Tag Archives: millennials

Mortgage Leads From Facebook Messenger? Believe It.

 

Nine out of 10 mortgage professionals can’t generate good quality leads from the web. Are you one of them?

If you want to grow your mortgage business, you have to steadily and consistently generate good quality prospects and leads. However, the landscape is changing rapidly and moving in a direction where conventional marketing is becoming less effective at generating qualified and engaged prospects that you can turn into mortgage deals.

There’s both a huge problem and an even bigger opportunity here, depending on how you look at it. Smart brokerages will capitalize on this change in market behaviour and take advantage of it for significant growth.  Others will ignore it, and continue marketing themselves the way they’ve always done it, and risk being left behind.

With all the powerful tools we implement in our marketing and all the money we spend to get our message in front of the right people, we still fall far short of meeting people where they are and giving them what they need the way they want it.

But there has been no other option up to this point. Text-based email open rates continue to decline as inboxes are flooded with noise. And it isn’t slowing down.

  • Average open rate across industries: 20.8%
  • Average click rate across industries: 2.43%

 

People are shifting how they do everything from accessing music and media to searching for and purchasing products. It’s all going mobile through apps.

People are using their smartphones and tablets more than ever to search for and consume media, information, education, and to search for, research and purchase products and services.

And they’re using apps to do it instead of browsers.

Mobile More Prevalent Than Ever

  • People today have two times more interactions with brands on mobile than anywhere else—including TV, in-store, etc. (Google, 2017)
  • 80% of smartphone users are more likely to purchase from companies with mobile sites or apps that help them easily answer their questions. (Google, 2018)
  • 94% of respondents in a Facebook survey (of one million people) have a smartphone on hand while watching TV. (Facebook, 2018)
  • During TV shows, viewers paid attention to mobile 28% of the time, and during TV ads, they paid attention to mobile more than half the time. People ages 18–24 looked at their smartphones 60% of the time during TV ads, and people ages 45 and over did so 41% of the time (Facebook, 2018)

I hope it’s becoming clear that mobile is the future of the mortgage business and marketing online. Now, let’s look at how people are using their mobile devices.

Spam filters are becoming more strict and almost too good at restricting access, to the point where your content may not be seen by your prospective clients.

The experience is broken. When you click a link you have to leave your email client and move to another application to view the content. On top of that, people have become wise to text-based email marketing and are less responsive to it.

NBC News, 2018

What are They Doing on Their Mobile Devices?

Consumers are using apps on their mobile devices significantly more than web browsers to get things done.  And social media apps and messaging apps are at the top of the list.

It’s clear that people want an instant, seamless, frictionless experience that meets them where they are and gives them the power to do it their way. Apps give them that.

  • Apps account for 89% of mobile media time, with the other 11% spent on websites. (Smart Insights)
  • Users spend on average 69% of their media time on smartphones (Comscore, 2017)
  • In 2017, 95.1% of active Facebook user accounts accessed the social network via a mobile device (Statista, 2018)

Your customers are on Facebook and Facebook Messenger where it’s easier to reach them and get their attention.

What is Facebook Messenger & Why Should I Care?

Messenger is Facebook’s messaging platform and application. Think text messaging, but through Facebook and 100 times more powerful and better.

And 1.2 billion people use it monthly on both desktop through browser and on mobile through dedicated apps.

And everyone who interacts through Facebook Messenger has a Facebook profile, which means they can be targeted by ads.

Most importantly, this is a messaging app that people use to communicate with friends and family regularly so they’re very comfortable using it.  And it’s how they want to communicate.

So if that’s the case, wouldn’t it make sense to tap into that channel if you could?

Well you can, and it’s one of the best marketing decisions you can make, if you make it soon.

Why Use Facebook Messenger as a Marketing Channel?

Statistics show Facebook Messenger is a channel you should pay attention to.

  • Over 2 billion messages are sent each month between people and businesses. If you think Facebook Messenger is only for people and not brands, you’re wrong. (Inc)
  • 260 million new conversations are started daily. These are not just new threads between people, but between people and businesses too. This number will only grow. (Inc)
  • Messaging apps surpassed social networks in monthly active users sometime in 2015 according to a report on Business Insider.
  • Facebook Messenger has 1.3 billion users. That is more users than Snapchat, Twitter and Instagram combined. (Inc)
  • Messenger adds 100 million new users every five to six months. Facebook Messenger hit 1.3 billion users in September 2018. (Inc)
  • 64% of monthly Facebook users use messenger. (DMR, 2018)
  • Users have 7 billion conversations on Messenger every day. That’s over 2.5 trillion conversations every year. For comparison, Snapchat users send 3 billion photos per day. (Inc)

One of the Best Marketing Opportunities

By 2020, customers will manage 85% of their relationships with businesses without interacting with a human (Gartner).

