Tuesday, September 30, 2014

Talk of housing bubbles may be just hot air

The latest housing price statistics from the Canadian Real Estate Association (CREA) has created a buzz in the media and talks of bubbles and an overvalued housing market have resurfaced.  According to CREA, the average house price has risen 5% over last year.

What that number does not show, however, is the lowered house prices in many markets such as Saint John and Victoria, for example. The red-hot markets in Vancouver, Calgary and Toronto are skewing the average according to CIBC economists Benjamin Tal and Avery Shenfeld and more than one-quarter of the sales are now in cities where house prices are increasing by less than the current rate of inflation – approximately 2.10 percent in August of 2014.

The CREA stat is no reason to panic once the numbers are broken down. The majority of that price gain are for high-end homes in the most expensive cities in the country—Toronto and Vancouver, said Avery Shenfeld in a Globe and Mail article and in the “their urban cores, as opposed to lower-priced alternatives in the suburbs.”
Evan Siddall, CEO of Canada Mortgage and Housing Corporation (CMHC) also sees no need to worry. Interestingly CMHC has a Housing Price Analysis and Assessment tool that gauges the housing market and takes into account the following:

  •  Overheating of demand in the market
  • Acceleration in prices
  • Overvaluation in prices
  • Overbuilding

The assessment of Canada’s housing market at the moment shows no immediate problems at the national level. Sidall was quoted as saying, “Our educated opinion is that growth in house prices in Canada will moderate.”

This opinion is shared by many in the industry. John Bordignon, EVP, Strategic Development at Paradigm Quest says it boils down to supply and demand. “Certainly low mortgage interest rates have fuelled some of the increase in activity,” he said. “However, when we analyze the market, we can see that the increased price in the high-end market are skewing the average and cannot be sustained simply because that same price appreciation is not occurring in the move-up market.”

At the high-end of the housing spectrum we have a seller’s market, he explained – more buyers then there are homes, which would naturally increase the price. However, tighter mortgage lending guidelines coupled with changes to mortgage insurance regulation have priced out first time home buyers, making it more difficult for the move-up market to move. Higher prices at the top-end may be also causing some affordability issues among those considering a move up.

“Eventually, those high-end prices should moderate – when there are no buyers, prices come down, which is happening to prices in the mid-range due to fewer first time buyers.”

The two stats that bode well for Canada’s housing market according to Bordignon are employment levels and low interest rates. “Corrections occur when unemployment rises, interest rates increase and house prices continue to rise. Here in Canada, we have stable employment levels and interest rates are still relatively low.

Despite the talk of bubbles, resale activity has been relatively stable over the past few years. Unit sales have fluctuated between 35,000 and 40,000 units per month according to a report by CIBC’s Benjamin Tal. Sales of units at the low-to-mid price range have fallen notably since 2010. Sales for the mid-to-high price range have risen modestly and sales for the upper end of the market have increased rapidly.

“In the Toronto market, for example, we see that the more expensive the property is, the faster its price rises,” Tal said. “A household that owned a single-detached property valued at say $600K and would like to move up, would have to pay extra not only for the jump in category, say $900K, but also for the fact that the price of the move-up property has risen faster than the price of their own property.”

Despite all the talk of the ups and downs of house prices, the mortgage lending market remains robust. Mark Kerzner, President of TMG The Mortgage Group has watched activity in housing market rise and fall for many years and although tighter regulations over the past few years have slowed activity somewhat, overall the market is healthy.

“We’ve had a low rate environment for many years now, and while fixed rates are poised to increase due to higher bond yields, ARM discounts are also increasing thereby making ARMS more attractive. We anticipate PRIME will likely stay low into the first half of next year as the Bank of Canada stays the course with its benchmark rate that’s still at 1%,” he said.

Kerzner also highlights the fact that the Canadian economy is healthy and affordability is in check despite the increased regulatory insight. “Qualified buyers are still able to access very low rates and lenders are offering a variety of mortgage products to suit the needs of more buyers,” he said.

“If we examine the current situation we see low interest rates, a housing market where the prices in most markets are stabilizing, a healthy economy that is growing and an inflation rate that is holding steady,” he said.

“The most important factor is your personal readiness.  A home is a long term investment and its value will fluctuate up and down over the course of your tenure in it. It is both a commitment and an achievement that reflects your aspirations and lifestyle, and offers a great deal of personal satisfaction, as well as financial stability.”

Yes, prices have increased in a few cities so it’s important to analyze what’s going on in your local market because all real estate is local. Mortgage rates and house prices will fluctuate but over the long term, homeownership is a sound investment that compares well with other investments. When you invest in mutual funds, the mantra for most is buy and hold. Similarly, your home is a buy and hold investment.

Tuesday, September 09, 2014

Hello Friends and Colleagues

Although post-Labour Day symbolizes an end to summer and the start of a new school year for millions of Canadian students and their families, there is also a sense of renewal and excitement as a new year settles in.

As my wife and I helped prepare our three kids for school last week, I was reminded of just how quickly time passes, as well as the sense of anxiousness with what lies ahead.

For me, this “new year” is even more significant than the one we typically welcome in the cold of winter on January 1st. 

New beginnings allow us to review and reaffirm our current path while, at the same time, they encourage us to adapt and adjust our habits as we add and pursue new goals.

