Erryone, calm down!

We know I’m wordy! There is a time and place for being pithy. Today is not the time. This blog is not the place.  🙂  Metrics show that readers do love images, video’s, sound bytes,  easily digestible Top 10 lists and bullet-pointy blogs. So to satiate the masses, I’ll just plop this here …

Curious guy
Did You Know That These 12 Things Are Reporting On Your Credit Report?

I’m a fan of the bullet point too (as you’re about to see) but I’d rather the writer take me on a journey. When I read, I want to r-e-a-d. I need a beginning, middle, and an end. So throw an arc and twisting, turning subplots into how you managed that sugarless fudgy beet cupcake with chocolate avocado frosting; I’ll share it on my socials and I’ll be returning to your pages. Whatever you create in life, make it a masterpiece, Okrrrrr!

We understand that it is not easy to nutshell the dry complexity of government initiatives and changes to mortgage lending guidelines.  That is why we’re here!  As always, grab a cuppa and read on dear reader because there are two very significant factors that are keeping home owners and potential homeowners, renters, banks/lenders,  mortgage brokerages, real estate brokers and real estate investors on the edge of their respective seats right now.

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1. The newish (now 8 months old) mortgage ‘STRESS TEST’ rules

2. Ontario’s Fair Housing Plan

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Online, opinions about real estate bubbles and inevitable bursts are as ubiquitous as the general uncertainty; sifting through it all is very time-consuming and confusing because everyone seems to enjoy deliberating the seemingly volatile nature of the real estate and mortgage lending industries; likely because it’s easy to share an opinion if you’re not expected to justify your rationale.  In other words, there are events transpiring all around us in the worlds of real estate and mortgage lending that are beyond our control; the impacts vary greatly and no one can control eventualities that are caused by a collective mood.  Could a cooling, a downturn, in the market be the result of media-hyped, click-baity, governmental and social media hyperbole?

Understanding why this is truly happening will likely remain a mystery in the end; folks will theorize when it comes to pass because that’s what we do when we’re affected but not directly responsible – we theorize.  But today I am going to share what we know, along with a few informed assumptions as is our fiduciary responsibility to YOU if you are considering the purchase of a property and mortgage financing. Gimme a beat – I’m ’bout to break it down.

Clients and potential clients, friends and family have expressed their concerns over the recent changes to both mortgage qualification and housing reform; from how list pricing and sale pricing can be affected to how long it will take to sell a property, to how the changes to mortgage lending guidelines could affect their ability to qualify for the purchase they want/could have afforded/that they saved for. To understand where we are, we have to take a look at where we’ve been, right? Let’s look …

1. Ottawa launched new mortgage stress test rules for all insured mortgages on October 17, 2016.

[span class=”btn-bg”]Mortgage default insurance, commonly referred to as CMHC Insurance, is mandatory for down payments between 5% (the minimum in Canada) and 19.99%. Mortgage default insurance protects lenders in the event a borrower stops making mortgage payments and defaults on their mortgage loan. [cspan]
[cspan]The stress test is intended to ascertain whether a borrower can afford to repay a loan if interest rates go higher. The interest rate used to determine this is the posted bank rate of 4.64% despite the fact that several lenders offer mortgages at far less than that.

The goals are to rein in debt loads, to reduce high household debt, and to ensure that middle-class families buy homes they can afford if interest rates go up (or incomes go down). The expectation is that this would cool-down prices as well. By making it harder to obtain mortgage financing, real estate demand becomes limited, which could cause prices to drop or not increase as quickly.

The stress test appears to have impacted the first-time home buyer segment the most. First time home buyers are usually younger individuals and couples that have less job tenure and less income and they haven’t had a significant amount of time to save a large down payment.

[span class=”btn-bg”]With a household income of $80K and an insured mortgage, previously, one may have qualified for a purchase of $500K. With the new stress test, they may only be able to spend $400K, or less. [cspan]

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If potential new buyers pull back, the market will soften and construction will slow down; the rental market could tighten up because potential buyers will stay where they are. Potential consequences include real estate supply being light and prices once again rising by the time millennials’ have saved bigger down payments.

Toward late spring Toronto housing market started showing some strain – active listings rose significantly in May and prices dropped from April. Sales of existing homes across the Greater Toronto Area dropped 20.3 per cent in May from a year ago, while the average home price in the region fell about six per cent from April.

The Toronto Real Estate Board announced that there were 10,196 sales through the Multiple Listing Service (MLS) last month (May), down from 12,790 sales reported in May 2016. Detached home sales fell 26.3 per cent during the period and condominium apartment sales were off 6.4 per cent. [Source: The Globe and Mail]

The Toronto home market has not seen such substantial declines in both sales and prices since the recession of 2008.