Commerce is moving that way, whether you adopt it or not.

This tool and channel allows you to communicate with customers the way THEY want: one-to-one, on their phones or tablets, whenever is convenient for them.

It keeps your customers within the safety of Facebook and removes friction and barriers from the process, making it easier to move the relationship forward faster.

And, most importantly, Facebook Messenger marketing creates conversations, not leads. You don’t need a complex funnel when you interact with customers the way they want.

The result is a better experience for the customer and that translates to a better first impression of your brand, which leads to a whole host of benefits for both you and your clients in the long term.

So… let’s talk about what you would actually get out of Facebook Messenger marketing if you decided to implement it for your mortgage business.

Messenger Marketing – What’s in it for My Mortgage Business?

(Search Engine Journal, 2018)

1) Generates a conversation, not a lead.

In every other type of marketing you can do for your mortgage business, you’re never in an active conversation with the prospect in real time throughout the marketing process.

Marketing is meant to drive people to the conversation and make that conversation happen. Although, it can take a while. It’s never instant. Facebook Messenger makes this possible.

Now imagine this scene for a minute:

What if when you were watching a TV commercial, you could just walk up and press a button on the screen during the commercial and a conversation started right there between you and a person from that company?

That is exactly what happens with Facebook Messenger marketing. The customer clicks the ad and the conversation starts. The moment they click, they’re in an active dialogue with you and your brand.

That means you get to talk to them the moment they’re most interested in what you’re offering.

2) It gives the customer the simplest path to getting their problem solved without confusion.

It feels natural to them, so their guard comes down. Every time you have to leave one app for another to get something done, the friction reduces the likelihood you will turn them into a customer.

Most sales and marketing funnels are comprised of landing pages in one tool, a website on another platform, text-based email marketing in another tool, analytics in another tool…you get the picture.

That means that the user is going to have to figure out how to navigate through landing pages and multiple emails and website pages to finally get to the point where they can take the next step.

The image below is a comparison of a customer’s experience through a conventional landing-page funnel versus a Facebook Messenger funnel experience.

  • Each dot represents a touch.
  • Each red arrow represents a change from one software, app or device to another throughout the process.

The entire conversion process can take place almost entirely within Messenger. It’s a straight path to a solution.

That means prospects trust your brand faster and convert into a qualified lead and customer faster.

3) It’s automated, but not too much.

Once the user clicks the ad, they go directly to Facebook Messenger where the conversation is handled automatically by a Messenger bot.

A “bot” is simply a software version of a robot that you program to converse with users through Facebook Messenger just like a person…well, almost.

This means that your virtual assistant (the bot) is having a conversation behind the scenes with your prospective client, qualifying them, giving them more resources, gathering information about them, getting them interested and ready to talk to someone.

Then that prospect is handed over to the business to take over by phone or a scheduled appointment.

All of the lead generation and prequalification happens automatically.

4) Open up a channel four times more effective than email to communicate with your prospective customer whenever you want.

For someone to get value from what you send them, they have to consume it/access it/find it.

Facebook Messenger has an 80% open rate compared to text-based email with only 24%. Facebook Messenger has a 56% response rate compared to text-based email with less than 3%

Using Messenger Marketing in your Mortgage Business

Marketing is becoming harder and more expensive. People aren’t listening to channels like email and phone calls like they used to. They’re migrating to apps on their mobile devices to search for your services and products and do everything else.

With this huge shift in consumers to mobile, you need to have a strategy that focuses on reaching them there and engaging with them the way they want to do it – through apps like Facebook Messenger.

Let me ask you two quick questions.

1) Is your mortgage business positioned to take advantage of the mobile channel and channels like Facebook Messenger marketing rather than get left behind?

And…

2) Do you want to continue to generate leads that are getting more and more expensive by the day that hardly ever turn into conversations, let alone customers?

