Fight Fear with Facts
2020-05-13 | 10:18:38
Happy Monday everyone!!
For those of us here in Southern Ontario, hope you were able to enjoy the beautiful summerlike weather over this past weekend!!
Unfortunate that huge crowds at a particular park in Toronto took it upon themselves to not respect physical distancing; putting themselves and others they came into contact with, at risk of spreading or catching this highly contagious virus.
Let’s all hope that everyone is ok following a lapse of judgment caused by wanting to enjoy a perfect warm Spring day after two plus months of staying indoors and separated from others.
What I took as a positive from watching large groups gather is that, large groups will gather again, as we always have. It’s in us to be together because we want to be together.
Over the weekend, I was happily taking in new clients’ mortgage applications.
A couple of them are buying their first home in different parts of Southern Ontario. Another was refinancing to pivot their investment portfolio and, another was looking for financing to build a fully livable modular unit on their existing property.
The contrast of my positive weekend to the negativity being spewed by our media made me feel out of touch with what is actually going on at ground level respectively, at least for now.
The biggest bombshell came from how the media interpreted the remotely given testimony of Evan Siddall, the CEO of CMHC, to the House of Commons Finance Committee last Tuesday, May 19.
Without laying out all of the details from the 90 minute testimony, though I’m more than happy to do so if you reach out to me, it is important to clear up a few misrepresentations the media broadcasted in light of certain comments Mr Siddall later elaborated on to the CEO of Mortgage Professionals Canada, Paul Taylor.
Speaking to an audience of over 200 mortgage professionals, realtors and other real estate insiders on a Zoom call hosted by Dustan Woodhouse, the President of Mortgage Architects and, author of the book series, Be the Better Broker, Mr Taylor brought to light Mr Siddall’s position on a personal call they had following the testimony to the House of Commons Finance Committee.
- Responding to comments Mr Siddall made regarding his belief that property values would drop as much as 9% to 18% in Canada within 6 to 12 months was Benjamin Tall, the CIBC deputy Chief Economist. In his words, he believes Mr Siddall was “highlighting the worst case scenario”. Others who responded were RBC and Capital Economics who predict a 5% drop in property values and CIBC with their prediction of a 5% - 10% drop.
- The idea that the 5% down payment was moving to 10% right now is simply not true. Mr Taylor asked Mr Siddall to clarify what would be a major blow to first time home buyers should this underwriting decision come to effect. The idea of changing the 5% down payment to 10% was to illustrate that buyers purchasing a $300,000 home with only 5% down today, when considering the cost of mortgage insurance premiums and costs associated with a forced sale, would lose over $45,000 with their $15,000 investment if property prices today fall 10% in the coming months. As such, the underwriting policy for CMHC would be evaluated alongside what happens with property values over the coming months when 6 month deferral periods for many end in September. Currently, 10% down payments are required for that portion of a purchase price over $500,000 and under $1 million. For purchases over $1 million, the minimum down payment is 20%.
- Mr Taylor also expressed to Mr Woodhouse and the couple of hundred plus listeners that CMHC models, predicting the worst stress test fears see a loss of $9 billion in mortgage defaults. With a mortgage portfolio of over $493 billion, that equates to a total of less than 2% in defaults (1.826% to be exact).
- The last point I want to cover is the current 12% of Canadians who have triggered a mortgage deferral since this past March. It is feared that the 12% number could increase to 20% by September if employment numbers do not improve. However, if CMHC’s worst case scenario model shows a less than 2% default of those 12% deferred mortgages, then the assumption can be made that most deferrals came as a result of more people choosing to defer rather than having to defer. In short, the message Paul Taylor and Dustan Woodhouse believe we should have today is - is no need to panic.
The message I gave to my clients over the weekend and long before COVID-19 became a reality in our world is, take the advice that mortgage agents like myself give to you when dissecting your mortgage financing capabilities.
The reason there is a major drop in sales and listings is because people are waiting to determine where - whether as buyers or sellers - they will be once the economic outlook is much clearer than it is now.
Is waiting on the sidelines a good strategy?
Yes, it is if you do not have a pressing reason to buy or, feeling economically forced to sell.
But, the realtor partners I speak to daily tell me that despite a slower market, there are people out there that are purchasing and selling. Sale prices, depending on what part of the GTA or southern Ontario you reside in are showing prices holding.
Yes, in some cases prices have dropped but, there is no complete data as to why the seller has agreed to a lower than asking price.
Also, most realtors are saying sellers are receiving their full asking price and, in some cases, over asking price.
In every case where applicable, the underwriting practice of lenders to furnish mortgage financing is more cautious today.
It should be. It helps us all that it is this way.
No one in our industry wants to see any individual and family default on the payment of their mortgage.
That said, your own particular story is unique only to you.
Protect your assets. Know your options.
Become educated to reduce the constant negative noise that the media throws at us.
Your economy is tied to the greater economy at large but, your economy does not necessarily attach itself to the unfortunate circumstances this pandemic has caused.
We will overcome this crisis regardless of the 6, 12 or 18 month forecasts we are bombarded with daily.
Always know where you stand by surrounding yourself with professionals that will guide you correctly to live comfortably within your economy – since this is the economy you should understand and nurture to better your life and those depending on you.
As always, I appreciate your comments, calls and questions. Please feel free to reach out anytime or, refer someone you believe may benefit from my services.
Wishing everyone a fantastic and serene week!!
Marco
