Wednesday, April 19, 2017

Bidding Wars – Cause or Effect?

What was once the phenomena of the two, major urban centres – Vancouver and Toronto -- has now bubbled over to smaller cities and communities within commuting distance of the big two. 
Bidding wars are now commonplace and can be both rewarding and stressful.

The numbers can vary to $10,000 to $20,000 over asking price, and that’s at the low end, to upwards of hundreds of thousands over asking. One house in Vancouver went for $1 million over asking recently – what seller is going to say no to that? But can the market sustain it? 

Sales of existing homes rose by 8% in February compared to the same month a year earlier, while the national average home price soared 17% according to a Canadian Real Estate Association (CREA) report.

Some experts point to these bidding wars as the cause of high prices. Others say that the phenomena is the result of lack of supply. It may be a bit of both. 

While sellers may be happy about cashing out, the problem becomes, where to go? And buyers, who want to buy a home may not have the financial means to get into a financial tug of war with other buyers. The stress alone may cause them to just stop looking.

Patricia Boon, a veteran Realtor, who has been working in the Woodstock area for 30 years is not happy with the way houses are being sold these days.

“I don’t feel good about what’s happening. No one is looking out for the buyer,” she said. “This is isn’t good for anyone. Why play a game with the most expensive item you’re ever going to buy in your life?”

In Woodstock prices are up 15% over last year and, similar to other cities, there is a lack of single-family homes available for sale, which is creating a perfect scenario for bidding wars as we head into the Spring market.

Even more concerning for Bonn are the offers that go in with no conditions. “It’s not unusual for appraisals to come back lower than the purchase price two weeks before closing, even with a pre-approval,” she said. “Then the buyer has to scramble to come up with more money for the down payment.”

Bonn recalls a time not too long ago when the housing market was facing a similar situation.  “When it was time to remortgage, homeowners could not qualify. Or the market had corrected and now the mortgage that was higher than the property value. Many people walked away.”

To Condition or Not to Condition

Purchasing with no conditions is a slippery slope. Mike Rogozynski, a mortgage broker with OMAC Mortgages Powered by TMG, who works out of the Woodstock area is seeing more out-of-town purchasers and investors coming into the area, which already has a lack of housing supply.

 “Realtors lining up offers is definitely a factor for making the case that bidding wars may inflate prices; however, it’s a fine line,” he said. “ We already have a growing demand and lack of supply.”
Rogozynski strongly advises his clients to always put in a financing condition, even if it’s just three business days. “Anything can happen, even with a pre-approval,” he said. “A key component is the property. An appraisal may come back with a lower value, or a home inspection may turn up something negative.”

The Appraisal

Many appraisers are looking for marketing support when they value a property. Lending decisions are made on a property’s fair market value, which is defined as the market value of an interest in land at the highest price reasonably expected when sold by a willing seller to a willing buyer after an adequate amount of time and exposure to the market.

So, who determines the value of that property? One could argue that the market itself determines the value, which may be true, but a lender wants to know if the purchase price is reasonable.  An appraiser, who is specifically trained and who has sufficient experience, will be asked to offer an independent, impartial written opinion of the property’s value.

Appraisals are done for a specific client -- the lender. Because real estate is the major security for mortgages, the market value estimate needs to be as accurate as possible. 

One appraiser we spoke to from the Brantford area, who wishes to remain anonymous, says he tries to get to the purchase price when evaluating a property but sometimes the sale is a few weeks ahead of the market. For example, appraisers will conduct a comparative analysis of similar properties in the area that have recently sold. If prices are increasing, it may not show up in their analysis yet.

 “I also get a lot Realtors telling me the client spent $50,000 to renovate a kitchen and expect it to value out at that amount, which is not the case,” he said. “The fact that it was an upgrade is considered and is an added value, but not the costs.”

“At the end of the day, we have to be realistic of a property’s true market value and be able to back that up with data.”

A Realtor’s role in rising house prices

A written response from the Canadian Real Estate Association (CREA) said the 'bidding war' phenomenon is usually limited to very active markets where strong demand overwhelms limited supply. Although other Canadian markets may see multiple offers for exceptional/rare/sought-after properties, at the moment it is in Toronto and environs where this occurs regularly.

