New down payment rule change – will it affect you?

By Mark Kerzner, President TMG The Mortgage Group

What a difference a week makes.

The new Liberal government is making its voice heard loud and clear with respect to the Canadian housing market and its concerns about an overheated housing market in certain cities in Canada.

By increasing down payment requirements for properties greater than $500,000 the Minister of Finance, Bill Morneau took the position that, “The actions taken … prudently address emerging vulnerabilities in certain housing markets, while not overburdening other regions.”

While the industry knew changes were being considered, only a few would have bet on the speed with which they were delivered.

It is important to understand that increasing down payments has been talked about for many years and the results could have been much more severe.  I suppose, at its core, down payment minimums could simply have increased to 10% across the board. In presenting it this way the Minister has recognized geographic market differences. Please refer to the chart below for a simplified display of the extent of the change (showing that its maximum impact is increasing down payment to 7.5% for homes valued at $999,000, or $25,000)

Without a doubt the real estate sector, including the mortgage market, remain top- of-mind with our new finance minister. This change, along with some proposed changes from OSFI related to lender capital requirements, and CMHC changes related to guaranteed fees in the mortgage-backed securities market will surely lead to incremental costs for our mortgage funders.

These two additional changes seemed to have been timed to bring about a series of changes at the same time, which taken together, are designed to curtail a rising housing market. It is important that we are as aware of them as we are of the down payment increase.

When funding costs for our lender partners increase, they are likely to be passed along to consumers in the form of higher rates.  These increased direct costs to consumers, in the form of higher down payment requirements, combined with higher funding costs will certainly impact affordability on the margin. In doing so, the government is hoping it will create more balance in the market – perhaps by slowing it down in certain areas.

And while the intended ‘targets’ were likely Toronto and Vancouver, CIBC deputy chief economist, Benjamin Tal wrote a report that showed the unintended consequences may be felt more in cities such as Calgary, Victoria, Edmonton and Hamilton as those cities have a higher percentage of high ratio sales between $500,000 to $1M.  That said, overall impact is estimated to be less than 3.5% of the market.

For more than half a decade we have been working though times of increased regulation and oversight.  Some of those changes have brought about the increased use of secondary and private lenders for some, and increased down payment requirements for others. And while costs may have increased on the margin for some, ultra low interest rates along with a high degree of consumer confidence have buoyed housing markets in many markets across the country.

For years we have advocated government and policy makers to tread carefully around broad stroke changes to increase down payments. Given the government's intent to make this policy change I am pleased to see that it was done on the margin and took into consideration regional market realities.  The Department of Finance has drafted the following FAQ for more context.

While our initial reaction is always concern, I think it’s reasonable to estimate that these changes will not dampen the real estate markets to the point of collapse. In fact, we will continue to operate in a very robust and confident lending environment.

As we are assessing this latest change, it’s important to remember there are still a number of very important items on the radar as it relates to potential changes in mortgage regulations. These include foreign ownership in a broad sense and Canadian residents buying investment properties. Since both of these items already require at least 20% down payment, other levers may be evaluated as a means to influence the market.

Mortgage brokers save consumers money, whether or not they use a broker. That is because competition breeds responsiveness. Even though we are living through a period of heightened regulatory oversight, the broker channel continues to grow. The reason is that consumers need and value our experience and expertise to navigate the mortgage landscape, ultimately sourcing them the lender and product best suited for their financial need.

If you are a mortgage consumer reading this, I urge you to contact your mortgage broker today.

TMG brokers are a giving group

By Mark Kerzner, President, TMG The Mortgage Group

We are living in a volatile time. Every day there seems to be an economic or geo-political eruption somewhere in our ever-shrinking world. Even though our attention is fixed elsewhere, there are many great causes to support (especially during this time of year) in our own backyard.

TMG The Mortgage Group Canada Inc (TMG) has operated a charitable foundation for a number of years supporting local charities and families in need. While we continue to support our local communities we were introduced to the Breakfast Club of Canada two years ago and decided to get involved on a national scale.

And while the personal story of its founder Daniel Germain is very captivating, it was learning that one in seven  children in Canada go to school hungry each and every day that called us to action.  We met with and were interviewed by the Breakfast Club of Canada (BCC) to see if we were a corporate fit.

In our first year we raised over $54,000 through corporate fundraising initiatives, and also encouraged grassroots volunteering.

As we complete our second year supporting this amazing charity we are on target to raise $125,000. Perhaps more rewarding is the way that this was accomplished.  TMG brokers and staff across the country have taken it upon themselves to organize fundraising events in a number of very creative ways. They range from long distance walks to golf tournaments and auctions. In addition, a large number of TMG brokers make a donation with every mortgage they originate.

For me, one of the most rewarding days of the year is when we get to volunteer in the schools themselves during TMG’s National Breakfast Day. On November 19th, 15 teams from coast-to-coast made and served nutritious breakfast for students and got to see firsthand the appreciation from the wonderful students themselves.

Here are just a few of the comments we’ve received.

This was amazing! The gentlemen who came to my breakfast club were kind and generous and, most importantly, wonderful with the kids, Thanks TMG!” – Moncton

I want to start by thanking you and your team on behalf of our school for this morning’s treats to our students. The TMG team served over 100 smoothies to our students. – Winnipeg

Just wanted to say a BIG thank you to everyone involved in today’s volunteer effort – it was a huge hit with the kids and the TMG team was absolutely fantastic! We so appreciated their enthusiasm and positive attitudes – and, of course, the delicious smoothies! – Hamilton

These community events are where inspiration meets activism. What results is even great commitment to giving back. This is also why I am optimistic that next year will result in an even greater contribution to this wonderful initiative.

I am proud just to be a part of it.

Mark

The Habits of a First Time Homebuyer

The housing market generates a lot of economic activity in Canada. Not just home selling and buying and construction  but also for those industries connected to housing such as legal services, moving companies, landscaping companies, home improvement companies, etc.  Each year, approximately 620,000 households move into newly-purchased homes in Canada.  Of those about 45% or 280,000 are first-time buyers, most between the ages of 25 and 34, and many in the 45 to 64-age group.

