Soapboxes, Popcorn and Credit Cards. Oh My!
By my count, on a random Thursday night, as I have a glass of wine and some microwave popcorn for supper, there have been about 9 sweeping regulatory changes in the Canadian mortgage market since 2007.
Lets go back to 2007.
At that time, I was in love forever, I wore a size 26 pair of jeans and my Canadian Blue Chips were pulling in a lazy 15% return, all while I was trying to figure out what was going on in Lost. (What exactly was the black smoke monster? Did they ever really ever circle back to that?) Speaking of smoke, all of this went up in it.
That same year, I left my cush bank gig for the rock n roll lifestyle of a mortgage broker because I was promised endless sandwiches and the ability to cuss whenever I wanted. And here I am. Exactly 10 years later. Truly, the sandwiches and profanity are the only constants in this market. Everything else is flipped and reversed.
There are probably a couple of changes in how your mortgage is qualified that we should address. So, let me just lay this out for you:
Firstly....you kind of need a paper trail and reasonable track record of the income that you earn over a legit period of time that would lead someone to the logical conclusion that you can afford a payment on a big thing like a whole entire house.
I knowbanks are assholes. But lets just devils advocate this one.
If you have a salary or guaranteed base hours and that can be confirmed by your employer, we can use that to determine how much of a mortgage payment you can afford by the banks guidelines. If you have any fluctuating income, are self-employed or working on a contract basis, youre going to need to show a two-year track record of how thats been playing out. Or, youre going to need to pony up a more sizable down payment to mitigate the possibility of a dip in your earnings.
Does that really seem so unreasonable? Youre buying a WHOLE ENTIRE HOUSE!
Second...ifyou have credit card debt, or lines of credit which are readvancible*, we are going to assign, on your mortgage application, a completely fictitious, super-high payment that you dont contractually, morally or reasonably ever have to pay and will effect the price of the home the banks determine that you can afford by their guidelines. (And when I say super-high, I mean James Franco super-high.) Oh and by the way, youre completely screwing your credit!
*Readvancible means that its not a loan that you would make set payments on over a predetermined amount of time until its paid. Rather, its a credit limit, like a credit card or line of credit.
And I have a serious beef on this point.
When it comes to your credit card debt and how its required to be appropriated on your mortgage application, the banks blame the feds who regulate the banks. The feds wag their fingers at the consumers who misuse the credit limits. The credit limits are glad-handed by the banks to anyone with a pulse. The banks blame the feds and the feds blame us and the banks blame
You get where this is going, right? To Bullshitsville! Thats where.
Take control. If you are holding credit card debt or balances on lines of credit, you are putting undue pressure on your capacity to carry a mortgage. You may have some interest-only, easy-street, payment arrangement written in blood on your 20% annual interest contract. However, the banks are assigning a very large, made up payment for the purpose of qualifying a mortgage. (The same bank that said Hey! Here! Have this interest-only, easy-street credit card! Youve made it, Cuz! Drinks for everyone!) And then you cant qualify for your mortgage.
This is a thing. Its happening.
And not to kick you while youre down but if you are holding more than 50% balance on your credit card, in relation to the overall credit limit, your credit score is abysmal. This is true. Call your handy dandy mortgage broker. We see credit reports by the dozen, on the daily. And we can help. We have access to the whole puppetshow. We know where all the strings are. And when I say we, I actually mean more specifically me. I can help. Its pretty much my lifes work.
On a side note, its been 10 years for me as a mortgage broker this month. This is a tough industry. So, I think that makes me officially biker-gang badass. And Im celebrating with wine and microwave popcorn.
Like a black smoke baller.
Canadian home sales activity eases in October
Ottawa, ON, November 15, 2018 Statistics released today by the Canadian Real Estate Association (CREA) show national home sales declined between September and October 2018. Highlights:
National home sales fell 1.6% from September to October.
Actual (not seasonally adjusted) activity was down by 3.7% from one year ago.
The number of newly listed homes eased 1.1% from September to October.
The MLS Home Price Index (HPI) was up 2.3% year-over-year (y-o-y) in October.
The national average sale price slipped by 1.5% y-o-y in October.