During the past few weeks I have spent some time thinking and reminiscing about the state of our industry – and more specifically – the state of our national association. I have always felt very much connected to the mortgage brokerage industry in Canada, working as an executive with our lenders and as president of a national mortgage brokerage. I now feel compelled to seek your support to become a Director (ONTARIO) of CAAMP.

I remember the first CIMBL (predecessor of CAAMP) conference I attended nearly 15 years ago. As a newly-minted mortgage executive I recall the excitement, the enthusiasm and that sense that we were all learning and growing as an industry. I knew at that moment that this was a very special industry and it was an association I would admire.  It was a place where seasoned mortgage professionals would come together, share best practices and chart a course for the future.

It seems there has been considerable chatter lately about the role of CAAMP, the regional associations, and the overlap between them. Questions around the need for a national association coupled with discussions about a broker’s only association have also been on the table. This is healthy dialogue and I am pleased to see the level of engagement about our representation in our industry.

I would like to take this opportunity to tell you the three key reasons why I continue to advocate for CAAMP:

  1. I welcome the fact that our association is inclusive of brokers, lenders and suppliers alike. I feel that mix actually makes our voice stronger with the folks we are lobbying in Ottawa.
  2. The fact that we share a board of directors to oversee this national association helps unify our day-to-day business interests. 
  3. The majority of members are aligned in seeking a very strong and growing broker channel in Canada. 

CAAMP has been very effective in many respects but is not perfect.  A few areas where I see that CAAMP must improve are:

Co-ordination with all industry associations:events, sponsorship opportunities, research, government relations, etc. Doing so will benefit not just members of the various associations, but the strength and voice of our industry as a whole

In addition, CAAMP has to be more responsive and approachable. It has to advocate the broker channel while improving its events and symposiums. CAAMP has to remain the best source for government and the media with respect to all-things-mortgages.

Over the years I have asked my teams, “What is the solution? Don’t just tell me your challenges; tell me the recommendations to fix them.”

At this point in my career, I feel I must get more involved. I want to be part of the solution.

I have been a member of our national association since 2001 and an AMP since 2007. On a personal level, I feel that CAAMP has provided me with an opportunity to connect with a large number of people across our industry over the years. The way I see it, ours is a very small, close industry and the opportunities to interact with our colleagues, suppliers, and competitors have proved priceless.

I appreciate your support and welcome your feedback, comments and questions.

Cheers to a “new year” and a new perspective.


Tuesday, September 02, 2014

Avoid common mistakes when purchasing a home

Young Canadians feel that housing is still a good investment, according to the 21st Annual RBC Home Ownership Poll. Nearly nine-in-ten (86%) of those aged 25-34 believe that owning a house or condo is a very good investment, up from less than eight-in-ten (78%) in 2013. Interest in purchasing has increased in nearly every region in the country from last year. This change in buying intention bodes well for the housing market and shows a renewed confidence in young buyers.

Those potential home owners named job stability and manageable debt levels as the reasons why they would consider buying. Among those likely to buy a home within the next two years, four-in-ten will be first time homebuyers.

The old adage “Buyer Beware” however, still holds true. Most homeowners admit to making at least one mistake when they purchased their home according to the last year’s RBC Home Ownership Poll. While owning a home is a dream come true for many, it can also be stress-laden if you find you’ve made an error.

Here are 10 mistakes to watch out for when you take the leap:

  1. Property needed work – a lot of it. Even with a home inspection, new homebuyers may get into a home and find it costs more than they expected to make improvements.  Don’t rush in, sit down and plan.
  2. Not having a bigger down payment.  Having a larger down payment can lower mortgage payments, which could help with the household budget.
  3. No Home Inspection. If you skip the step you might find the repairs needed may be astronomical, especially if you purchase an older home. An inspector will look at the overall foundation and structural features of the house, the plumbing system, will look for the presence of mould or pest infestations, check the heating and air conditioning, as well as the electrical system.
  4. Not budgeting for the increased costs. Consider all the costs involved and create a realistic budget.  There are monthly mortgage payments, property taxes, and utility bills. On top of that you’ll probably want to redecorate, buy new furniture etc. Plan your budget accordingly. 
  5. Not knowing the closing costs. Closing day is coming and you get the call from the lawyer to come in and sign the papers and, oh, bring a certified cheque or bank draft for X amount of dollars. WHAT? Yes, fees and disbursements. There’s the land transfer fee, the title fee, the lawyer’s fee, etc. Don’t get caught short.
  6. Forgetting about future needs. If you’re planning on having kids, shop accordingly.  
  7. Not getting a pre-approved for a mortgage. You won’t know what price range you can afford and what a lender will give you without a pre-approval. It’s easy, it’s free and absolutely necessary. If something turns up that may prevent you from purchasing, a mortgage professional can offer you solutions.  
  8. Falling love with a house. Fall in love with each other but not with a house. You will not listen to the advice everyone is giving you. You will ignore the obvious cracks in the foundation because it has 18ft. ceilings and that great stone fireplace you’ve always wanted. Beware of buyer’s remorse.
  9.  Not checking market value of neighbourhood. This can cause some purchasers to pay too much. Especially a home that has been upgraded to the max in an area that won’t keep its value – unless you plan to live there the rest of your life.
  10.  Focusing too much on interest rates. Don’t rush in to a market because the rates are low. And don’t focus on getting the lowest rate. Focus on the mortgage loan and term that works for you and your financial situation.