2. Ontario’s rental and housing reform: 16 changes! This is what you need to know. And, bullet points!

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    • Expanding rent control to all private rental units
    • Introduce legislation to standardize language in rental leases and make other changes to the Residential Tenancies Act
    • Making sure multiresidential apartment buildings are charged property taxes at similar rates to other residential properties
    • A $125-million program over five years “to further encourage the construction of new rental apartment buildings”
    • Introducing a 15-per-cent “Non-Resident Speculation Tax” in the Greater Golden Horseshoe region
    • Partnering with the Canada Revenue Agency to strengthen reporting requirements and make sure taxes are paid on real-estate purchases and sales
    • Working to understand and tackle real-estate practices that allow “paper flipping” and other speculation
    • Reviewing rules for real-estate agents to “ensure that consumers are fairly represented”
    • Introducing legislation to let Toronto “and potentially other municipalities” introduce vacancy taxes.
    • Create new market housing and affordable-housing units with surplus provincial land
    • Creating a “Housing Supply Team” to identify obstacles to housing developments and work with developers and municipalities to address them
    • Establishing a group to advise the government on the housing market and the effects of the newly announced changes
    • Educating consumers on their rights in real-estate transactions
    • Giving municipalities “flexibility” to use property taxes to fuel development
    • Overhauling standards for elevator repair
    • An updated Growth Plan with municipalities to address density and “an appropriate range of unit sizes”

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      Though there are innumerable sources to draw from and seemingly as many conflicting opinions on the short and long term impact of the rental and housing reform (and the stress test), there are a few things that are currently crystal clear to us, such as:

    • Interest rates haven’t really moved one way or the other since these changes were implemented. We’ve seen nominal changes – nothing earth shattering, yet! We are hearing that interest rates may jump, but the Bank of Canada doesn’t announce its next decision on the setting of its key policy interest rate (the overnight rate target) until July 12, 2017. FYI: The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves; the Bank sets a target level for that rate. This target for the overnight rate is often referred to as the Bank’s policy interest rate.  S-o-o-o, July 12th is the next date that the banks may increase (or not) their interest rates as the Prime Rate will increase if the overnight rate increases.  Until then, it’s business as usual on the mortgage side (except for dealing with that pesky stress test!).

[span class=”btn-bg”]Prime Rate is also known as the prime lending rate; it’s the annual interest rate Canada’s major banks and financial institutions use to set interest rates for variable loans and lines of credit, including variable-rate mortgages. The prime rate in Canada is currently 2.70%. Banks will offer discounts on this rate. You may have heard of a mortgage product called the ‘variable’ rate (as opposed to the fixed rate). The variable product could be Prime -.40. Prime -.40 would be the discount. In this example, your interest rate would be 2.30 per cent (2.70% minus .40).To learn more about rates and mortgage products, click here![cspan]

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      • Interest in purchasing property in the GTA has waned. There are less people attending open houses and fewer offers on properties that would have been in bidding wars just 3 or 4 months ago.

      • List prices have started to drop slightly (comparatively speaking, of course) over the past week or two. We’re starting to see price reductions of $50,000.00 to $70,000.00 in some regions.

      • Listings are being removed from the MLS after several weeks of not selling. There are many reasons for removing a listing, but in the current climate it is safe to assume that it’s because sellers and sellers agents don’t want potential buyers to think that there is something wrong with the property and that that is the reason for the listing sitting for an extended period of time without selling. Some listings are reappearing with new, lower pricing. Others will likely reappear after the summer season and/or after the Bank of Canada announces any change to interest rates.

      • Broker insights, such as this post, are more valuable than ever. With all the different challenges in the mortgage and real estate industries, the consumer is looking for advice. The Mortgage Centre – Your Money Matters taglines “We work for you, not the lender” and “Your Family, Your Home and Your Money Matters” have never been more important to disseminate. Please do share.

To all of our clients, potential clients, friends and family … Your Money Matters does not focus on conjecture. We focus on facts. We focus on results. We focus on YOU.  We will continue offering the best products and services until the cows come home! July 12th is an important date so we’re keeping an eye on that, obvs!

Deconstruction helps us build. I’m not even being ironic. Please let me know if this has clarified the stress test and the rental and housing reform, the potential impacts, and the ambiguities.

Home with furniture patio / wooden deck at twilight.

Until next time, keep your head up, your shoulders back, s-t-r-e-t-c-h and repeat. Know that Your Money Matters is your trusted team for all things mortgages and real estate.   Tell the others!

Oh, I’m getting a drone with vid.  Listings will never be the same.  [That’s the arc …]

And a couple of optimistic quotes!

“The actual, or normalized, effect of the Ontario Fair Housing Plan remains to be seen. In the past, some housing policy changes have initially led to an overreaction on the part of homeowners and buyers, which later balanced out,” said Jason Mercer, director of market analysis with TREB, in a statement.

“No problem can withstand the assault of sustained thinking.” – Voltaire (1694 – 1778)

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Talk to you soon!

Roy Perreault

Operations Manager

The Mortgage Centre – Your Money Matters

2017 Brochure Cover - Watermark - 2MB

[Sources:  The Financial Post, The Globe and Mail, Investopedia, The Mortgage Centre, our brains]

Now, about that cupcake.

Anyone?