders. The agencies are Equifax, TransUnion and Experian. The agencies use a scoring system to determine your credit worthiness. The score ranges from 360 to 850, with 360 being the worse score and 850 being the best. Ideally your score should be within the range of 620 to 750*. The credit score is determined by how well you pay your bills and how much is owed on credit cards and instalment loans. If your bills are not paid in a timely manner, and you carry high credit card balances, your credit score will be lower. If your bills are paid on time and you have low outstanding balances on your credit cards, you will have a higher credit score. To check your credit score, you can contact one of the three major credit reporting agencies: Equifax Phone: 800-685-1111, Experian Phone: 888- 397-3742 and TransUnion Phone: 800-909-8872.

Down Payment: The next step in the home purchasing journey is having your down payment. Your down payment is the required funds the lender needs you to have to qualify for the home you are purchasing. This can range from 3% – 20% of the home purchase price.  The minimum amount of down payment required is 3% of the purchase price of the home. Therefore, if you are purchasing a home for $300,000.00, your minimum required down payment will be a minimum of $9,000.00. Where do you get these funds? It could be a gift from family, money you saved over time or a loan. If it is a loan, you will have to ensure that you are still able to qualify for the mortgage with this additional debt. Once you decide to go house hunting you will be required to have this money readily available. Remember, you will also need money for your closing costs. These closing costs include but are not limited to your lender fees and title fees.

Employment and Sources of Income: The lender will look at are your income sources. This will allow them to understand your ability to pay for the home you intend to purchase. Prior to beginning your search for a home, you should examine your budget to determine how much you can comfortably afford to pay monthly for your mortgage. Remember, home ownership should be enjoyable, not a stressful experience. So, what are the main income sources? These include salary and hourly wages, commission income, self employed income, alimony and child support, investment income, pension income and income from a trust. Note any sources of income that are used for the mortgage application, will be validated by the lender.

Your Home: This is without a doubt the most exciting part of the home buying process, and the one that needs careful analysis. Now that you have knowledge of our credit rating, have your down payment and have been pre-approved based on your income, it is time to determine what home works best for you. My recommendation is to assess your needs. If you are single a condo may work best. If you have a young family, then it many be important to have a backyard for the children. If you work in the city, it may be important to be close to transit. There is much to be considered when determining where to buy your first home. You want to ensure the neighbourhood works for you, because you may be there for a while. Some things to consider are: is it close to transit? What are the schools like if you have school age children? How close or far it is from your family and friends? What is the crime statistics like? Is it a declining or improving neighbourhood? Are there parks and cycling and running trails close by? I am sure you have some of your own things to add to this list.

Now that the four steps have been outlined, it is now time to put your home buying team together.

 

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

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Should I Buy a House During the Coronavirus Crisis? An Essential Guide

Spring is upon us, which typically involves a big peak of home buyers checking out properties, negotiating, and closing on new places. But the coronavirus outbreak—with its quarantine measures and economic uncertainties—has many a real estate shopper wondering: Should I buy a home now, or wait?

We’re here to help you navigate this confusing new normal with this series, “Home Buying in the Age of Coronavirus.”

This first installment aims to help you figure out whether you can—and should—shop for a home right now, or hold off until this crisis blows over. Read on for some honest answers that will help you decide what to do.

The impact of the coronavirus on the housing market

So what state is the housing market in right now, anyway? While that depends on how bad an outbreak an area is suffering, most markets are feeling some sort of hit.

“The coronavirus is leading to fewer home buyers searching in the marketplace, as well as some listings being delayed,” says Lawrence Yun, chief economist for the National Association of Realtors®.

The latest NAR Flash Survey: Economic Pulse, conducted on March 16 and 17, found that 48% of real estate agents have noticed a decrease in buyer interest attributable to the coronavirus outbreak.

However, nearly an equal number of members (45%) said that they believe lower-than-average mortgage rates are tempting buyers to shop around anyway, without any significant overall change in buyer behavior.

For those who are determined to buy a home, there is opportunity out there.

“This is the best buyer’s market I have ever seen in my career,” says Ryan Serhant of Nest Seekers and Bravo’s “Million Dollar Listing New York.”