Single-detached homes are the most popular house type purchased and accounts for 57% of all sales. The average price is about $347,000. The average down payment for first timers equals 21% of the price of the home.

Earlier this year, the Canadian Mortgage and Housing Corporation (CMHC) conducted an online survey looking at the home buying experiences of first timers. Here are the highlights:

•  Loans and gifts from parents and other family members account for 7% of down payments
• 3% of all down payment come from RRSP withdrawals
• 81% financed their purchase through a mortgage
•  Fixed rates are the most common rates
•  Most mortgages have five-year terms

Online Use

There’s more! First time buyers are heavy online users and do their research. A whopping 83% of them went online to get more information about mortgage options and features – about half went to lender sites and a third went to mortgage broker sites. While online, 83% used mortgage calculators, 73% did their own financial assessment and about 4-in-ten got their pre-approval online.

Social media is another big draw – 56% used Facebook; one-third used a Forum; and 30% used a blog. Twenty-six per cent used a mobile device to get their info and one-in-five used a mortgage-related app.
And they shop! Seventy-one per cent contacted either a lender or a broker and 53% negotiated a better interest rate than the one they were originally offered.

Using a Mortgage Pro

Using a mortgage professional has become more popular among first timers, up from 42% in 2014 to 55%. A key driver is getting the best rate and the idea of a “great deal” was a strong influence as to who would get their business. About 4-in ten were referred to a specific broker and 79% of those ended up using that broker.

Satisfaction Factor

Seventy-eight per cent of first timers were satisfied with their experience working with a mortgage professional. And 43% said they would likely use a broker for their next mortgage. The one area that brokers seem to lag is in post transaction follow-up.  Fewer than half of first-time buyers received any follow-up. What would they like? Many of them said useful information including long term mortgage/financial strategies and advice on how to manage financial difficulties.

Concerns and Uncertainties

It’s no surprise that first time buyers are less confident than repeat buyers.  Even with all the research they’ve done, many still feel a little overwhelmed about the process and have a lesser understanding of their options than repeat buyers. Even more felt uncertain of what to do or where to get help if they were facing some financial difficulties.

Fifty-five per cent had concerns about the buying process and much of it had to do with the unexpected rise in the costs of owning a home. Thirty-eight per cent of then did incur unexpected expenses.

The mortgage industry is a competitive business. Mortgage professionals work with a wide variety of clients. They counsel and educate clients and help them understand the buying process.  A broker also makes sure to understand what a first time home buyer needs   and pays attention to both their financial goals and their personal goals – and not just in the short term.

It’s not surprising that more home buyers are turning to mortgage brokers  to help them navigate the daunting process of buying a home. That number will continue to grow as the mortgage industry, with its variety of options and products, becomes more complex; and as the needs and  the profiles of  first time home buyers continue to evolve.

Proud to be named Vice-Chair of CAAMP

Friends:

I remember the first CIMBL (precursor to CAAMP) conference I attended 16 years ago. As a newly-minted mortgage executive I recall an excitement, enthusiasm and a sense that we were all learning and growing together. I knew at that moment that this was a very special industry and it was an association I would admire for many years to come.  CAAMP was a place where new and seasoned mortgage professionals would come together, share best practices and chart a course for the future.

Looking back on this past year it is remarkable to me the ground we have covered as an Association and what lies ahead.  I feel privileged to have been part of the discussion, and debate, over many issues that impact our industry and the members we represent.

Having sat behind ‘closed doors’ I can tell you that I feel your Board worked tirelessly on your behalf over  the past year.  The passion, commitment and understanding they have for our industry will continue to propel the Association forward, representing our member’s interests in a very meaningful way.  I feel privileged to be recognized as the Vice Chair of CAAMP for the upcoming year.

I advocate for CAAMP because:

1.  Our association is inclusive of brokers, lenders and suppliers alike.  That mix actually makes our voice stronger when we are lobbying in Ottawa.
2. Our different (broker, insurer, lender, etc) yet interdependent businesses helps unify our day-to-day business interests.
3. Members are aligned in seeking a very strong and growing broker channel in Canada. 
4. Quite honestly, because it is in my DNA, I have a deep passion for this industry and the people it serves just as the staff and volunteers at our association have. 

CAAMP is not perfect – but we are engaged.  We will continue the positive work done in recent years and be even more approachable to our members, still more relevant to our stakeholders and better coordinated with our regions.

I am extremely proud to count myself among such a committed and passionate group of fellow CAAMP Board members. I am confident that our Board will represent the voices of ours members.

If you have any feedback or seek to get more involved please reach out to me or any of your directors directly at any time:  www.caamp.org/board-of-directors

Cheers,

Mark

Consult a mortgage professional for sound mortgage planning

The housing market has dominated the headlines over the past years. Rumours of rate hikes have never materialized. The market didn’t crash. Prices continue to increase in large urban centres. Despite the most recent recession, Canada’s housing market soldiers on and is still at the core of media commentary and policy revisions.

Since 2011 we have seen changes come into effect to restrict mortgage lending in Canada, and those changes continue today – all in an effort to curb the market.

The housing market continues to be a vital component to the success of the Canadian economy as it has during the past decade. In many respects, the industry has helped to stabilize a faltering economy.  By allowing consumers an opportunity to purchase by taking advantage of low interest rates or to tap into their equity for either spending or investing purposes, the mortgage channel has contributed positively to consumer spending and confidence.

While debt-to-income levels are indeed at its highest point in Canadian history, over the past 20 years personal lines of credit have accounted almost exclusively for the surge in total consumer debt and consumer credit card debt has surged at higher levels than mortgage debt. However, consumers are managing their debt loads well.