If your answer is “No” to either or both of the above questions, Facebook Messenger marketing could be the solution you need. If you want to explore this form of marketing for your mortgage business, or you have some questions, let’s connect and talk. Feel free to email me directly at javed@empression.ca

Source: Canadian Mortgage Trends – Javed S. Khan 

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How couples can save for a downpayment and stop arguing about money

According to a poll by the Bank of Montreal, 68 percent of Canadian couples surveyed cited fighting over money as a top reason for divorce, ahead of infidelity. Buying a home together only raises the stakes — bank accounts are merged, couples are collectively preparing for the biggest purchase of their lives and are budgeting together to chip away at a downpayment.

Octavia Ramirez is the founder of Paper & Coin — a financial coaching company that helps Millennials reach their personal finance goals. “Money can be a huge stressor in relationships. So why not get ahead of the problem?” she says.

Photo: Paper and Coin 

The finance pro is uniquely qualified to help couples. Since getting married, Ramirez has never once fought about money with her husband. “Obviously, I enjoy finances but it’s taken years of practice to get here,” she tells Livabl.

It all comes down to communication and understanding your partner’s unique worldview — especially when it comes to money. Dr. Katelyn Gomes (Ph.D., C.Psych), a clinical psychologist with CBT Associates, echoes this: “We each have unique personal histories that define our values, rules, dislikes and assumptions for living in and viewing the world — including how we spend money, save money, even what’s important in the home you purchase.”

Octavia Ramirez and Dr. Katelyn Gomes spill their tips for communicating about finances and, in turn, making your partnership even stronger.

Photo: James Bombales

1. Work together as a team by joining your accounts

“I often see couples not working together as a team by splitting their expenses. This divides your efforts and can interfere with what you’re trying to accomplish,” Ramirez explains.

When it comes to buying a home, Ramirez makes a case for joining your bank accounts, “When my husband and I get paid, it all goes into the same checking account and we move the money accordingly. We don’t treat it as my money, your money. Consider that both of your incomes together are the grand total.”

When couples put their savings into separate accounts, they also diminish their returns. “Splitting your accounts is a democratic way of doing things, but you won’t get as much bang for your buck that way,” she says.

Ultimately, if you’re in a serious committed relationship, be in a serious committed relationship. “If you divide things based on your separate incomes, it gives the person who makes more a leg-up versus feeling like you’re equally respected in the relationship,” says Ramirez.

Ultimately, you will both be living in the house together. If one person makes considerably less, going 50/50 can potentially lead to selling yourself short — and building resentment long-term.

Photo: Paper and Coin

2. Agree on your collective goals, then make a transparent budget

Ramirez often hears her clients explain that they have budgets — in their head. “It’s important to have a shared document that communicates your budget and spending at a glance.”

Before putting numbers into a Google spreadsheet, agree on your short-term and long-term financial goals with your partner. Working towards homeownership? Start by determining the cost of the house you want to buy, then work backwards to see how much you will need to save each year to make it happen.

“Once you know how much you’ll have to save in the year ahead, go back month-by-month and see what areas of your budget can be cut or if you can increase your income to reach that goal,” explains Ramirez.

Even if it means passing on your yearly vacation and doing a staycation, instead.

Octavia and Will Ramirez. Photo: Paper and Coin

3. Have regular budget meetings with your partner

Once you’ve set your budget and are tracking your expenses and spending, set monthly or bi-monthly meetings to stay on track.

“Getting a downpayment together is a huge accomplishment. It’s a long-term process and there are occasionally going to be slip-ups in your savings efforts. It’s important to come back together regularly to remind yourself of your ‘why’. Maybe you didn’t reach your goal one month. Don’t dwell on it for too long, and instead decide together to get back on the saddle,” says Ramirez.

Dr. Katelyn Gomes explains, “We have this tendency to incorporate comments from our partners using faulty or unhelpful interpretations. These are known as cognitive distortion and it includes things like mindreading, jumping to conclusions, catastrophizing or thinking of the worst-case scenario. When we think our partners opinion, wants or needs don’t align with our lens it can lead to difficulties in communication, clashes or arguments.”

When you keep the lines of communication open over your spending habits, it creates an opportunity to have the necessary dialogue to avoid miscommunications or jumping to conclusions.

“Whether it’s contentious or not, just showing up to have that conversation is really important to keep couples on the same page,” explains Ramirez.

Photo: Paper and Coin

4. Save for an emergency fund

To avoid major money stress down the line, Ramirez recommends having an emergency fund in place: “Before you buy a house, prioritize saving three to six months of expenses in advance. If you break up or someone loses a job, you won’t risk going into extreme debt while you figure out your next move.”