“Sellers are nervous, there’s excess supply, and interest rates have been hovering at historic lows. You can own a home for less per month than you can rent an equivalent property in most areas,” he adds.

With fewer home buyers out there looking, you have less competition in your way.

“Unmotivated and uncommitted buyers have dropped off,” adds Maggie Wells, a real estate professional in Lexington, KY. “Less competition is a huge leg up in this market.”

The window of opportunity for buyers won’t stay open wide forever. NAR data shows that there was a housing shortage prior to the outbreak.

“The temporary softening of the real estate market will likely be followed by a strong rebound, once the quarantine is lifted,” says Yun.

This pent-up demand could eventually push home prices higher. That could mean that the time to strike for bargains is now.

Bottom line: If social distancing has made you realize you don’t love the place where you’re currently spending most of your time, it’s a good time to consider buying.

How the housing industry has adapted to keep buyers safe

Although it’s a scary time to be out and about checking out real estate, it is still possible to do so and stay relatively safe. The industry has rapidly adapted, introducing approaches that minimize exposure to the virus.

For instance, many agents are now working remotely and conducting most of their business virtually.

“Buyer and seller consultations have transitioned to virtual meetings with success,” says Kate Ziegler, a real estate agent with Arborview Realty in Boston.

While open houses or showings may not be easy to arrange because of quarantine or other safety issues, real estate listings have stepped up to the plate by offering virtual tours.

“We can send clients videos of whatever properties they want to see, or we are happy to have our agents FaceTime from a property,” says Leslie Turner of Maison Real Estate in Charleston, SC.

While those who are immunocompromised may want to stay home, if you’re otherwise healthy, it is also still possible to see some homes in person in some parts of the country. You’ll want to take some precautions before you go.

“Hand sanitizer at the door has become the norm, as well as shoe covers, even on sunny days,” says Ziegler.

During the tour, it’s also now customary for the listing agent to open all doors, so that home buyers can explore closets and other enclosed spaces without touching anything as they look.

If you do make an offer that’s accepted and you head to the closing table, real estate agents and attorneys are also adapting to remote closings, to keep you out of a crowded conference room. (We’ll provide more information about virtual tours and remote closings in later installments.)

How to weigh economic concerns

Coronavirus aside, anyone thinking about buying a home is also likely to be weighing whether it’s a smart idea when the economy is in a downward spiral. But in the same way you can’t easily time a stock purchase to make a profit, you can’t easily time a home purchase, either.

“Recession or not, it’s impossible to time the market, whether for buying stock or buying real estate,” says Roger Ma, a New York–based financial planner and owner of lifelaidout.

Just keep in mind that while current market conditions offer an incredible opportunity for home buyers to lock in historically low interest rates for a mortgage, rates are actually going up quickly, because so many people are refinancing.

If you wait too long to buy, you may miss the money-saving boat. So make sure to read up on the latest mortgage rates first.

Besides mortgage rates, home buyers are probably wondering about the stability of their income, as fear of layoffs loom.

“We are entering uncharted territory,” says Michael Zschunke, a real estate agent in Scottsdale, AZ.

On the flip side, putting a property under contract now and locking in a low interest rate gives a buyer some control at a time of relative uncertainty, adds Turner.

The takeaway from all this? It matters more than ever to get pre-approved for a mortgage, to calculate your home-buying budget accurately.

If you’re worried about layoffs, you should buy a home well under budget so you have enough money left over for closing costs, home maintenance, and a rainy day fund. Now is the time to crunch your numbers more carefully than ever before. Below is what you need to consider.

  • Research ways to reduce your closing costs. For instance, many loans allow sellers to contribute up to 6% of the sale price to the buyer as a closing-cost credit.
  • Figure out how much you need to set aside for yearly home maintenance and repairs. A smart budget is to have between 1% and 4% of the purchase price of your home.
  • Be sure to put aside an emergency nest egg for unexpected repairs. On average, it’s a good idea to sock away 1% to 3% of a home’s value in cash reserves.

In our next installment, we’ll explore all the ways to conduct a house hunt safely. Stay tuned! In the meantime, here’s more on buying a home during a recession.