Earlier this year, The Canadian Association of Mortgage Professionals (CAAMP) published a report titled A Profile of Home Buying in Canada.  The report offers information on homebuyers, and profiles some key aspects of their decision making process, as well as the financial parameters of their decisions. Here are the highlights:

•  Each year in Canada, about 620,000 households move into dwellings they have purchased
• Of those 620,000 approximately 45% (280,000) are first-time buyers -- most between the ages of 25 and 34.
• Single-detached homes (estimated at 360,000 per year, or 57% of the total) account for the largest share of home buying for all of Canada. 
• On average, the homebuyers made down payments of about $119,000, equal to one-third of the price of the homes. 
•  For first-time buyers, down payments averaged $67,000, equal to 21% of their average purchase price.
•  Buyers do relatively little shopping when they chose their real estate and mortgage professionals.
• Among the buyers who obtained financing, only 16% did not consult  a mortgage professional 
• Only 9% of borrowers say they did not shop for mortgage quotes  
•  56% of mortgage borrowers consulted mortgage brokers 
• Mortgage brokers are used most often by for first-time buyers 

The growth of the housing will remain neutral in the near term. The resale market activity is widely anticipated to remain close to current levels for the rest of the year and into 2016.  And low interest rates are with us for awhile.

Here’s the track record for the mortgage broker channel:

1.  On average,  consumers using a mortgage broker saved 19bps on their interest rates (Competition in the Canadian Mortgage Market, Bank of Canada Review, Winter 2010-2011, p.5) 
2.  Those who renewed or renegotiated recently with a mortgage professional reported an average rate decrease of 1.4 points, compared with 1.0 point among all renewers. (Maritz Research Canada, January 2011)
3. Since 1992 changes to the Bank Act, the Big 8 (Big 6 plus Desjardins and ATB) now own more than 80% of mortgage assets in Canada. In the wake of that reduction in competition, the mortgage brokerage channel has grown by over 300% (from 10% to 30%).  This competition IS in the best interest of consumers.

As a country, we are fortunate to have weathered the global recession and we have managed to grow through the most recent “technical” recession. Canada is operating on sound financial principals and our housing and mortgage markets will continue to remain robust. It’s been proven that mortgage professionals  get better deals for Canadians and it’s been proven that competition is vital to Canadians’ best interests.

Clearly, home buyers, other than new home buyers, would benefit from consulting with a mortgage professional.

Canadians seem to love debt

Canadians have a growing love affair with debt. Household debt hit a new record in August as consumer spending jumped 2.3 % in the second quarter of the year, despite the fact that we are also in a recession, “technically” speaking.

So where is this debt coming from? Well, we’re buying houses, cars, furniture and clothing. Household credit is rising its fastest since 2012 – 80% of that is due to an increase in mortgage debt. In 2013, the pace of credit growth was 2% -- it’s now rising to just under 3%.

Retail sales has had its best start to the year in the past decade. Credit-card spending has gone up by 8% this year; spending on restaurants and fast food is up more than 12%. And we’re pouring more money into home improvements. Spending on home improvements has increased by 10% in the second quarter of the year.

So why is this happening? Being employed helps. The unemployment rate is holding steady at about 6.9%. Low borrowing costs also helps. The Bank of Canada rate is .50% and mortgages, both variable and fixed are at historical lows. In fact, consumer spending has stepped in as the fuel for the economy ever since the slowdown in our resources sector. 


Are we vulnerable?  It is indeed a concern for policy makers and it is unlikely that consumer spending can power the economy for too long. There is also a huge discrepancy among the provinces. Ontario and British Columbia are strong markets, while spending and consumer confidence have taken a hit in Alberta and Saskatchewan. Also, spending has not matched income growth. 
Higher debt loads also mean that consumers now spend an average 14% of after-tax income on their debts. This is up from 11% in 1990, even though interest rates have plunged from 14% back then to below 1% today.
So what now?  When you look at the global economy, we don’t see a pretty picture – most economies are experiencing slow growth. Because Canada depends on trading partners for much of its growth, we must wait for other countries to start their turnarounds.

Moody’s Analytics chief economist Mark Zandi had this to say in an interview in the Financial Post. “I think [consumers] feel a little bit tired,” he said “There has been a lot of debt accumulation and leverage. I don’t think Canadian consumers can lead the way for the economy.”

It’s still going to take some time. The U.S Fed recently decided to hold steady its prime rate, a tacit acknowledgement that its economy still isn’t up to growth expectations.

The Bank of Canada’s Governor Stephen Poloz has been on the talk circuit, spreading words of encouragement.

 “Canada has seen this movie before,” he said in a speech to the Calgary Economic Development, a body funded by the city and private-sector partners. “We’ve adjusted to rising prices; we can adjust to falling ones. These adjustments are never easy. They are often difficult and painful for affected individuals and their families. But they are necessary.”

Eventually, however, policy-makers and the Canadian government will need to find a way to grow the economy by boosting exports, hiking government infrastructure spending or spurring capital investment from businesses in order to give consumers a break.

Don’t get caught up in the headlines

By Dan Pultr
Vice-President, British Columbia, TMG The Mortgage Group

Despite what seems like a focus on statistics that creates fear in the media, Canadians are still making their mortgage payments, while enjoying the cheapest borrowing environment in history.

 Not that long ago, all headlines were focused on the household debt to income ratio, which has proven to be a poor indicator of the financial situation of Canadian households.  That ratio, actually, has decreased recently, but the “number” alone is the focus of headlines.   

More recently, attention has turned to foreign ownership – that this may be causing a housing bubble in certain parts of Canada. However, the data doesn’t support this hypothesis and even the most anecdotal analysis suggests that most of the sales activity by foreign buyers has been in high-end homes (north of $3M) in Vancouver and Toronto.

The reality is in Canada, there is nothing to fear.  Even if all of the headlines were true and the most concerning of assumptions became reality, Canada is not in any way in a similar situation to that of the U.S. pre-financial crisis.  Nor is Canada the same as it was eight years ago.

Let’s look at the facts. Canada is currently enjoying the lowest interest rate environment in history.  It has never been more attractive for homeowners to borrow money.  Five-year fixed rates are around 2.6% to 2.75% and 5-year variable rates are nearing 2%.  Notwithstanding these low rates, lenders focus on providing mortgages to only the most creditworthy applicants with provable income. 

Since the Global Financial Crisis in 2008, the lending landscape in Canada has drastically changed.  At one time we had  American sub-prime lenders operating here such as Accredited Home Lenders, Wells Fargo, and GE Money, to name a few.  However, capital requirements imposed by the Canadian government made it almost impossible for these small lenders to survive.