5. Stay in the loop, even if you aren’t handling the finances

If you’re the one to handle the finances, Ramirez recommends letting your partner in on exactly what’s going on — whether it’s your insurance policy, the status of the car payments, how much interest you’re paying on the mortgage, or how much credit card debt each person has brought into the relationship.

“Because I enjoy finances, there’s a temptation to not keep my husband in the loop,” says Ramirez. “But even when I handle everything, I always debrief him after. He knows the passwords for the bank accounts and where things go, so he can take over at any point. Having everything on the table encourages you to trust each other.”

Source: Livabl.com –  

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Renting Versus Buying: A Real Estate Expert Breaks It Down for Us

The renting versus buying dilemma is one my friends have started to face since they’ve begun leaving Manhattan and escaping to the suburbs (I’m still not there yet, but when I think about how much money I “throw away” each year on rent, it’s actually cringe-worthy). But, maybe it’s true when they say the grass is always greener. Buying doesn’t come without its own set of problems, considering both sets of my friends who recently purchased homes faced movers damaging their patio, gas leaks, and even a broken washing machine within the first week. (They’ve confided in me that their bank accounts are still recovering.)

Since we’re no experts on the topics, we decided to tap Scott McGillivray, a real estate/renovation expert and TV host, to get his professional take. “Neither renting or buying is intrinsically right or wrong,” he says. “It basically comes down to your goals and your lifestyle.” That being said, he encourages getting into the real estate market once you feel financially prepared to do so. And what if you’re worried about going all in? McGillivray suggests trying a practice mortgage in which for one year while you’re renting, you put aside the amount you’d have to pay as a homeowner (mortgage, property tax, potential repairs). This gives you a realistic idea of how your lifestyle and budget will be affected if you buy.

“If you can manage, go for it,” the expert says. “And the bonus is that at the end you’ll have some extra cash for a down payment.” Since renting versus buying is no small debate, we asked McGillivray to break down all the pros and cons for each. Keep reading to get the full scoop.

 

 

Source: MyDomaine.com – by 

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12 most affordable cities for millennial first-time homebuyers

Affordability stands in the way for millennials as one of the main barriers to homeownership.

But not all housing markets are created equal, and many cities offer this generation plenty of options within a price range they can afford.

“Millennials who dream of owning a home will have better luck if they move inland to places like St. Louis, Columbus and Pittsburgh,” Redfin chief economist Daryl Fairweather said in a press release. “These cities used to have economies that relied heavily on manufacturing, and during the recession a lot of young people moved away in search of jobs.”

With home price growth currently plateauing, the time for millennial buyers to strike could be now before that changes.

“However, now these cities have more diverse economies based on education, healthcare and technology, and there are open jobs with salaries that are high relative to cost of living. But millennials may want to move as quickly as possible because even in most inland cities the share of homes affordable to the typical millennial is shrinking as housing prices go up,” Fairweather said.

From just below the Mason-Dixon Line to the gateway to the West, here’s a look at the 12 housing markets with the highest percentage of homes affordable to millennial purchasers with median incomes.

Redfin calculated the share of homes in each housing market that were affordable during 2018 to households making the median income for millennials in that metro area, assuming a 20% down payment, an interest rate of 4.64% and a monthly mortgage payment no more than 30% of gross income.

 

12. Baltimore, Md.

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Median list price: $308,595
Median millennial salary: $85,562
Homes affordable to millennials: 81.3%

11. Raleigh, N.C.

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Median list price: $298,081
Median millennial salary: $76,729
Homes affordable to millennials: 81.4%

 

10. Oklahoma City, Okla.

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Median list price: $198,000
Median millennial salary: $60,462
Homes affordable to millennials: 82.8%

9. Indianapolis, Ind.

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Median list price: $190,000
Median millennial salary: $62,054
Homes affordable to millennials: 83.5%

 

8. Cleveland, Ohio

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Median list price: $164,900
Median millennial salary: $56,151
Homes affordable to millennials: 84%

7. Minneapolis, Minn.

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Median list price: $284,900
Median millennial salary: $83,933
Homes affordable to millennials: 85.1%

 

6. Kansas City, Mo.

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Median list price: $225,000
Median millennial salary: $71,313
Homes affordable to millennials: 85.2%

5. Hartford, Conn.

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Median list price: $249,900
Median millennial salary: $76,235
Homes affordable to millennials: 85.7%

 