Pierre Leduc, spokesperson for CREA wrote, “As a marketing strategy, a REALTOR® whose seller has a property that is: a) located in an in-demand area and/or b) a unit-type that is in high demand (e.g. 4-bedroom SFH with garage) may recommend to his client to accept written offers at a certain date/time, which provides potential buyers clarity on when and how this sale will occur.

“It is the buyer's responsibility to decide whether or not to participate in this type of sale, and ultimately, how much to offer,” he added.  “REALTORS® don't have any special persuasive powers to force their clients to offer more than they can afford, offer more than the lender will loan them based on assessed value, forego a home inspection or remove other conditions just to be the successful bidder.”

A free market?

Paul Taylor, Executive Director for Mortgage Professionals Canada (MPC) said it was probably unfair to vilify Realtors in a market that has a significant lack of supply. “The current market is driven by demand and there are so few single-family homes available.”

MPC has been working closely with the legislatures, sharing information and making suggestions. One idea is to include a minimum 3-day cooling off period for buyers so as to relieve some of the stress.

“We favour a free market system and we don’t want to get in the way of that,” he said. “However, there is increasing impatience among buyers who want to purchase, which increases the pressure they feel to make condition-free offers.  It’s tough to say what’s best in the long run.”

Bidding wars are indeed risky. If this is the only option, here are some tips:

  1.  Do your research -- learn about the market values in the neighbourhood. 
  2. Get pre-approved. Make sure your mortgage broker has all documents upfront. 
  3. Although conditions with offers may get sidelined, try to get a financing condition for at least three business days
  4.  Sometimes, it’s not always just about the money, so write a letter explaining why you want that particular house.

Good luck!

Monday, March 20, 2017

Stressing over the debt-to-income ratio? Don’t!

The debt-to-income ratio has hit the headlines again.  This time the ratio rose to 167.3 % in the fourth quarter of 2016 compared to 166.8% in the third quarter. That means for every dollar of disposable income, consumers owe $1.67.

This increase has been fuelled by mortgages and low-interest rates, which has some policy-makers getting antsy.  They’re concerned at what could happen if rates rise. Yet consumers have been able to pay their debt relatively easily. And low interest rates have allowed consumers to pay down more of their mortgage principal, with payments split almost evenly between interest and principal in the fourth quarter.

Benjamin Tal, Deputy Chief Economist for CIBC, isn’t having it and is calling an end to the debt-to-income ratio. In his weekly Market Insight he calls the ratio the most quoted number and the most useless economic indicator. The main reason is what the number is assessing versus what it doesn’t assess.

For example, it’s unlikely that consumers will pay off their mortgage in a year, yet the total debt amount is factored into the debt-to-income ratio.  Mortgage debt accounts for 65.5% of ratio.  The ratio also looks only at the debt of consumers who already have debt rather than the income of people with and without debt.  Perhaps not a totally accurate picture, then.

According to Tal, in a “normally functioning economy, debt will rise faster than income.”  The ratio is designed to rise and has only fallen twice in the past 25 years. 

Tal also pokes holes at the pace of increasing debt. Here are the numbers:

  • Total real household debt is now rising by just over 4%, in line with the recovery of the 1990s
  • Consumer credit is  rising by only 2.5%, slowest pace over the past 30 years (non-recessionary)
  • Mortgage credit rising by 5.2%, which is low
  • Household incomes rising at 2.5%, the long-term average
  • Seems pretty normal.

TD Bank economist Diana Petramala wrote “Debt growth has accelerated somewhat, but it is not growing at the double-digit pace that would typically be considered dangerous.”

Equifax has reported that 46% of consumers were decreasing their debt.

So, Tal is pretty clear when talking about debt -- make sure to say something about what’s included in that debt. The simple catch-all number may be too simple for a complex story.

If you are carrying high interest debt and want to talk about opportunities to consolidate by refinancing, speak with a mortgage broker.

Wednesday, February 22, 2017

What’s really going on in Canada’s housing market?