Source: Realtor.com –  | Apr 6, 2020
Margaret Heidenry is a writer living in Brooklyn, NY. Her work has appeared in the New York Times Magazine, Vanity Fair, and Boston Magazine.
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The real estate game in Canada has new rules

COVID-19 has changed the way Canadians shop for homes and that may not change, says Phil Soper, president and CEO of Royal LePage.

“The impact of COVID-19 on the Canadian economy has been swift and violent, with layoffs driving high levels of unemployment across the country. While is it sad that these people skewed strongly to young and to part-time workers, for the housing industry, the impact of these presumably temporary job losses will be limited as these groups are much less likely to buy and sell real estate,” says Soper. “From our experience with past recessions and real estate downturns, we are not expecting significant year-over-year price changes in 2020. Home price declines occur when the market experiences sustained low sales volume while inventory builds. Currently, the inventory of homes for sale in this country is very low, matching low sales volumes as people respect government mandates to stay at home.

“It is easy to mistakenly equate a handful of transactions at lower prices to a reset in the value of the nation’s housing stock. Distressed sales that occur during an economic crisis are a poor proxy for real estate values.”

The Royal LePage House Price Survey and Market Survey Forecast released this week says the aggregate price of a home in Canada is expected to remain remarkably stable through the COVID-19 pandemic.

“If the strict, stay-at-home restrictions characterizing the fight against COVID-19 are eased during the second quarter, prices are expected to end 2020 relatively flat, with the aggregate value of a Canadian home up a modest one percent year over year, to $653,800,” says Soper. “If the current tight restrictions on personal movement are sustained through the summer, the negative economic impact is expected to drive home prices down by three percent to $627,900.

“In December 2019, Royal LePage forecast the national aggregate price to increase 3.2 percent by the end of 2020. Due to COVID-19, expected price growth has been revised down almost 70 percent compared to Royal LePage’s base scenario.”

The market will return looking different, says Soper.

“As we ease out of strict stay-at-home regimens, sales volumes will return; traditional home sales practices will not,” he says. “The popular open house gathering of buyers on a spring afternoon is gone, and it won’t be coming back any time soon. The industry is leveraging technologies that allow a home to be shown remotely and social distancing protocols, where we restrict client interaction with our realtors to limited one-on-one or two meetings, will continue for months and months. This process is inherently safer than a trip to the grocery store.”

Soper presents two scenarios

• “If the fight against the coronavirus requires today’s tight stay-at-home mandates to remain in place for several months more, with no semblance of normal business activity allowed, temporary job losses will become permanent and consumer confidence will be harder to repair,” he says. “This would place downward pressure on both home sales volumes and prices.”

• “Equally, if the collective efforts of Canadians slow the spread of the disease to manageable levels, and if promising science and therapeutic drugs are announced, people will return to their jobs, market confidence will bounce back quickly, and we could see Canada’s real markets roar back to life, with 2020 transactions delayed but not eliminated.”

Source: thesudburystar April 18, 2020 12:12 PM
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Required downpayment amounts vary across Canada

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Housing affordability is becoming a top priority for voters in the upcoming federal election, says Penelope Graham, managing editor at Zoocasa.

“However, given the vast geographical size of Canada and its many market nuances, buyers’ ability to purchase a home varies widely depending on local prices and incomes,” says Graham. “The Canadian Real Estate Association has noted a growing gap between price growth in Eastern and Western Canada, with improved affordability concentrated in the Prairie markets, as well as parts of the Maritimes.”

Zoocasa conducted a study to find out how feasible it would be for households on a median income to purchase real estate in Canada, finding median-income households would be able to afford the local benchmark-priced home in eight markets of the 15 markets studied.

“In the remaining seven, a median-income earner wouldn’t qualify for a mortgage large enough to fund their home purchase and would need to supplement it with a hefty downpayment, which, in some urban centres, would require a savings timeline that spans decades, assuming they set aside 20 percent of their total income each year,” says Graham.

In determining the extent of affordability for median-income households, Zoocasa calculated the maximum mortgage they’d qualify for in each region, assuming a three-percent interest rate, 25-year amortization and that the equivalent of one percent of the total home purchase price would be put toward annual property taxes. An additional $100 per month for heating costs was also factored into the calculation.