The mortgage business was also much more attractive to banks and investments banks and many prime lenders such as Macquarie, First Line, and ING have left the mortgage channel completely. We didn’t see new lenders for a long time, until recently. 

The Canada Mortgage and Housing Corporation (CMHC), The Office of the Superintendent of Financial Institutions (OSFI)and the Ministry of Finance have changed mortgage lending rules and have increased compliance requirements, which have eliminated most of the riskier lending such as the No Income Qualifier (NIQ). We also once had 40-year amortizations, 100% financing (including on rental properties), refinances to 95% of the value of a home, and stated income loans with very little documentation.

We’ve had five policy changes so far and the introduction of mortgage underwriting scrutiny via B-20 and B-21.  Ask a self-employed borrower trying to get a mortgage and he or she will tell you how more challenging it is today than it was 10 years ago.

 Yes, if you’re credit worthy and have provable income, you will enjoy the lowest rates ever. Often borrowers get annoyed in this new lending era, where the need for paperwork and more paperwork seems daunting. Lenders require more information, more paperwork, and more due diligence -- more everything.

Canada’s delinquency rate is at 0.28% -- its lowest rate since 2007 -- and close to the lowest rate in history.  That means that for every 10,000 mortgages, only 28 of them currently have missed three mortgage payments in a row.  In the U.S, the delinquency rate is 5.77%.  It’s comforting knowing that if the market should take a turn, the housing market would be fine.

So in reality, Canada is actually doing pretty well.  Our government has focused on ensuring the people who get mortgages can afford to pay them. Despite these changes, our mortgage and housing markets are still growing.   This is good news for the future of these markets. 

Make sure to speak with a mortgage broker so  they can help you navigate our current lending environment to ensure you get the best mortgage to meet your unique needs.

Housing slow down heralding a more balanced economy

For the past four years economists have been warning us of a slowdown in housing activity, of lowered house prices and of interest rate increases. None of which have come to pass, until now, with the exception of interest rate increases and clearly, no one really knows what will happen with rates.

“Real estate, it has nine lives,” said Benjamin Tal, deputy chief economist at CIBC in an interview with the Globe and Mail. “Every time it’s supposed to slow down because of interest rates, something bad happens elsewhere that keeps interest rates low…”

Here are the most recent predictions from the Canada Mortgage and Housing Agency (CMHC).

New-home construction will slow over the next two years as low oil prices continue to take their toll on the economy despite rock-bottom interest rates.  Prices of resale homes will rise 3.4% this year before slowing to 1.5%.

Oil-dependent provinces such as Alberta and Saskatchewan will be hit hardest.  Home prices will likely decrease below the national average in Alberta.

In the rest of Canada the slowdown will be due to the shifting preferences among buyers. Where once buyers set their sights on higher-priced, newly built detached homes, they will start looking at buying older entry-level resale homes and more affordable new builds, such as townhouses and condos.  A healthy supply of condos and townies has kept those prices more affordable.

In Canada’s two high-priced markets – Vancouver and Toronto, demand for detached homes may fall because they are just not as affordable. However, just outside of these two hubs, prices are affordable.

CMHC also predicts that mortgage rates will rise slightly over the next two years, with five-year posted rates set to range from 4% to 5.5% this year, rising to 4.2% to 6.2% next year – caveat: We’ll see.

Many economists also say that our housing market is overvalued. Some say upwards of 60% compared to rent, some say about 30%, but the consensus seems to be between 10% and 20%.  But we may be looking at the wrong comparison.  What’s really important is a mortgage holder’s ability to pay.  And that means people need to stay working. 

So far, job numbers are good. The unemployment rate is holding steady at 6.8 %. Compared to a year earlier, Canada has added 161,000 jobs (a gain of 0.9 per cent) and the total number of hours worked has grown by 1.2%. Full-time jobs have risen by 1.8% over the past year. 

However Canadians are carrying large debt loads. At last count in March the debt ratio was 163.6% -- a record high. However, in June the debt ratio declined. It appears that in a low interest rate environment, consumers pay down debt.   Benjamin Tal said in an interview, “We have seen in the past that Canadians use low interest rates to actually pay down debt faster, as opposed to add to their debt…”

It looks as if consumers don’t have a problem paying their debts…unless interest rates shoot up past “historical norms”.  Yet, how many years have to pass before something becomes history?  We’ve been living with low interest rates since 2008 – that’s seven years. It could be that low interest rates are now the “norm”.

We are living in times that are defying textbook scenarios on the economy. Clearly world economies have changed. It’s not likely that interest rates will skyrocket in the next few years, given what’s happening in the world; it is more likely they may start to increase… slightly. 

What we’re seeing today is the correction that economists predicted would happen two years ago. With it will come a more balanced, stable economy where people are happily working, who are able to pay their debts, where interest rates are “low normal” and  where house prices are affordable. 

In the end, economists will look back and say that everything unfolded as it should.

This is a recession in the 21st century

The past few weeks we’ve seen the dollar sink, the Bank of Canada’s rate drop to .50%, and not-so-great economic reports over the last two quarters have been released.  And with all this comes discussion that Canada is going through a…(whisper) recession.

According to the definition of a recession -- a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters – that’s what we’re experiencing. However, this seems to be a very different downturn than previous recessions.  And because the definition puts us squarely in one, it doesn’t mean that the country is slipping into serious economic trouble.

David Madini of Capital Economic said, “The recession may not last much beyond the middle of this year (2015).

Here’s some of the key data.  According to Stats Canada figures, the Canadian monthly trade data are now back to pre-2008 levels. However trade data and deficits are simply movements in capital and may not be the best indicators of the economic health of a nation. The U.S has been in a trade deficit for four decades without much harm – in fact, they seem to have prospered well through it all.

While economists fret about trade data and GDP numbers, consumers just keep buying, despite the struggling loonie.  They’re buying cars.  The housing market is still humming along in most parts of the county. Canada’s imports are higher this year, which is benefitting consumers.  Employment is strong in most parts of the country. And consumer confidence is high.