What are we to make of the mixed messages in the media? Are we in a bubble? Has the bubble burst? Are prices going up? Are prices going down? Are sales down or are sales up? Are new housing starts up or are they down? Is this a good time to buy? Are first time home buyers abandoning the market?

According to the Canadian Real Estate Association’s most recent report national home sales were down slightly from December 2016 to January 2017 by 1.3%. Yet actual activity in January was up 1.9% from the previous year. Newly-listed homes dropped 6.7% but prices were up; however, the average sale price has hardly changed in a year. What are consumers to make of it all?

Then there are the recent changes made in the mortgage industry that many say have further eroded affordability and have made it more difficult for first time home buyers to purchase a home. What is really going on?

Here’s what we do know – all real estate is local. In cross-country interviews, a snapshot emerges that concludes the following:

  1. There is a lack of supply in all provinces, which dampens market activity
  2. First time home buyers are still in the market but are now looking at lower-priced homes
  3. Many homeowners are taking a wait-and-see approach before deciding to list, which is contributing to the lack of supply
  4. High-end homes are the slowest to sell
  5. Spring is coming

Here’s what a sampling of TMG mortgage brokers say is going on in their provinces.

Katy Mackenzie, Vancouver, BC
Due to the introduction of the B.C. Home Owner Mortgage and Equity Partnership program, condos or strata properties are very attractive to first time homebuyers.  We’re seeing multiple offers still and the re-introduction of Realtors asking buyers for subject-free offers, which is always risky.  Even in cases where we can offer pre-approvals, and many lenders are not issuing those anymore, we all know that anything can change. Many lenders will not look at a deal unless there’s already an existing offer.

Detached homes in the Vancouver area are not moving because it’s become harder to qualify and homes over $1million dollars are not insurable so there are fewer buyers. The luxury home market has also gone quiet because sellers have not brought down their list price.

We’re seeing multiple offers on small sq-ft properties. For example, a 415 sq.ft unit sold for $24,000 over asking price, another went for $31,000 over.

First time home buyers are still there. With the new qualifying rules, those who were on the affordability margin have left the market. Some are discouraged but others are being pro-active and paying down debt. Those still in the market have the down payment but are looking for lower-priced homes.

February has been significantly busier. Home buyers are still active and are still qualifying in the $1 million and below price range.

Layne Walters – Calgary, AB
Contrary to popular opinion, the real estate market here did not correct much – prices have been the same here for 10 years. House values have roughly been the same. Because there are so many ups and downs, supply and demand is always adjusting.  There is a challenge in the high-end market but there is stability here – homes are more affordable now then in the 80s – it’s not any cheaper to rent.

It’s the economy that’s struggling here.  Half of the city works in the oil and gas industry and they have been impacted in the last few years. The other half of the population are still working and doing okay.

What I am finding, however, is more people taking the time to learn about mortgages and their options, getting pre-approved then waiting. There’s not an urgency to buy because they know prices are not going to rise.  The market is moving at a slower pace but it’s steady. People still buy when it makes sense for them.

The recent mortgage changes have had less of an impact. Affordability is not really an issue. Minimum wage has gone up and house prices have remained stable.  It’s a slow, steady market – boring actually, if you compare it to what’ s happening in Toronto and Vancouver. First time home buyers come in and ask what they can afford. We’re not impacted by the new rules as have other markets.

This year has some promise. The oil and gas industry is hiring again so there will likely be a migration shift back to Alberta. The economy is projected to expand. We do have inventory available – it’s going to be a slow, steady kind of year. Sometimes it’s good to be boring.

Amber Rambally, Saskatoon, SK
Market activity is starting to pick up here especially for homes that are priced correctly. New builds are sitting because they have been significantly overpriced, but we’re starting to see prices dropping in those as well. The market is flooded with new condos, but prices of older condo conversions have dropped significantly.

The resale market has stayed even in the last year depending on how much work they need. Houses built in the 80s, early 90s are good quality and are typically on larger lots and have held their value quite well. Bungalows from the 70s were priced high but have now become more affordable.