“Similar to CREA’s observations, Zoocasa’s calculations reveal housing affordability is most prevalent in the Prairies, accounting for five of the most affordable markets,” says Graham. “In these cities, home buyers with a median income would qualify for a large enough mortgage to purchase the average or benchmark priced home, so long as they have the required minimum downpayment of five percent.”

A median income wouldn’t get far in the British Columbia and Ontario real estate markets, says Graham..

“In Greater Vancouver, where the benchmark home price is $993,300, a median-income household earning $72,662 would qualify for a mortgage of only $241,994, leaving a shortfall of $751,306, 76 percent of the total purchase price. That would take a household setting aside 20 percent of their income annually a total of 52 years to save the required funds,” she says. “Fraser Valley and the Greater Toronto real estate markets round out the steepest three, requiring median-income households to come up with 70 percent and 63 percent of purchase prices of $823,300 and $802,400, respectively, requiring prospective buyers to save for 42 and 32 years, respectively.”

Top 5 Most Affordable Cities for Median Income Households

Average
Price
Median
Income
Maximum
Mortgage
Required
Downpayment
Savings
Time
1 Regina $267,900 $84,447 $264,685 $13,395 1 year
2 Saskatoon $290,800 $82,999 $287,310 $14,450 1 year
3 Winnipeg $292,198 $70,759 $288,695 $15,771 1 year
4 Edmonton $321,300 $94,447 $317,444 $16,065 1 year
5 Calgary $420,500 $99,583 $415,454 $21,025 1 year

Source: The calgary Sun – Myke ThomasMore  Published:

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In the $1.6-trillion mortgage market Canadians don’t even understand the basics

Houses and townhouses are seen in an aerial view, in Langley, B.C., on Wednesday May 16, 2018. (Darryl Dyck/CP)

When it comes to mortgages, a government survey finds most Canadians don’t know their terms from their amortizations

 

It’s no secret that the financial literacy of Canadians is tenuous at best, but given the fact that households are carrying $1.6 trillion worth of residential mortgage debt, we should be particularly nervous about just how yawning the knowledge gaps are when it comes to the basics of a mortgage.

survey conducted for the Financial Consumer Agency of Canada and the Bank of Canada and made public this week found when it comes to simple mortgage terminology like “term” and “amortization” most Canadians are hopelessly lost.

According to the survey slightly more than half of consumers failed to correctly identity what “mortgage term” means. Only 49 per cent offered purely correct responses like “the years you have a mortgage/contract term,” “the length of time you are committed to a mortgage rate,” or “the length of time before renewal.”

Canadians have an even shakier grasp on what “amortization” means  — while just over one quarter (28 per cent) of the general population could offer a proper definition of the word, they also said things in their answers that made it clear they didn’t fully know what they were talking about.

Fewer than one per cent of Canadians could give a strictly correct definition for amortization as “the time to pay the mortgage in full.”

Just so we’re clear, the amortization period is the length of time it will take you to completely pay off a mortgage (generally 25 years) while the mortgage term is the length of time you commit to a specific mortgage rate and conditions with a lender (usually five years).

While the above responses from the survey reflect the mortgage knowledge of the general population, even those people specifically targeted in the survey who have a mortgage or plan to buy a home in the next five years had only a marginally-better understanding of mortgage basics. As the survey results note, “three-in-10 in the target audience … do not know what the phrase ‘amortization period’ means,” which suggests a large number of people plunged into the biggest financial decision of their lives with a dubious understanding of the core terminology in the documents they were signing.

“The responses indicate that there is a significant lack of knowledge about mortgage terms among both the general population and the target audience,” wrote the authors of the survey. The survey, which was published was conducted by Ipsos Public Affairs and involved interviews with 5,000 Canadians between May and June 2019.

The findings were meant to establish the “baseline knowledge” Canadians have about mortgages as part of a larger quest: to find out what Canadians know about long-term mortgages and why they don’t chose that option more.

In fact just as the survey was getting underway last May, Bank of Canada governor Stephen Poloz gave a speech in Winnipeg where he made an impassioned (well, for a central banker, at least) case for the financial industry and Canadians homebuyers to embrace longer-term mortgages. It was part of a broader call by him for innovation in the mortgage sector.