This may be the best recession ever. Or perhaps this is what a recession looks and feels like in the 21st century. Some economists are now suggesting that, although by definition, Canada is in a recession, the two-quarters rule may not be the best test.

During the recession in the early 1980s Canada experienced higher inflation, higher interest rates and high unemployment.  The Bank of Canada rate hit 21% in August 1981, and the inflation rate averaged more than 12%.

Canadian companies no longer focused on innovation and productivity improvements – they were in survival mode.  Also, high inflation was partly responsible for larger government spending. In the early 1980s, Canada’s unemployment rate peaked at 12%. It took almost four years for the number of full-time jobs to be restored.  Real GDP declined by 5% between June 1981 and December 1982. By 1979, the Canadian dollar was worth 85 cents U.S., which made U.S. imports more expensive. On the other hand, Canada’s major exports declined in price. Combined with high inflation, and interest rates, these high commodity prices reduced the standard of living.

Pretty grim picture. Now fast forward to today’s recession. The inflation rate remains in check at 1%. Canada’s unemployment rate is approx 6.8%, which is considered normal. The Bank of Canada rate is .50%. There is an entire generation of Canadian who have never experienced high interest rates -- today’s low rates are the norm for them. 

After the June employment figures were released, Scotiabank released a report suggesting the country was not in a recession “in any meaningful or broadly defined way.”

Some have billed it the Great Canadian Non-Recession.

Technically, we may in a recession and those in areas impacted by the downturn in the oil industry may be feeling it the most, however, consumers are purchasing big ticket items and home sales were up 3.1% from April to May.

So what’s going on?  Is this a true recession? Or, is this what we can expect future recessions to look like going forward? Perhaps the definition of a recession needs to be updated. The world has certainly changed in the past three decades. Some of the credit has to go to government policies. Policymakers have lived though previous recessions and have put safeguards in place to ensure old scenarios are not repeated.

But more so it might be that just two quarters data numbers is not enough anymore. Douglas Porter, chief economist for BMO Financial Group, says it’s too early to declare a recession – that there are some other indicators such as the three “Ds” – depth, duration and dispersion -- which have not been met yet.

Whatever Canada is going through at this time, it has not had a negative impact on most households… and really, that’s all that matters.

How will the recent rate cuts impact mortgage regulations

By Mark Kerzner, President, TMG The Mortgage Group

With the latest Bank of Canada (BoC) rate cut to 0.50% comes a reminder that many would like us to believe our housing market is tenuous.  Once again there is a lot of discussion about just how overheated our market is and the dire circumstances many current homebuyers are likely to find themselves at renewal time.

First, let’s think about why the Bank of Canada decided to cut interest rates once again last week. In January the BoC surprised many of us and cut the overnight rate in response to a rapid decline in oil prices.  This time around it did so because the Canadian economy has not rebounded the way the Bank had hoped.

In an effort to stimulate spending, the Bank used one of its levers to lower the cost of borrowing. In doing so the value of the loonie further decreased thereby making imports more expensive and exports cheaper. The hope is that foreigners will both invest in and buy Canadian goods.  The caveat to that appears to be Canadian real estate where many economists and policy makers would prefer that no additional investment takes place. The problem is, it’s hard to have it both ways.

The Canadian housing market is resilient – no doubt about that. But when we speak of the Canadian real estate market we really have to speak in terms of what is happening in Toronto and Vancouver and then the rest of Canada … the latter is nowhere near as hot as the former.

For the past seven-(ish) years the Bank of Canada, the Government of Canada, our mortgage Insurers and our lenders have introduced numerous lending restrictions designed to strengthen the underlying housing market, soften a blow at the time of renewal  --in the event of increased mortgage rates -- and reduce the rate of home price appreciation.  In the wake of these last two rate cuts, discussions are heating up again.

Now we are hearing rumours of increased down payment requirements as well as possibly reducing the maximum amortization. Both of these changes could have a significant impact on the market – and I do not believe the policy makers are looking for ‘significant’ market changes immediately preceeding an election. They could, however, prove to be precursors to a discussion to take place later this Fall.

In late 2008 the Bank of Canada reduced the overnight rate and the banks passed along only 3/4 of the reduction. So far in 2015 the banks have passed along only 30 of the 50 basis points.

While the banks do incur costs with each change to the overnight rate they are also ‘banking’ additional spread on both new and on their existing books of business. With arrears remaining at very low historical rates, and the high quality of borrowers, the banks are already protecting themselves from a potential overheating of the housing market. As such, to potentially trigger a downturn in the Canadian housing market by pushing regulations too far, such as increasing the down payment requirement to 10%, would not be prudent.

In the event the down payment requirements were to increase to 10% approximately 20% of first-time homebuyers could be affected. Some will find the means to borrow additional down payments and others may seek out secondary financing. At the margin, for the homebuyers that remain in the market, their cost of borrowing will increase.

Another “buy”-product of lower interest rates are lower bond yields. People look for better returns on their investments and some will move funds into equities.  Perhaps this will prove to be a good long-term investment strategy, though in the long run, real estate investing may turn out to be a sounder investment approach.

The reality is, in the wake of a massive global recession (2008-2009), followed by major geo-political uncertainty and a perilous Eurozone, our economy, and especially our housing market, have done phenomenally well. The steps taken over the past 6-plus years have proven prudent.

Once again we find ourselves in a sort of conundrum – borrowing costs are getting cheaper, the economy is stagnating yet our housing market, at least in two major cities, continues to push forward.  My concern is that we overshoot and impact one of the main engines -- first-time homebuyers -- that drives the marketplace.

I think it’s important to ensure that families who invest in real estate have the strength and ability to do so. I do not believe that policy makers should be trying to massage the actual market itself. As such, here are a few recommendations they may wish to consider.

• Register all first-time homebuyer mortgages at 30 or 35-year amortizations but set qualifications as well as payments at 25 years.  In the event of a future default, payments could then be set at 35 year amortizations to allow for some flexibility and preservation of cash flow.

• Keep the down payment minimum at 5%, though in certain geographic locations require liquid assets equal to 7.5% (plus closing costs).