4. Cincinnati, Ohio

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Median list price: $199,900
Median millennial salary: $68,511
Homes affordable to millennials: 85.9%

3. Columbus, Ohio

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Median list price: $215,500
Median millennial salary: $71,181
Homes affordable to millennials: 87.1%

 

2. Pittsburgh, Pa.

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Median list price: $179,900
Median millennial salary: $70,169
Homes affordable to millennials: 87.5%

1. St. Louis, Mo.

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Median list price: $189,900
Median millennial salary: $68,805
Homes affordable to millennials: 88.1%
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Source; National Mortgage News – Paul Centopani February 12 2019
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Rental market braces for influx of tenants

 

Rising interest and strict mortgage qualification resulted in fewer Canadians seeking homeownership than rental accommodations last year, and 2019 will bring more of the same.

“It’s going to continue,” said Marcus & Millichap’s Vice President and Broker of Record Mark Paterson. “People will continue renting rather than dealing with residential mortgages. The rental market right now can barely keep up with the vacancy rate in Toronto, for example, being around 1%.”

Competition for rentals will be even fiercer this year in urban centres and that will push rents upward, creating a spillover effect into satellite markets.

“The rental market will see an increase of 8-10% because of demand,” said Paterson. “Unfortunately for people trying to find affordable housing, they’re looking elsewhere in secondary markets. They’re priced out of city centres, and that means the talent pool for jobs will end up in secondary markets.”

The Marcus & Millichap’s 2019 Multifamily Investment Forecast Report notes that apartment projects have become more financially viable, as evidenced by 60,000 units in the pipeline countrywide. However, that’s little relief given how few vacancies there are.

“The number of occupied units grew by 50,000 last year, outpacing supply growth nationally just as 37,000 new apartments came online,” read the report. “The national vacancy rate declined to 2.4%, the lowest reading since 2002. A shortage of construction workers, a long approval process and higher development and financing costs are slowing the delivery schedule this year, curbing completions by roughly 2,000 units from last year’s total.”

“Historically, Canada has been heavily reliant on condominium owners to supply the rental market, filling the void that purpose-built rentals have not been able to close. Prices have climbed substantially for condo investors, though, slowing this practice… and pushing more residents in search of housing to the apartment market.”

While secondary markets will enjoy the dregs of Toronto’s renter pool, the city will remain popular with renters. As the city has matured into a leading North American tech hub, the vacancy rate is under even more pressure.

“Microsoft, Intel, Uber and other companies have plans to increase operations in the city and bring on new workers,” continued the report. “Amid its solid reputation as a top innovator in tech and a mature ecosystem that supports the industry, the GTA will attract young professionals in greater numbers this year. Many new residents choose to rent, not only due to barriers to homeownership, but for greater mobility and to be near local employers, restaurants and nightlife.”

Source: Mortgage Broker News – by Neil Sharma 31 Jan 2019

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The State of the Mortgage Market

 

Mortgage Professionals Canada released its marquis State of the Mortgage Market report last week.

While much of the media focus was on the report’s assessment of the mortgage stress test and its ramifications, the annual report was once again chock-full of enlightening statistics that help paint a picture of the current state of the mortgage market.

Author Will Dunning, Chief Economist of MPC, noted that consumer confidence is expected to dampen due to a “depressed” resale housing market and constrained house price growth.

“Housing markets across Canada were due to slow to some extent as a result of higher interest rates, but the reductions in activity that have occurred have been much larger than should have been expected, due to the mortgage stress tests, on top of prior policy changes that have constrained home buying,” he wrote.

We’ve extracted the most relevant findings below. (Data points of special interest appear in blue.)

*  *  *

The Mortgage Market:

  • 6.03 million: The number of homeowners with mortgages (out of a total of 9.8 million homeowners in Canada)
  • 1.6 million: The number of Home Equity Line of Credit (HELOC) holders
  • 11%: The percentage drop in resale activity compared to 2017
    • Resale activity is down 15% from the all-time record set in 2016.