However, buyers have been hesitant about getting into the market because of the new mortgage rules.  There have been lay-offs due to the slowdown in the oil and gas industry but we’re seeing people going back to work.

Clients are asking more questions and wanting pre-approvals but I don’t see them making that decision to get into the market yet.

What is nice in this market is that first time home buyers don’t have to start in a condo, they can get into some single-detached homes. While the new rules may have impacted affordability, having the down payment has not been a challenge. I’m sure 2017 will be a growth year in the market.

Jeff Sparrow – Winnipeg, MN
The market is hot and has been on an upswing for the last 10 years. There are tons of new home starts and new developments -- we have one development in the south end that’s slated for 30,000 homes. That’s in addition to six other sub-divisions.

There’s also lots of activity in the resale market but due to lack of supply there are multiple bids – it’s the sign of the times.

We have lots of jobs – manufacturing, agriculture, blue-collar, white collar.  If you’re in the construction industry, you’re busy.

Winnipeg’s unemployment rate is low. Manitoba’s growth is slow and steady and very stable. I anticipate that 2017 will be a good year.

The mortgage industry here is competitive, not helped by the fact that we have the largest per capita population of credit unions in the country. We work hard each day for our business in a very active mortgage market, but we’ve been dealing with this for awhile. Our approach to working with clients has not changed – we educate them and we offer them options –something they can’t get from a bank.

We’ve also seen an uptick in first time, quality home buyers. These clients need someone to have an intelligent conversation with them about how the mortgage lending industry works. We usually win the client over.  We’re looking forward to 2017.

Mike Rogozynski – Woodstock, ON
Here’s the new normal -- lack of supply. We have buyers but nothing to buy.  When a desirable home comes on the market, Realtors set a day for offers, resulting in multiple offers.

I know this happens in many markets now but it does inflate the selling price. In these type of situations Realtors want no financing conditions.  This adds an extra challenge for mortgage brokers, so I make sure to have all documents beforehand and I really push the online application process, rather than an in-office meeting, to speed up the process. We haven’t seen skyrocketing prices yet, like in Toronto, but prices are increasing. Houses are also closing faster – 30-45 days in areas.

As for the mortgage rule changes, most people are not aware of them and are confused when told that someone with 20% down gets a higher rate than someone with 5% down. Even after it’s explained to them they can’t see the lender’s side of things. Even Realtors don’t understand it.

First time buyers are still in the market – they get a preferable rate because they usually have only 5% down -- and they tend to be much more educated about the market and mortgages.

Blake Wilson, Halifax, NS
Our market seems to be stable. Clients are looking for house a little earlier this year and Realtors are optimistic. Homes under a half million are doing well; over that, there are fewer buyers. New construction properties are selling well.

Mortgage approvals continue to be a challenge, especially among the self-employed and now first time home buyers, given the recent rule change -- affordability has eroded for them.  For example, I had approved a salaried electrician who had saved the 10% down payment for a Purchase Plus mortgage. With the introduction of the new mortgage qualifying rule, he had to now pay out his student loan to qualify.

I am also seeing a lot of confusion at the banks from customer representatives who don’t understand the rules themselves. Banks seem to declining more deals where we can get them approved because we have many options.  For example, I had one client declined by two banks and I had them approved in 24 hours.

This is a great opportunity for brokers.  I am bullish on 2017.

Tuesday, January 24, 2017

Buying homes in the millennial age

Late last Fall, Mortgage Professionals Canada (MPC) polled 2000 Canadians -- 540 were millennials (18-34-year-olds) -- across the country to get their feedback about the mortgage industry, mortgage brokers and the housing market in general.

Not surprisingly, millennials see the housing market quite differently than their parents and approach home ownership from the view of generating income.

Overall, four-in-ten agree that real estate is a good long-term investment and classify a mortgage as “good debt”.

Thirty-four per cent of First Time Home Buyers think that generating income from the property is important and 21% plan to rent out a part of their home. New homebuyers who renovated did so to add a rental space.

Now considered the “new normal” generating income from a property is more important these days to young people, whether as a direct investment or to help pay off their mortgage by renting out a portion of their own home.

