In Real Estate I Trust
2020-08-31 | 09:20:43
Happy Monday everyone!!
As we approach September, the days are getting a little shorter; nights a little cooler and the kids (hopefully) will safely be returning to school.
With all of the uncertainty that many households throughout Canada continue to struggle with, there are positive indicators we have seen since the summer began that should give Canadians cautious hope as we head into Fall.
All levels of government, the Bank of Canada, and the Big 6 banks are hoping that the positive data of continuing economic and employment improvements continue.
At the same time, no one is betting yet on the improvements to continue into the Fall.
“The real test of the recovery will come once the government support programs start to wind down,” says Dave McKay, CEO of the Royal Bank of Canada, the nation’s biggest lender. Mr McKay goes on to say, “It may take one or two years for us to get back to where we were before.”
For many Canadians who will continue to rely on financial assistance, the Federal Government is pledging to replace the Canada Emergency Response Benefit (CERB), set to stop at the end of September for those who qualify, with a modified version of the Employment Insurance program (EI).
For those actively seeking work, a taxable benefit rate of at least $400/week, or $240/week for extended parental benefits, and regular benefits will be accessible for a minimum of 26 weeks for an additional 400,000 people.
Though banks have already ended mortgage deferrals for some customers, with the program to end in October and November, Paul Taylor, President and CEO of Mortgage Professionals Canada is recommending that OFSI extend the mortgage deferral program for 6 months to only those who actually need it. Note, at the beginning of the pandemic, every mortgage holder was able to defer their mortgage – many of whom did not even need to.
Though CMHC feared that 20% of mortgages would be deferred by September, the number peaked at 16%. As of August 25th, that number with mortgage deferrals stands near 14%. Many still deferring will resume paying their mortgages because, they have returned to work, the impact of COVID-19 was not as drastic to their financial circumstance as once feared or, because they never really needed to defer their mortgage in the first place.
Bringing to light the reality, for now, that this pandemic has not softened real estate prices – on the contrary, Mr Taylor believes that one of the benefits of extending mortgage deferrals to those who actually need it will protect present home values from softening.
Many good paying jobs have been lost or, continue to be on pause in travel, leisure and hospitality.
Travel restrictions, event/restaurant capacity limitations and countless other policies require the pandemic to be medically contained before these sectors of our society can see a resurgence to pre-pandemic times.
By allowing mortgage deferrals to continue for those eventually returning to work will result in having homeowners remain in their home and, protect property values by not having a major influx of listings for people who may or will be forced to sell their home without continued deferrals.
Decisions have not yet been made on extending mortgage deferrals at the time of my writing this but, I believe it is extremely important that protecting homeowners and property values is key to our nation’s short and long term recovery.
Real estate, for most of us, is the key to our family’s economic future plans to a better life.
Real estate allows us to assist our children’s scholastic journey and stimulus towards an easier transition into their future homeownership; this, to plan for their own family or allow personal goals to be realized.
Real estate permits us to save for the type of desired retirement not permitted with other investment type vehicles. Over the long term, anyone who owns real estate in Canada’s 3 major cities has seen fantastic growth.
Here below are some examples of the INCREASE in benchmarked prices from only 5 years ago, July 2020, seasonally adjusted:
- Niagara Region, Ontario – 88.48%
- Fraser Valley, B.C. – 74.92%
- Hamilton-Burlington, Ontario – 66.03%
- Greater Toronto, Ontario – 55.23%
- Greater Vancouver, B.C. – 46.57%
- Ottawa, Ontario – 44.2%
- Montreal CMA – 34%
- Winnipeg, Manitoba – 11.27
- Quebec City CMA – 4.44%
What baffles me after nearly 25 years of personally buying and holding real estate in Toronto and periphery, that people are still amazed on how well values increase over the long term and, as shown above, even over a relatively short term of 5 years.
Prices continue to rise in most areas around the country and, in specific areas in our major cities. Nothing new here.
The issue is the supply chain of homes available. However, very strict mortgage underwriting policies ensure lenders and borrowers alike that purchasing real estate is not risky business.
If you are able to prove the capacity to pay your mortgage in all its various forms, you will be able to purchase a home. Important to keep in mind that lenders still use a fictitious stress test (4.79%) which is nearly 3% more than rates being offered by all major and mono-line lenders. Including strict debt service ratios to adhere to, it is no wonder that the mortgage default rate in Canada stands in the .29% range.
Property value increases notwithstanding, 75% of people buy their homes because they need a roof over their head. The other 25% see the purchase of a home as a sound investment vehicle.
Whatever your reasons are, your home, over time does increase in value.
There will be bumps along the way but, as time and history has shown us in Canada, property values do increase and, that the major portion of most Canadians’ wealth is tied to the equity in their home over time.
Do not fret or worry about the value of your home. Only you know if you will need to downsize or move away from the city if you cannot afford your current payments. Understand your position. Reach out and know your options.
Continue to take care of yourself and your loved ones. Protect your savings and educate yourself to know what opportunities are there to safeguard your interests today so that, once this pandemic is truly behind us, you can focus on what you are able to do to improve the lives of your loved ones and allow certain dreams to come true.
Look at what has happened during the pandemic:
- 4 month waiting list to build a pool
- people can’t find lumber even to build fences
- available cottages for sale – even those in the multi million dollar price range – all gone
- some private homebuilders with projects secured well into the summer of 2021
- home renovations at an all time high
The above list can go on and on.
I agree with Paul Taylor that we need to protect those who have yet to have their industries restart by continuing mortgage deferrals for those who really need it.
I also agree with Paul Taylor that Canada needs to promote home ownership for first time homebuyers. Policy makers should not be implementing ever increasing difficult underwriting policies that purposely keep would-be buyers out of the market.
Our mortgage lending rules, I maintain, should continue to safeguard both lender and borrower alike. Perhaps if policies did not only serve the “most haves”, our government could incentivize developers to build more units for first time homebuyers and those arbitrarily kept from buying a home.
To close, please continue to pursue your dream of homeownership, despite how difficult it may be.
Continue to team yourself with professionals, like myself, who can steer you to the right home in the right area with the right payment that keeps you sound today and, that will one day help you realize other dreams you have.
Let’s begin a conversation with a discussion on your mortgage financing goals. I am always available to arrange your financial profile to illustrate to you how those goals can be realized.
Looking forward to your calls, comments, and questions, I wish you all a great start to the month ahead.
Marco