Mortgage Types and Amortization Periods

  • 68%: Percentage of mortgages in Canada that have fixed interest rates (The percentage is the same for mortgages taken out in 2018)
  • 27%: Percentage of mortgages that have variable or adjustable rates (30% for mortgages taken out in 2018)
  • 5%: Percentage that are a combination of fixed and variable, known as “hybrid” mortgages (2% for purchases in 2018)
  • 89%: Percentage of mortgages with an amortization period of 25 years or less (84% for homes purchased between 2015 and 2018)
  • 11%: Percentage with extended amortizations of more than 25 years (16% for recent purchases between 2015 and 2018)
  • 22.2 years: The average amortization period

Actions that Accelerate Repayment

  • ~33%: Percentage of mortgage holders who voluntarily take action to shorten their amortization periods (unchanged from recent years)
  • Among all mortgage holders:
    • 15% made a lump-sum payment (the average payment was $22,100)
    • 16% increased the amount of their payment (the average amount was $450 more a month)
    • 8% increased payment frequency

Mortgage Sources

  • 62%: Percentage of borrowers who took out a new mortgage during 2017 or 2018 who obtained the mortgage from a Canadian bank
  • 28%: Percentage of recent mortgages that were arranged by a mortgage broker
    • This is down substantially from 39% reported in the previous report in 2017 (and 43% in 2016; 42% in 2015). While Dunning says the latest 2018 figure could be the result of a statistical anomaly, he also surmises that broker share may in fact be down. “The lending environment has become more challenging for brokers, especially since changes to mortgage insurance regulations are making it much more difficult for small lenders to raise funds via mortgage-backed securities,” he wrote. “It also appears that some of the large banks are becoming less reliant on the broker channel.”
  • 5%: Percentage of recent borrowers who obtained their mortgage through a credit union (vs. 7% of all mortgages)

Interest Rates

  • 3.09%: The average mortgage interest rate in Canada
    • This is up from the 2.96% average recorded in 2017
  • 3.31%: The average interest rate for mortgages on homes purchased during 2018
  • 3.28%: The average rate for mortgages renewed in 2018
  • 68%: Of those who renewed in 2018, percentage who saw their interest rate rise
    • Among all borrowers who renewed in 2017, their rates dropped an average of 0.19%
  • 3.40%: The average actual rate for a 5-year fixed mortgage in 2018, about two percentage points lower than the posted rate, which averaged 5.26%

Mortgage Arrears

  • 0.24%: The current mortgage arrears rate in Canada (as of September 2018)
    • “The arrears rate… ( 1-in-424 borrowers)…is very low in historic terms,” Dunning wrote.

Equity

  • 74%: The average home equity of Canadian homeowners, as a percentage of home value
  • 4%: The percentage of mortgage-holders with less than 15% home equity.
  • 56%: The average percentage of home equity for homeowners who have a mortgage but no HELOC
  • 58%: The average equity ratio for owners with both a mortgage and a HELOC
  • 80%: The equity ratio for those without a mortgage but with a HELOC
  • 92%: Percentage of homeowners who have 25% or more equity in their homes
  • 50%: Among recent buyers who bought their home from 2015 to 2018, the percentage with 25% or more equity in their homes

Equity Takeout

  • 10% (960,000): Percentage of homeowners who took equity out of their home in the past year (up slightly from 9% in 2017)
  • $74,000: The average amount of equity taken out (up substantially from $54,500 in 2017)
  • $72 billion: The total equity takeout over the past year (up from $47 billion in 2017)
  • $38 billion was via mortgages and $34 billion was via HELOCs (the HELOC portion is up from $17 billion in 2016/17)
  • Most common uses for the funds include:
    • $23.8 billion: For investments
    • $17 billion: For home renovation and repair
      • 55% of homeowners have done some kind of renovation at some point. 27% renovated between 2015 and 2018 with an average spend of $41,000.
    • $16.4 billion: For debt consolidation and repayment
    • $8.6 billion: For purchases
    • $6.2 billion): For “other” purposes
    • Equity takeout was most common among homeowners who purchased their home during 2000 to 2004

Sources of Down payments

  • 20%: The average down payment made by first-time buyers in recent years, as a percentage of home price
  • The top sources of these down payment funds for all first-time buyers:
    • 52%: Personal savings (vs. 45% for those who purchased between 2015 and 2019)
    • 20%: Funds from parents or other family members (vs. 16% over the last four years)
    • 19%: Loan from a financial institution
    • 9%: Withdrawal from RRSP (this has been trending down over the last decade)
  • 98 weeks: The amount of working time at the average wage needed to amass a 20% down payment on an average-priced home
    • This is down from 105 weeks in 2017, but nearly double the figure from the 1990s.