Home sales via Canadian MLS Systems edged back by 1.6% in October 2018. While activity is still stronger compared to the first half of 2018, it remains below monthly levels recorded from early 2014 through 2017. (Chart A) Transactions declined in more than half of all local markets, led by Hamilton-Burlington, Montreal and Edmonton. Although activity did improve modestly in many markets, it was offset by a decline in sales elsewhere by a factor of two.
Actual (not seasonally adjusted) activity was down 3.7% compared to October 2017 and in line with the 10-year average for the month. While sales were down y-o-y in slightly more than half of all local markets in October, lower sales in Greater Vancouver and the Fraser Valley more than offset the rise in sales in the Greater Toronto Area (GTA) and Montreal by a wide margin.
This years new mortgage stress-test has lowered how much mortgage home buyers can qualify for across Canada, but its effect on sales has varied somewhat depending on location, housing type and price range, said CREA President Barb Sukkau. All real estate is local. A professional REALTOR is your best source for information and guidance in negotiating a purchase or sale of a home during these changing times, added Sukkau.
National sales activity lost momentum in October, said Gregory Klump, CREAs Chief Economist. In part, this reflects waning activity among some urban centers in Ontarios Greater Golden Horseshoe region and the absence of an offsetting rise in sales in the Lower Mainland of British Columbia. Even so, the balance between sales and listings in these regions points to stable prices or modest gains. By contrast, the balance between sales and listings for housing markets in Alberta, Saskatchewan and Newfoundland indicates a weak pricing environment for homeowners who are looking to sell.
The number of newly listed homes edged down 1.1% between September and October, led by the GTA, Calgary and Victoria. The decline in new supply among these markets more than offset an increase in new supply in Edmonton and Greater Vancouver.
As for the balance between sales and listings, the national sales-to-new listings ratio in October came in at 54.2% close to Septembers reading of 54.4% and its long-term average of 53.4%.
Considering the degree and duration to which market balance readings are above or below their long-term average is the best way of gauging whether local housing market conditions favour buyers or sellers. As a rule of thumb, measures of market balance that are within one standard deviation of their long-term average are generally consistent with balanced market conditions.
Based on a comparison of the sales-to-new listings ratio with the long-term average, about two-thirds of all local markets were in balanced market territory in October 2018.
Most First-Time Homebuyers Spending All They Can Afford
Millennials have made up a significant portion of homebuyers in recent years and based on the 2018 Mortgage Consumer Survey, they continue to do so, representing just under half (49%) of first-time buyer respondents. Although this is a decrease from 60% in 2017 and 58% in 2016, Millennials continue to influence and shape the homebuying and mortgage process.
Heres more of what we learned about Millennials and first-time buyers as a whole, powered by the 2018 Mortgage Consumer Survey.
What does the typical first-time buyer profile look like? Forty percent are married, 80% are employed full-time and about one-quarter (26%) have a household income between $60,000 and $90,000. A strong percentage of them were born outside of Canada, with 22% identifying as newcomers to Canada. Mortgage professionals can help meet the unique needs of newcomers with the support of CMHCs homebuying information which is available in 8 different languages.
The top 2 reasons first-time buyers bought a home: they wanted to get a first home and they felt financially ready. Although certain urban markets continue to exhibit high house prices and other barriers to entry, the survey found that 61% of first-time buyers bought a single-detached home. In fact, single-detached home was the top housing type purchased in all regions across Canada, except in British Columbia where condominium apartment was the most popular housing type.
The vast majority (85%) of first-time buyers spent the most they could afford on their home, compared to 68% of repeat buyers. This indicates that first-time buyers, including Millennials, may be stretching themselves financially to purchase their home. When it comes to the down payment, savings from outside an RRSP was the main source for first-time buyers. This suggest there is an opportunity to further educate first-time buyers about other options to help fund their down payment, such as the Government of Canadas Home Buyers Plan (HBP).
To get assistance with the mortgage process, first-time buyers contacted, on average, 2 brokers and 3 lenders. First-time buyer satisfaction levels with mortgage brokers and lenders remains high. However, mortgage professionals could further increase satisfaction levels by conducting more post-transaction follow-up and by providing clients with more information on closing costs, house purchase fees, interest rates, and steps involved in buying a home. CMHCs Step by Step guide is a valuable tool for mortgage professionals to share with homebuyers to ensure they feel confident throughout the entire homebuying process.