Where does the down payment come from?

The rising costs of home ownership has been a barrier for many millennial home buyers who are challenged to come up with the down payment. However, their strategies are not unusual and are similar to the ways the boomer generation came up with their down payments. Here are the top three sources:

1. Personal savings (60%)
2. Gift from parents or other family members (19%)
3. RRSP withdrawal (12%)

However, in today’s market, it’s more like a race -- save for a down payment, then try to buy something before prices are unreachable. 

Importance of home ownership

A 2016 poll by CIBC found that home ownerships is important to young buyers, like most Canadians. According to the poll,  85% view home ownership as a priority.
More good news – millennials are well-prepared for home ownership but were a bit surprised that costs were slightly more than they expected. 

Who to call for a mortgage?

So, who do millennials call when they want a mortgage, mortgage broker or bank? Well, they’re almost equal-- 33% use their usual bank and 29% get a referral from family and friends as well as Realtors for a mortgage professional. Here are the top five reasons millennials like working with a mortgage broker:

1. To get the best rate
2. To get multiple quotes
3. To help with the paperwork
4. To get help with the process
5. Better customer service

Overall satisfaction with working with a mortgage broker is higher than those who worked with a bank – 78% compared to 69%.

While it’s true that mortgage broker share is trending upwards, there are still some challenges for the industry. The main challenge is broker awareness – millennials don’t seem to know how brokers can help them. 

However, once a home buyer works with a broker they tend to use that same broker again, if the broker continues to stay in contact. Seventy-seven per cent of 18-34-year-olds would like to contacted after the deal is finalized. That contact can be via newsletters, periodic updates about the mortgage industry, in-person meetings and/or phone calls.

Help for first time home buyers

Affordability is the key for millennials and in Ontario and BC they are getting a bit of help. The Ontario government is doubling the rebate on the land transfer tax for first-time homebuyers to $4,000.  

The Ontario Real Estate Association said the increased rebates of the land transfer tax will help more young families achieve their dreams of home ownership.

In BC, first-time homebuyers have access to an interest-free loan from the B.C. government. This new provincially-backed loan program matches the amount a first-time buyer has saved for a down payment -- up to $37,500, or five per cent of the home’s purchase price.

Bottom line: There is continued optimism about the housing market.

Friday, December 30, 2016

10 crystal ball predictions for 2017

We are living in uncertain times..again. So, what can Canadians look forward to in the upcoming year – the unpredictable, for sure; however, there are a few trends we can pretty much bank on – maybe.

  1.  Fixed rate mortgages are increasing. Since the U.S. election we have already seen some upward pressure on bond yields, which is one of the reasons fixed rates have increased.  The U.S. Federal Reserve has already started to raise its rates. This may put pressure on the Bank of Canada (BoC) to start raising the overnight rate in 2017 and into 2018. 
  2. Trade disputes with the US. The incoming president of the US has already said he will get tough on trade deals. Our softwood-lumber agreement will soon expire and you can be sure that will be a tough negotiation.
  3.  Oil prices may be higher – this is already happening, which may lead to improvements in  the economies of Alberta and Saskatchewan.
  4.  Provincial growth. Royal Bank of Canada expects Ontario and Manitoba to be co-leaders in economic growth in 2017 while Alberta could place third and British Columbia and Saskatchewan may tie for fourth spot.
  5.  The battered loonie may make some gains. Economist Todd Hirsch predicts the Canadian dollar will dip 70 cents early in the year, but will finish out the year at 78 cents. He also predicts the Federal Reserve will raise rates three times in 2017, while the Bank of Canada will sit on the sidelines until 2018. However, the loonie should stabilize and regain some ground toward the end of the year.
  6.  Economy will expand to 2%. Bank of Montreal economist Douglas Porter predicts that the federal government’s long-awaited infrastructure stimulus measures should boost the economy.
  7.  Changes to NAFTA & TPP. This could have a negative impact on Canada’s growth.  The bulk of Canada’s exports go to the US. However, the new president hasn’t said too much about Canada, yet. In a best-case scenario, our trade ties could get stronger.
  8.  The pace of home prices will slow, especially in B.C. The latest numbers from the Canadian Real Estate Association (CREA) and the freshest reading of the Teranet-National Bank home price index are already showing this trend. An ample supply of listings relative to demand is anticipated to keep price gains in check.
  9.  Help for first-time homebuyers. CREA predicts that housing sales, nationally, will decline, especially in BC and Ontario due affordability issues and tightened mortgage regulations. However, both provinces have introduced measures for first-time homebuyers to help with affordability.
  10.  Housing sales will rise by 3.5% in Alberta. This is a hopeful prediction for the hard-hit province.  Sales are also forecast to improve modestly in Manitoba and New Brunswick. Sales will ease  slightly in Saskatchewan, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