• Index the cut off where mortgage insurance can be obtained. For instance a number of years ago a policy was created that restricts mortgage insurance on properties that were greater than $1M. That number should be indexed to allow for natural price appreciation (or depreciation) and geographic factors in the market.

 The housing and mortgage markets in Canada have proven to be resilient. Now more than at any point in our young history, it is vital for Canadians to seek the expert advice of mortgage brokers to navigate their options.

What to make of the economy, interest rates, house prices and debt

Here are the facts at this moment in time: The growth of the Canadian economy continues to struggle in the wake of lower oil prices and a dropping loonie. 

Interest rates are at historic lows. The Bank of Canada’s prime interest rate is now at .75%. The prime lending rate for consumers is 2.85%. Five-year fixed mortgage rates are between 2.64% and 2.79%. Five-year variable rates range from 2.15% to 2.3%.

House prices have spiked in a few hot spots across the country — most notably Toronto and Vancouver where prices have risen 10% and 11% respectively  — which is skewing the national average.

Household debt is sitting at 163.3% as a percentage of disposable income according to Statistic Canada's recent report -- only marginally lower than the record 163.9% ratio the agency reported in the fourth quarter of 2014.

Should Canadians be concerned about their jobs? Will interest rates start to rise soon? Will there be a housing meltdown? Is household debt out-of-control?

Let’s see. The Bank of Canada’s (BoC) Governor Stephen Poloz, in his latest statement, was clear about one thing — he was confident that the regulatory changes to mortgage lending was working and those taking on mortgages were able to pay them. So, as far as interest rates, it’s pretty safe to say, barring any major economic upheaval, that low interest rates are here to stay until the economy starts to grow.

The Chair of the US Federal Reserve Janet Yellen announced recently that interest rate hikes are coming. Yellen said if the American recovery continues, rates with rise this year. As the US economy starts to pick up steam, then Canada’s economy will likely follow. 

At this time consumers are taking advantage of low rates to pay down mortgage debt. A recent survey by Manulife Bank of Canada found that 40% of homeowners are starting to pay off their mortgages ahead of schedule. Manulife found that 18% made extra lump-sum payments in the past year, while 17%  increased their regular payments which reduces amortization. Another five per cent did both.

The annual survey of home buying habits by the Canadian Association of Accredited Mortgage Professionals (CAAMP) finds the same thing. CAAMP found that  first-time buyers are, on average, putting 21% down and expect to tighten up amortization periods from 25 years to 20 by increasing their payments.

If Poloz was truly concerned about debt then raising interest rates would quickly nip that worry. But raising interest rates would not help what Poloz sees as a bigger concern —  weak exports and business spending. Basically, Canada’s economy is stagnant. What the BoC does monitor closely is the rate of inflation, which it aims to keep between 1% and 3%. If it starts to edge closer to the 3% rate, then we can expect some changes. The current inflation rate is hovering around the 2% mark. 

House price increases may still be a concern; however, there is evidence that prices are stabilizing. According to the Canadian Real Estate Association (CREA) only half of Canadian provinces can expect house prices to increase.

Canada Mortgage and Hosing Corporation (CMC) recently reported that while there are some concerns about overheated regional markets, the overall national risk remains low.

While newspaper headlines tend to be somewhat controversial, the reality is that many Canadians are getting better educated financially,  are putting themselves in stronger financial positions and are more resilient to whatever is happening in the country.

TMG The Mortgage Group Celebrates 25 years in the Mortgage Industry

It was the year the Edmonton Oilers came back and Mario Lemieux couldn't. The economy turned its worst performance since the Second World War.

It was the time of Brian Mulroney and George Bush (Sr). Caller ID systems were introduced and the Internet revolution began.

It was a time of hot pants, mini-skirts, pre-ripped jeans, grunge art, Ninja turtles, head bands and sneakers. "Die Hard" was a box office hit and TV show "Cheers" won all of the Emmys.

It was the early 90s and TMG The Mortgage Group was formed. From day one, Grant and Debbie Thomas had a goal of operating a strong brokerage, educating the consumer that mortgage brokers were  best suited to help them get the best products, and to not become a big, faceless company. They wanted to create a company with old-fashioned family values, yet remain relevant and strongly competitive.

They have succeeded. On May 28, 2015, TMG celebrated its 25 years in the mortgage industry with a gala event.  After 25 years TMG, a national full service mortgage brokerage has developed an excellent reputation in the industry and is highly-respected among agents, brokers and industry partners, including lenders. TMG is known as a company with integrity.

Early on, it was decided to grow the company organically. Today, TMG has nearly 800 brokers and agents nationwide. The company continues to grow and attracts like-minded, professional individuals by treating them with respect, providing good value, and continually responding to their needs.

“Our core values help promote an open, progressive, entrepreneurial environment. We think in terms of partnerships with our brokers and staff,” said Mark Kerzner, president of TMG.

Through the years of continued and impressive growth, TMG has been able to maintain and even strengthen its corporate family culture.

The company’s contribution has not gone unrecognized in the industry. In 2011, TMG was honoured with the Canadian Mortgage Award’s top award for Network Broker of the Year.

In 2012 the company was named one of the Best Companies to Work for in B.C. TMG was awarded CAAMP’s Partners  in Excellence Award as well as Grant and Debbie receiving MBABC’s Pioneer Award for Lifetime Achievement.

In 2013 the company won Employer of Choice at the Canadian Mortgage Awards and later that year Grant and Debbie were inducted into CAAMP’s Canadian Mortgage Hall of Fame.

In 2014, four TMG brokers were recognized for their contribution to the industry by winning CAAMP Excellence Awards.

However, as wonderful as the accolades are, and as proud as they are of their achievements, Grant, Debbie and Mark are not ones to sit back and rest. There is much more to do. After 25 years, it’s important that TMG  continue to find innovative ways to help its brokers succeed.

6 Reasons to Follow Your Mortgage Broker on Social Media

Social media marketing has been the hot spot for many businesses and professionals who use it as an effective way to connect with their customer base. While it can sometimes be beneficial to follow a more traditional business in the hopes of finding out about offers, deals, and hours, you may not see following your Mortgage Professional in the same light.