While fixed-rate mortgages with terms longer than five years are widely available, they’re little used — just two per cent of all mortgages issued in 2018 were fixed-rate loans with terms longer than five years, according to the Bank of Canada. Yet Poloz sees a lot of benefits to both consumers and the financial system if that number were to rise. For one thing, he said, a longer term means fewer renewals and hence less risk that when households do renew it will be at a higher rate. (Poloz acknowledged a longer-term mortgage will have a higher interest rate, but for some homebuyers the trade-off for lower risk will be worth it.)

As for the financial system, the fact that nearly half of all mortgages in Canada carry fixed-rate five-year terms means that when interest rates do start to rise again, which they will, a whole lot of borrowers who took on massive mortgages in recent years will be up for renewal each year. “Simple math tells you that of all those five-year mortgages, roughly 20 per cent will be renewed every year,” he said. “That is a lot of households. If all the mortgages were 10-year loans, only 10 per cent of these homeowners would renew every year.”

Based on the survey results Poloz has his work cut out for him — only one-in-10 homeowners or likely buyers can correctly define both a mortgage term and an amortization period and at the same time even know that mortgages with terms longer than five years exist in Canada.

 

Source: Macleans.ca – by Jan 16, 2020

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Canadian buyers increasingly worried about qualifying for mortgage

Canadian buyers increasingly worried about qualifying for mortgage 

Ninety-two percent of Canadians see at least one barrier to home ownership, and two of the top concerns are related to the mortgage process, according to a recent survey from Zillow and Ipsos.

Canadians report feeling pressured by stricter mortgage regulations that went into effect in 2018 and Zillow’s survey found that 56% of Canadians see qualifying for a mortgage as a barrier to home ownership—a six-point increase from 2018. This concern rises to 64% for consumers who recently purchased a home, likely linked to the impending mortgage regulation changes at the time of their home search.

New and stricter mortgage requirements took effect in January 2018 with the addition of a stress test, requiring borrowers to qualify under a higher rate. The rule only applies to newly originated mortgages and is designed to prevent borrowers from taking on more debt than they can handle if interest rates go up. Since its passing, buyers’ worries are growing according to the survey. Half of Canadians (51%) say they are specifically concerned that stricter rules will prevent them from qualifying for a mortgage, up five points since 2018.

Steve Garganis, lead mortgage planner with Mortgage Architects in Mississauga, said that the concerns have risen due to more information flowing to consumers.

“Canadians are surprised to learn that even a large down payment won’t guarantee you a mortgage approval. Got 30%, 40%, 50%, 60% down payment and great credit? Guess what?  You still may not qualify for a mortgage. This is ridiculous, in my opinion,” Garganis said. “Those of us with years of experience in risk mitigation and credit adjudication know that if you have a large down payment, the chances of default are slim and none. Chances of any loss to the lender is nil.”

Younger home shoppers also feel the weight of the law. Sixty-nine percent of younger home shoppers, those between 18-34 years old, are concerned about qualifying for a mortgage under the stricter guidelines. This worry is also present for current renters who may be considering the purchase of their first home: 66% express concerns about mortgage qualification under stricter guidelines.

This despite a recent CMHC survey that found homebuyers were overwhelmingly in favour of the stress test, agreeing that the measure would help prevent Canadians from shouldering mortgages that they couldn’t afford.

Garganis added that more Canadians are being forced back to the six big banks, as smaller lenders now have more costs in raising funds to lend. This results in Canadians paying more than they should.

Most people have heard the buzz word “stress test” but don’t really know what it means or know the specifics of what it did, said Jeff Evans, mortgage broker with Canada Innovative Financial in Richmond, B.C. He thinks that the higher qualifying standard is “quite unreasonable,” and that the government has “taken a hatchet to anything to do with helping the average Canadian to own a home.”

Evans says that Canadians have a right to be concerned, although there’s no sign of their concerns hampering their desire to purchase a home.

“Life has gone on. They qualify for less, the market has gone down primarily because of the changes the government has made, so it’s starting to get more affordable again and people are gradually coming into the market as it becomes more affordable, “Evans said.

Other perceived barriers to home ownership include coming up with a down payment (66%), debt (56%), lack of job security (47%), property taxes (46%), not being in a position to settle down (15%), or not being enough homes for sale (13%). Only 8% of Canadians claim not to see any barriers to owning a home.

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