Happy New Year!

Monday, October 03, 2016

A new world view – the impact of the Millennial generation

The world has changed dramatically over the past eight years since the Global Recession hit in 2008. The biggest change and one that will have the biggest impact to future economies is the changing demographics of the world’s population.

Millennials (ages 18-34) have now surpassed the Baby Boomer generation (ages 51-69) and Gen X’ers (ages 35 to 50) will surpass Boomers by 2028. These two groups, Millennials and Gen X’ers,  are quite opposite to Boomers in their spending habits, in their lifestyle choices, and their personal goals and will have a definite impact on our economies worldwide
Their spending habits, for example, are vastly different: Millennials are thrifty, buying more but spending about a quarter less on average than Boomers or Gen Xers, according to a new TD Bank report.

Research has found that Millennials are “confident, self-expressive, liberal, upbeat and open to change.” There are also some interesting differences between them and older generations. Here is how they match up on what they consider the ultimate reward for paid employment:

  1.  Boomers want a prestigious title and the corner office.
  2.  Gen Xers want the freedom not to have to do something.
  3. Millennials prefer meaningful work.

About having children

  1.  Boomers are controlled, their children were planned.
  2. Gen Xer’s are doubtful about the possibility of becoming parents.
  3. Millennials are definite about parenthood and view marriage and parenthood as more important than careers and success.

Another important difference is that Millennials are savers, smart shoppers and very tech savvy.  They are better money managers than older generations and live within their means. Despite the burden of student debt they seem to have money.

The Sharing Economy

What older generations considered “must-haves” are no longer important. For example, 30% of Millennials do not intend to purchase a car in the near future. Instead, they like the idea of Uber. They like to travel but check out sites like Airnb. Hotels and rental car companies have already begun to feel the effects.

The Freelance Economy

The freelance or “gig” economy has been growing for the past 10 years.  Millennials like the flexibility of freelance work for its flexibility. One reason is they are vastly under-employed despite having the most education and freelancing has become a viable alternative.

What about housing?

They like the idea of home ownership. According to the TD Bank study, the top three priorities for Millennials before purchasing a home include saving for a down payment, paying off debt and having a steady job. And 63% of them are considering purchasing a home in the next two years. Because they are a generation of savers, nearly two-thirds are saving for a down payment, citing it as the biggest hurdle. Other key findings include the following:

  •  One-fifth of Millennials (19% ) plan to supplement their savings for a home with financial assistance from friends and family, and 65% plan to have a spouse or partner as a co-signer
  • They want to pay off their mortgages quickly.
  • Seventy-eight per cent want move-in ready homes. 
  • Seventy-seven per cent  percent cited mortgage rates as the most important factor when purchasing a home
  • Eighty per cent of Millennials feel commute time is key when purchasing a home. These location factors weigh heavily on their decision about buying in increasingly expensive urban housing markets.

Here’s what they don’t want to do:

  • Move into a smaller house than they initially desired (68%)
  • Sacrifice amenities e.g., convenient access to shops and services (81%)
  • Compromise on their top choice of neighborhood (80%)

The New Economy

While it’s hard to predict what will happen in the future, it’s clear that Millennials and the technology revolution have already impacted global economies. What they do, their attitudes and behaviours are leading indicators of what's to come -- what they do will shape the rest of the world. They represent a huge shift in how people learn about the world around them and how they engage in it. Perhaps it’s time for a rethink about what is “normal” in today’s economy and work towards adapting to the changes.