Here are six reasons to follow your mortgage professional on social media, which can be just as beneficial for you as it is for them.

 Get Your Questions Answered. Lots of people turn to the Internet and social media to crowd source answers, such as “what are the current interest rates” or “how much house can I qualify for”.  While you can certainly get a lot of responses from your friends and contacts, having a Mortgage Professional in your feed can get you some very specific and goal-oriented answers.

You’ll Get More Details. You will get independent mortgage advice from a mortgage industry expert about purchasing, refinancing or renewing.   You will get:

•  Personalized service
•  Independent, unbiased advice about what's in your best interest.
•  A great rate that comes with terms and conditions that match your long-term needs.
•  Ongoing advice, when you need it

You’ll Do Less Searching. The mortgage process can be complex and daunting.  Why navigate through the often murky waters of bank terms, hoops and red tape when you can have a mortgage professional work not only with you, but for you?

Whether it’s your first home, a refinance to consolidate debt, an investment property, a mortgage renewal or a second mortgage, a mortgage professional can help you find the best financing solution for your needs. A mortgage professional will research and filter through dozens of loans and products and then review the best options with you. A mortgage professional will help you make key decisions and then support you through the application and closing process.

You’ll Learn Things. You can learn something.  By following a mortgage professional , you’ll be getting all kinds of information about the market, interest rates, new mortgage products, etc. that you might not have learned otherwise. This can help you accomplish your goals faster and with better results.

They’ll Come to You. While email lists aren’t necessarily part of social media, chances are that if you follow your Mortgage Professional  on any type of site, they’re going to ask you to sign up for their email list. If you do so, you’ll now be getting information delivered right to your inbox. So all you have to do is sit back and read, rather than spending your time searching for the same thing.

Start Following. If you’re worried that your Mortgage Professional will use social media as a big push to get you to use their services, you shouldn’t be. Most of them are using social media as a way to get word and information out and to connect with their existing client base as well as potential new clients by getting their name out in front of as many people as possible. So you have nothing to lose and everything to gain by clicking “like”, “follow”, or “sign up”.

Start following your  Mortgage Professional  on social media today and find out just how much you stand to gain.
 

NDP in Alberta?? Say, what now?

By Gord Appel, Vice-President TMG Alberta Region

Wow, this time last year someone might have thought to have you locked up if you said there would be a NDP majority in Alberta.  Yet, here we are mid-May, after the May 5th election dust has settled, and we find ourselves welcoming in new Premier, Rachel Notley, of you guessed it - the NDP.

While the election results may have been shocking enough to gain attention on a national and even international scale; a closer look at the political landscape in Alberta would show another story.  Rumblings that the 44-year privilege, the PCs believed would stay forever was about to crumble, were being echoed throughout the province.

After six years of governing a financially booming province, the then current PC government not only handed down an un-balanced budget but also gave Albertans a budget that proposed legislation with significant increases to Mortgage/Land Title fees, further cuts to essential services and front-line staff in both the medical and education sectors.  We were told to brace for tough austerity.

We then witnessed (now former) PC interim leader Jim Prentice call a premature election to secure his leadership spot - this election was to cost the Alberta taxpayers an estimated  $30 Million Dollars.  Uhm, what?  We Albertans took to the polls and with an unprecedented move removed the longest (provincial/federal) run in government in Canadian history.

The election results said that while change is frightening we were no longer willing to go with the "devil we knew".  We took the NDP from a mere four  seats in the legislature to a majority government with a resounding 53 seats.  While some are pleased, some dejected, and perhaps more still indifferent, we are all going to have to live with the outcome.  This "new" cabinet and lack of experience has many Albertans fearful.  While the cabinet is a group of "newbies", Rachel Notley herself is not.  She brings a strong sense of leadership and her team brings with them a message of hope, renewal and positive change.

Our political landscape may be changing, but what makes us uniquely Albertan has not.  Our "Alberta Advantage" is not borne from the luck of geography alone, our greatest resource has and always will be the great people of this province.  Yes, we are blessed to have one of the richest oil patches in our backyard and lucky for us that doesn't change either.  Oil is going to continue to be an important resource for the foreseeable future -- we have lots of it – and the infrastructure and foresight to get at it and distribute it.  We are an entrepreneurial-spirited bunch. We work hard work and we play hard and that is not going to change either; regardless of the flag colour the governing party flies.

And while we may be nervous of what a change in government may bring, we are willing to take the chance on some fresh faces, new ideas and the inspiration it can bring.

Notley's first act was to extend an olive branch to the energy sector.  She promises to work closely with energy-industry leaders to re-write Alberta's system of royalties and environmental rules over the next four years.  She has promised to cancel Prentice's increases to Mortgages and Land Titles (certainly good for all us in the Mortgage Industry).  She has promised significant investments in health care and education.  She pledges to freeze post-secondary tuition fees, expand public home care and include school lunch programs for kids in low-income households.

 Now it's just a question of how she's going to pull it all off?

The Growth of the Canadian Economy

When Bank of Canada (BoC) Governor Stephen Poloz lowered the prime interest rate to .75% earlier this year in response to what he called the “effects of the oil shock” it came as a surprise to economic pundits and economists alike. Many thought the central bank would hold off on moving the rate until late 2015 or early 2016, with the next adjustment expected to be a hike.

"We have an oil-price shock, which will reduce the income flowing into Canada and lead probably to some increase in unemployment overall," Poloz said.

Until the “oil shock”, Canada seemed to be headed for some post-recession growth. Still, Poloz said he was encouraged by signs of economic life, particularly in Canada's non-energy sector, thanks to a low loonie and strong U.S. growth.

Yet, we still hear about housing bubbles and overvalued real estate. It’s true that house prices in many markets are on the upswing especially in the country’s two hottest markets -- Vancouver and Toronto.

However, the Spring market has turned out to be surprisingly strong and ReMax revised its house price projections upward last week citing high consumer confidence and low inventory. There are even bidding wars in some markets surrounding the “Big Two” – like Hamilton and Barrie in Ontario and in Victoria B.C.  And while in Calgary, the housing slump is evident (oil shock fallout), the Edmonton market is showing resilience.

