Wednesday, July 29, 2020

Will Home Ownership be a Pipedream for Gen Z?

There may be no better feeling than closing on your first home.  Over the last 10 years, first time homebuyers have seen the market change dramatically, whether it’s mortgage rule changes that impact qualifying, or rising house prices that took some first timers out of the market altogether. Combine that with stagnant incomes, and it’s not surprising that young people feel that the dream may never happen for them.

But is it still a dream for the younger generation? Last year – 2019 – was the last for millennial graduates. We are now in the Gen Z world.  Gen Z refers those born after 1996, so they’re now 23 and younger. Millennials were born between 1981 and 1996, so they’re now between 23 and 38.
This group grew up with an iPhone in their hand and an iPad on their laps, and clearly have learned to process information differently than generations before them. But what hasn’t changed is their desire for home ownership.

In fact, Gen Z is poised to overtake millennials in their desire for homeownership. A survey  conducted by real-estate company Zillow found that in 15 years Gen-Z homeownership will be bigger than the share of millennials who currently own their homes.

Another survey from shows that 81% of the Canada’s Gen Z’ers think they’ll purchase a home in the next 20 years. Ten percent of the 18-24 age group say they already own their own home, while 35% (one in three) believe they’ll purchase a home within the next five years.

Interestingly, millennials are more likely to believe that homeownership is NOT in their future. The difference? It hasn’t been quantified yet, but anecdotally, Gen Z ‘ers don’t like the high cost of renting, and would rather make personal financial sacrifices to save for the large down payment needed.

For these future homeowners, education and information is key. And the best person to help guide the process is a mortgage broker.  The following information is not only for Gen Z, but for everyone looking for their first home.

There are six steps to the mortgage application process.

Step 1 – The Application/Pre-Approval

  • It’s important to get all the following information. This allows your mortgage agent to determine the amount you qualify for and the best mortgage strategy/product for you. Current address. If you are less than three years at your current residence, you must provide your previous address as well. In addition, you will need to provide
  •  Birthdate
  • Contact number
  • Do you own or rent your current home?
  • If rented, is the rent paid monthly?  If not, specify term of rent
  • If owned, is there a mortgage? If so, with whom, the value of your home, and mortgage payments
  • Approximate value of assets -- identifiable assets like RRSPs, savings, investments, vehicles, other properties, etc.
  • Approximate value of liabilities -- identifiable liabilities like car payments, line of credit, student loans, credit cards, etc.
  • Any alimony or support payments
  • Employer (if less than three years, previous employer as well)
  • Title
  • Tenure
  • Salary and other compensation
  • Self- Employment information that includes historical taxable income, historical gross business income

Step 2 – Qualifying

Your information is sent to a lender for a rate hold, pre-approval or approval.  All info is sent electronically and directly to a lender. A response can come within 24-72 hours.

Step 3 – Verification

Verification will be done on items such as your income, with a job letter and recent pay slip, and proof of down payment. Some lenders require tax returns and Notice of Assessments. Your mortgage agent will list out all the information needed and lead you through a straightforward verification process.

Step 4 – Purchase

Once you’ve found your new home, your Realtor will draw up a Purchase and Sale Agreement, which he or she will also send to your mortgage agent on your behalf. When writing your offer, it’s strongly recommended that a “subject to financing” clause be written in, even if you have a pre-approval. 

Step 5 – Approval

During this stage the lender will review all documents and will call your employer to verify employment. You will also receive a Letter of Commitment with the rate, term, payment amount or frequency, amortization, and more. Your mortgage agent will review the commitment letter in detail with you before you sign.

Step 6 – Funding/Closing

The only thing left to do is to register the transaction legally. This will require a lawyer or a notary, depending on where you live. The lender will forward all the documentation directly to your lawyer, and the lawyer will contact you to arrange a meeting.

During this meeting your lawyer will confirm the details of your transaction and will request a bank draft or certified cheque to cover the amounts outstanding before the closing date, which includes the down payment, the lawyers fee, property transfer tax and any other disbursements not yet paid for, less any deposits already paid.

The lawyer then receives the funds from your lender, disburses them and registers the title in your name – then you get the keys.