Friday, August 26, 2016

The state of the mortgage industry

By Mark Kerzner, President, TMG The Mortgage Group

Perhaps it's just that I am feeling a little nostalgic today or perhaps it's the Toronto heat and humidity starting to get to me, but I was curious to see just how far we, as a mortgage industry, have come over the past number of years.

There are many of you who were not working in this industry at the end of the last decade, a time when institutional 'A' lending included beacon scores of 620 or higher. In fact, there was a 'sandbox' that allowed lenders to extend as much as 3% of their loans to clients who had beacon scores as low as 580.

At the same time 'A' lenders were able to provide loans on stated income; 65% equity deals were commonplace; rentals and refinances could be had up to 95% loan-to-value; mortgagors could amortize to 40 years and purchasers could borrow with $0 down.

Perhaps we went too far.

On the policy side

When the Global Financial Crisis (GFC) hit, we witnessed a market collapse in the United States. Canadian regulators, policy makers and government did not want to expose us to the same fate. They enacted a series of regulation and policy changes, which did a good job to ensure prudent lending practices.

  • Amortization terms were reduced 
  • Loan-to-value limits were changed for refinances and rental properties. 
  • Restrictions on lines of credit limits were introduced
  • There were more stringent underwriting guidelines, including higher beacon scores.
  • And so on… 

And while recoveries were muted in other countries, our economy, fueled by a buoyant resource sector and low interest rates, allowed our housing market to remain robust. With low interest rates and a healthy housing market, prices continued to rise.

The increase in home values has been most noticeable in Toronto and Vancouver. Policy makers and regulators who were once viewing decisions based on ensuring strong credit standards are now also viewing decisions under the microscope of appreciating prices and increasing debt levels.

In the early winter of 2015/6, we saw the introduction of larger down payment requirements for higher-valued homes. We are now hearing about increased capital requirements for homes in certain geographic areas and most recently, there have been suggestions that we deal with supply side constraints with demand side policy restrictions. These latest recommendations are all in an effort to help slow down a housing market to prevent a potential crash.

On the mortgage supply side

Around the same time as the GFC started to impact liquidity, lending guidelines, etc., the composition of the Canadian lending environment also started to change.

First, a number of alternative lenders left the market; for example: Accredited and GE Money. Then, a number of 'A' lenders either shut down or stopped originating loans through mortgage brokers such as FirstLine, HSBC, ING, VanCity.

While we have lost a number of lenders, which has the potential to impact competition and ultimately the rates offered to clients, a number of new entrants have entered the market as well. RMG emerged stronger than before as well as Marathon Mortgages and Manulife Financial, to name a few.

And while guideline changes have made it much harder for many borrowers to qualify for 'A' lending products, there has been a resurgence in the alternative and private lending markets to fill that void.

Putting the two sides together

When I look back on our industry I feel a huge sense of pride. We have navigated through constant change with leadership and professionalism. In fact, broker share has grown from approximately 23% to 30% during these tumultuous times.

The strength of the mortgage broker channel is leading to consumers saving significantly on their mortgage costs as well. A 2011 study by the Bank of Canada said the average discount of borrowers who use a broker was 19 bps.

Even if that number of 19 basis points is overstating today’s savings and we reduce it by nearly half, say to 10 basis points, that means that of the approximate $75B in total mortgages originated by brokers, Canadians save nearly $75,000,000 (per year) in their mortgage payments.

Furthermore if the entire mortgage market is $225B in annual mortgage production and the remaining $150B not originated by brokers saved only 5 bps on their mortgage transactions due to the competition enabled by the broker channel, Canadians saved a further $75M in payments annually. Those funds could be used for spending or to pay down more expensive forms of debt.

The mortgage industry was once thought to be a low risk, moderate return business for the banks. It certainly was not front page news. Today, discussion about interest rates, home values, qualifications, and economic drivers from housing seems to be part of our regular conversation. As Canadians access more and more information, they continue to select mortgage brokers to present them with options to help them secure home financing solutions best suited for their unique needs.