There was talk that Poloz might lower the prime interest rate again, which did not happen. Poloz said the January interest rate cut was enough to support the nation’s economy as it recovers from the slump in oil prices. Total inflation is at 1%, reflecting the drop in consumer energy prices. Core inflation has remained close to 2%.

So what does that all mean for the Canadian housing market? At this time, little of what has occurred has had an adverse affect on the housing market in most areas of the country. Is there a housing bubble? Well, we have been hearing about a potential housing crash since 2010 – if it was going to happen, it likely would have happened by now.

During these past four years, the government has imposed tighter restrictions to mortgage qualifications and mortgage products, which have altered the lending landscape, and which appear to have prevented a housing collapse. As always, there will be doomsayers.

A better thought is to look at all the positives in the economy starting with the latest Bloomberg Nanos Canadian Confidence Index. According to the results of its recent telephone poll, Canadians are optimistic about real estate, with consumer confidence the highest it’s been in three months. Homeowners are more confident than renters.

When we review the recent federal budget, there are more positive signs for housing and the economy. For one, it was a balanced budget and the government is projecting a surplus of $1.4 billion dollars. Seniors get a new tax credit for home improvements to improve accessibility. Small business gets a tax rate drop to 9% from 11% over the next four years. Manufacturers get a tax break. And the budget held off on any new measures to cool housing.

“There has been an appropriate and desirable moderation in housing activity in most regional markets across Canada. Toronto and Vancouver, in contrast, have continued to experience periods of strong sales and price growth, with housing market strength in these cities supported by such factors as population growth and land scarcity,” according to the budget.

This, despite the fact that household debt levels have reached record levels, again.

Also, when we look at the news coming out of some key sectors, this is what we find:

•  Real gross domestic product (GDP) by industry increased in every province and territory except New Brunswick, Newfoundland and Labrador and Yukon in 2014. Nationally, real GDP by industry rose 2.4% in 2014. (Stats Canada)

• Employment increased by 29,000 in March. The unemployment rate was unchanged at 6.8%.

• Oil prices are showing signs of improvement and so is the loonie. (Stats Canada)

•  Average wages have grown by 2% over the past twelve months, which means that incomes are rising a little faster than the average price growth, as measured by the Consumer Price Index (CPIP), which stood at 1% in February. While not spectacular, this signals a small expansion in the purchasing power of the average Canadian worker. (TMG’s David Larock: http://www.movesmartly.com/2015/04/how-will-the-latest-employment-data-affect-canadian-mortgage-rates-april-13-2015.html )

• Canadian housing starts rose much more sharply than expected in March as groundbreaking on new condominiums and apartments in urban areas surged 48.2%. (CMHC)

•  A robust U.S. economy will ensure that slow growth will not be Canada’s new normal (Fraser Institute)

All of this good news in the Canadian economy trumps the small news and makes Canada a growing, stable economy that can weather short term fluctuations for a strong and prosperous future.

A Lesson in Customer Service

By Mark Kerzner, President TMG The Mortgage Group

How many times have you heard one of the following?

1.  “It’s our policy.”
2.  “I have to check the policy manual”
3.  “Because I have to”
4.  “I am just going on my break”
5.  “Let me provide you with a website address where you can fill in your comments”

… and the list goes on and on and on. While these are just a sampling of my personal business pet peeves, my blood boils as I simply recall them and write them down.

Let me share a couple of challenges I had with the customer service practices of a car rental agency as a lesson on how not to treat customers.

Last winter I rented a car at the Calgary airport.  After completing the compulsory paperwork the rental agent handed me my keys.  To my surprise there were three identical keys on the key chain.  Over the past few years I have become a personal fan of the keyless car starter if for no other reason than to reduce the bulk of what I have to carry around. I was travelling on my own, so I said I would just take one of the keys, asked that they keep the other two. They refused. The reason: because I have to take them all.

I didn’t let it go quite that easily and tried to reason. I said, “If I happen to lose the keys, I would lose all of them if I had three with me on the single key chain. At least if you have the spare you could help me out.”  It didn’t work.  At that point I simply didn’t have the energy to continue and went on my way.



A few months later I had the exact same experience. Knowing where this was likely going to end I decided to circumvent the conversation by asking how I could get feedback to a decision maker so that they would have the opportunity – yes, I do believe it was an opportunity -- to hear feedback directly from a customer. The rental clerk said she could provide me with the contact information for the owner of the franchise and I could give my feedback directly to them. I was happy with this outcome until I got the “business card” of the franchise owner. (See below)



Despite my frustration at receiving a form email alias rather than contact for an accountable human being, I decided to follow through with the feedback form and went to the main home page of the company to provide it.  By the time I was ready to submit I had some additional feedback as well. The car that I was given was dirty inside and out. I wrote up a nice, long note, and went to submit it when the system bounced me out. Nothing I wrote was saved and I would have had to rewrite it all again.  Which I did not do.

By the way, I was not able to submit feedback to the survey URL provided from the rental agent. There was no room for feedback and I would have had to provide the digital Rental Record number to complete the survey.  In the end the car rental company never had the opportunity to hear my feedback and lost my future business.

I guess what I was hoping for was an opportunity to help empower the client service people so that they could remove the above excuses from their vocabularies. 

As mortgage brokers, we know our business is evolving and has become more competitive.  Our clients are asking us for more than they did just a few years ago. Many of our clients are better educated about finances and mortgages when they speak with us. They have already done research online or with their personal bankers.  This is actually a good thing for both the client and us. 

As problem solvers we ensure clients have the best product for their unique circumstances.  But it’s also about being there with answers and not just standard phrases such as “those are the lenders’ rules”. We owe it to our clients to explain why policies are what they are. This means we must be more diligent about knowing our lenders, their products, and the policies. We need to connect with underwriters and BDMs to makes sure of the varying conditions and be informed with recent changes.

It also means keeping in regular contact with clients to keep them informed of what’s happening in the industry and how those changes impacts them. And, if there is a complaint, then we need to listen to what they’re saying and find ways to continually improve our level of customer service.