Digital Experience 

Gen Z’ers were born to process a massive amount of information 24/7, but info overload can negatively affect anyone. There’s a lot of mixed messages, and sometimes outright misinformation on the ‘Net. Despite the I-Generation “always on” environment, the human touch is still welcome.
Buying your first house is a journey, but don’t take it alone. Contact a mortgage professional to combine your digital experience with the human touch.

Tuesday, July 07, 2020

An Alphabet Soup of Economic Predictions

Which is Canada Most Likely to Experience?

Alphabet Soup of Economic Predictions
You’ve likely heard of analysts using letters of the alphabet to describe the potential paths for Canada’s economic recovery.

Will that graph of the country’s GDP look like a V or more like a U? Perhaps even a W, but hopefully not an L.

Below we take a brief look at what each of the recovery shapes mean, which is most likely, and how that might affect the country’s housing markets.

Let’s take a look at the letters that have been employed to describe the “shape” of where Canada’s economy has been and where it’s headed:  

V-Shaped: The most optimistic of the scenarios, this forecasts the steep decline in Canada’s GDP bouncing back quickly and returning to pre-COVID levels in short order.

U-Shaped: Similar to the “V” recovery, but this scenario anticipates a longer period of low or no growth. However, it also describes an eventual quick return to pre-COVID growth levels. 

“Nike Swoosh” Shaped: This is a variation of the “U-shaped” recovery, but describes a more gradual and prolonged period of economic recovery.  

W-Shaped: Like the V-shaped scenario, except the W forecasts a second steep decline in economic performance—possibly due to a second wave of the virus—followed by a second quick recovery to more normal levels.

L-Shaped: This is the most dreaded of them all, describing a persistent recession that doesn’t see the economy returning to pre-COVID levels potentially for many years.

Which Recovery Path is Most Likely?

There’s much disagreement over which model is likely to play out.

Some expect the economy to face continued headwinds for at least the next year, with some ups and some downs, perhaps along the lines of a W-recovery.

“Our economic forecast envisions the economy continuing to operate well below full capacity into 2021,” economists with RBC Economics wrote in a research note. “The road to recovery will be slow, and it could be quite bumpy.”

Others remain optimistic that the V-recovery is still taking shape.  

“The good news is that the incoming data continue to suggest a recovery that is about as v-shaped as we could reasonably have hoped for,” noted Neil Shearing, Group Chief Economist at Capital Economics. “The bad news is that sustaining the pace of recovery will get increasingly difficult from here.”

In a separate research note, economists at Capital Economics added, “In terms of fundamentals, it now seems clear that household income has not fallen by anywhere near as much as we expected in the second quarter, despite the slump in employment.”

Then there are others who don’t think any letter—in the English language or otherwise—can accurately describe the path that lays ahead.

“I don’t think a letter is going to neatly capture what we’re going to be looking at,” Douglas Porter, chief economist at BMO, told the Financial Post. 

What’s the Impact on Canada’s Housing Market?

The fallout for the real estate and mortgage markets has been a big unknown since the start of the crisis, largely because both supply and demand fell in unison.

“The fact both sides of the demand-supply equation fell in virtually equal proportions…revealed an important characteristic of COVID-19,” RBC economist Robert Hogue wrote. “To date, it hasn’t created market imbalances.”

While home sales plummeted in April by 57% as the effects of the lockdowns took hold, the decline in home prices has so far been limited in many markets.

And with sales already rebounding in May by nearly 57% and new listings seeing a 69% increase, there are signs some markets may be back to posting year-over-year price increases in short order.

As of May, MLS benchmark prices were up year-over-year in the Greater Toronto Area (+9.4%), Greater Vancouver (+2.9%), Montreal (+11%), Ottawa (+15.7%) and Halifax (+9.3%), according to the Canadian Real Estate Association.

Still, as economic fundamentals remain below potential for the foreseeable future and as government assistance programs, such as CERB and the mortgage payment deferrals, come offline this fall, many expect modest price declines.

“We believe downward price pressure will build in most markets in the coming months,” wrote Robert Hogue of RBC Economics. “Nationwide, we expect benchmark prices to fall 7% by the middle of 2021, though believe a widespread collapse in property values is unlikely.”