Homeownership as “Forced Saving”

  • ~43%: Approximate percentage of the first mortgage payment that goes towards principal repayment (based on current rates)
    • Down from ~50% in 2017, but up from 25% 10 years ago
    • Dunning notes that rapid repayment of principal means that “once the mortgage loan is made, risk diminishes rapidly”
    • He added that “net cost” of homeownership, “which should include interest costs, but not the principal repayment,” is low in historic terms when considering incomes and relative to the cost of renting equivalent accommodations. “This goes a long way to explaining the continued strength of housing activity in Canada, despite rapid growth of house prices,” Dunning writes.

A Falling Homeownership Rate

  • 67.8%: The homeownership rate in Canada in 2016 (the latest data available)
    • Down from 69% in 2011

Consumer Sentiment

  • 90%: The percentage of homeowners who are happy with their decision to buy a home
  • 7%: Of those who regret their decision to buy, the regret pertains to the particular property purchased
  • Just 4% regret their decision to buy in general

Outlook for the Mortgage Market

  • Data on housing starts suggests housing completions in 2019 will decrease slightly compared to 2018. “The data on housing starts tells us that housing completions in 2019 will be slightly lower than in 2018, but will still be at a level that results in a significant requirement for new financing,” Dunning writes.
  • “Another factor in the past has been that low interest rates mean that consumers pay less for interest and, therefore, are able to pay off principal more rapidly,” he adds. “Recent rises in interest rates are resulting in a slight reduction in the ability to make additional repayment efforts, and this will tend to fractionally raise the growth rate for outstanding mortgage principals.”
  • 3.5%: The current year-over-year rate of mortgage credit growth (as of September 2018)
    • Vs. an average rate of 7.3% per year over the past 12 years
    • Dunning expects outstanding mortgage credit to rise to $1.60 trillion by the end of 2019, from $1.55 trillion at the end of 2018

Source: Canadian Mortgage Trends – Steve Huebl Mortgage Industry Reports

Survey details: This report was compiled based on online responses compiled in November 2018 from 2,023 Canadians, including homeowners with mortgages, homeowners without mortgages, renters and those living with family.

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Why cash flow doesn’t matter

Although it may seem counterintuitive, cash flow is not the be all and end all of investing in real estate.

“Everyone has such a cash flow mindset, and don’t get me wrong, cash flow is amazing and will help support a different lifestyle eventually, but making those dollars year-over-year is where the wealth comes from,” said veteran investor Lee Strauss of Strauss Investments. “If you have an extra $1,000 in your pocket every year, the return on investment is dismal and doesn’t even add up. But if you take $26,000 year-over-year, now we’re talking.”

Strauss is, of course, alluding to tenants paying down a mortgage’s principal balance for the investor while the latter rides the property’s appreciation.

“On average for a single-family dwelling, the principal pay down is going to be about $6,000 a year,” he said. “The other reason is you have an income-producing asset that is hedged against inflation, and that income-producing asset appreciates, on average, 5%.

“If you purchase a $400,000 property and it goes up by 5% in one year, that’s $20,000 in the first year. Five percent appreciation plus mortgage pay down, which you’re not paying and will be about $6,000, is $26,000 in one year.”

Mind, appreciation is a compounding factor.

“After year three, you’re at about $460,000 on an asset you bought for $400,000, and it’s been paid for by somebody else for three years, so now it’s worth more. After three years, the pay down is $18,000. That’s why people have always invested in real estate; they just didn’t know it.”

Laura Martin, COO of Matrix Mortgage Global and director of Private Lending Hub, notes that the process by which equity is built can be expedited in a couple of ways.

“The first process is by lessening the amortization period and increasing the payments of the mortgage in order to pay it down faster. This means there would be next to no cash flow, but there will be less money going towards interest payments on the loan,” she said.

“The second way is to ‘force’ equity in the home by making improvements that will drive up the property’s value. It’s referred to as ‘forced’ because it doesn’t rely on the external factors of appreciation caused by the real estate market.”

Martin adds that the extent to which an investor ameliorates the property should be determined by how far below market value they paid for it.

Mortgages have some of the best terms available of any loan type, says Martin, and that flexibility can be leveraged to purchase more properties.

“At an average of 3.5-4% on a fixed mortgage with down payments of around 25% and with amortization periods at 25 years—coming across such favourable financing terms with other investments is highly unlikely,” she said. “There is also leverage, in terms of using the asset as collateral, to finance other properties, thus making an increase in net worth more attainable.”

Source: Canadian Real Estate Wealth – by Neil Sharma 24 Jan 2019

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