The past few months we have seen nearly all economic indicators point to certainly a hold but possibly more of a potential drop in Bank of Canada’s Prime rate vs continual increases media was screaming at us “that we could expect”. If I had a loonie for every time I heard the “guarantee of 6 rate hikes in 2019” I’d be able to purchase a detached in Vancouver. It’s just not going to happen based on the current numbers which have really slowed. We’ve now seen major banks shrink their discount on Variable to as low as Prime – 0.20% which signals to me it’s more likely we will see Bank of Canada DROP rates if this continues. As mortgage holders, we want this, as business people – we don’t. Slowing/faltering/stagnant economies are not fun for anyone. If you are still receiving calls from your lender to “lock in or else” please refer them to me, I’d be happy to have a little powwow about their reasoning – and you should ask too! If it’s a comfort thing to lock in rates, that’s cool, I get that. But no need for so much haste as I experienced in the summer. We still have some excellent Variable rates as low as 2.95%.
The main story heading in to the NY is according to BDO Canada 1 in 4 Canadians are feeling crushed by their debt. There has been a whole decade of people who have experienced low interest rates so even a 1% move upward that we’ve seen has had an impact in borrowing and debt pay down. It seems to also be a cultural norm to not carry a “just in case” fund in savings set aside or be carrying debt on a line of credit or credit card. We need to change this mentality else face some hard times should we experience a slow down, job loss, or emergency. Sparo Mortgage/I am very happy to help with a solution should anyone need to refinance for a reset but then also would ideally make an introduction to an amazing Financial Advisor to keep on the right track moving forward. Let’s make 2019 the year of savings! (including the reversal of debt)
A great tool I’ve used for goal setting in the past is something used internally by Lululemon staff for keeping simple/visualizing goals for the year. They do 1/5/10 year which I find to be a bit far out given how much can change in just a few years so I stick to 1/3 & 5 year goals.
A link can be found here – https://www.pinterest.ca/pin/1900024821129489/
Have a very healthy and wealthy 2019. Speak to you soon.
ECONOMIC OUTLOOK: NAFTA & Bank of Canada’s Next Announcement
The Bank of Canada has another rate decision this week Wednesday to discuss the current economic outlook as well as make any announcements regarding their Prime lending rate. My most constant conversation with clients is always: “What’s happening with interest rates?”
I have been gauging my advice off the recent (or lack of) NAFTA discussions. We’ve all watched as protectionist policy President Donald Trump has made decisions for the betterment, in his mind, of the US and complete disregard for any past agreements with other countries. Mexico having an election this past July and voting in a new President has been good timing for their country as the motivated Obrador works to strengthen a very heated US/Mexico relationship. Unfortunately, it looks like Prime Minister Trudeau has been left out of the new conversations and Trump has repeatedly voiced he would gladly shred NAFTA because it has been a bad deal for the US. The common-sense voice in my head tells me that Trump is going to make as many side deals with Mexico as possible on trade and leave Canada to pick up the scraps. Mexico has much more room to gain by making trade deals here and there that would oust Canada’s current trade relationships with the US, of which we Canadians have been so heavily reliant. If I’m getting in the mind of “deal making” Trump – I’m thinking I can barter a hell of a lot more with Mexico, maximizing profits from trade obtaining as much as possible on sale and then move over to Canada with the leftovers.
I’m yet to see our current Canadian government, or even one’s past, expand trade relations out to the rest of the world to shop our steel, lumber and oil & gas. As of 2017 76.7% of our exports were shipped to the US and 99.1% of our crude oil is exported to the US. The TransCanada pipeline COULD have been a step in the right direction to fix this problem, opening our oil & gas exports to Asia or Europe but this stalled and sideways project now only amplifies (if I’m Trump) that we have no other options but to take what we can get. Why the Liberal’s decided to spend $4.5B buying this project and in to a failing industry is beyond me. I see Canada suffering short-term and long-term, but the government needs to get on with it and start exporting or shift focus entirely to the new age of energy.
Seeing above makes me very nervous for the Canadian economy and as a result would be shocked if Wednesday’s rate announcement was another move upward. In my opinion, if the above isn’t fixed we would sooner see Bank of Canada decrease Prime rates affecting Variable mortgages as they did in the oil & gas crises a few summers ago. Variable rate mortgages are still as low as 2.70% and range up to 3.45% depending on if the mortgage is insured, not insured, or a rental property. 5 Year Fixed rate mortgages start at 3.44% and climb up to 4.14% on the highest side. There are huge savings advantages in choosing Variable and accelerating your mortgage, this has been our constant strategy over the past decade and it’s worked out very well for our client base.
I have the pleasure… sometimes… of working with two Brits, one of which worked right smack downtown London for nearly 5 years. She is constantly surprised at the real estate prices here in Vancouver and how affordable it is. Yes. I just wrote that she views Vancouver as affordable, proof backed up by her buying a Vancouver condo 3 months after her hire date landing from overseas.
Discussing the same topic with a business partner last week I was genuinely shocked to hear the largest real estate price per sqft transaction for a condo just took place in Hong Kong. 10,000 square feet was sold for the equivalent of $24,000CAD/sqft – no I’m not adding zeros for effect, that does mean they purchased that real estate for $240,000,000. Some of the highest valued condo real estate in Vancouver is selling for about $3500/sqft. Much of Vancouver, Yaletown, West End, Kits, many condos are selling for under $2000/sqft, a good amount are still selling for closer to $1000/sqft. New York & London have also seen condos sell for over $200Million, granted much larger sqft.
Our small-town mentality regarding Vancouver real estate is laughable at times but I’ll share a not so funny story. A potential new client is looking to re-enter the market. They are between 40-50 years old and sold their detached house in the past 10 years ago thinking the sky was going to fall and real estate prices were going to plummet. How many others sold real estate thinking the same? Now, because of more stringent qualifying rules and housing that has doubled (which could have been their equity position), we’re going to be lucky to get them in to an old townhouse or a new condo in the Valley.
Vancouver is, and has been for a while, on the same playing field for most sought-after places to live as Hong Kong, New York, San Francisco, London, Dubai. Yet prices in Vancouver are not even close to those cities. They are literally a 10th. I illustrate this to show two things. A. The sizeable amount of wealth in the world, vast and so far beyond most people’s comprehensions. For a humorous 7 minutes watch this video of the Christie’s auction of Da Vinci’s “Jesus Christ” and B. Hang on to your real estate, all of it if you can, acquire more than a principle residence if you can and pay down your mortgage via renters or your income. While many people sit on the sidelines anticipating some form of handout or market shift we need to be encouraged and motivated to take responsibility for our own future nests and nest eggs as we should expect little to no help from anyone other than ourselves or outside economic issues.
The change in weather typically produces a significant increase in real estate activity. It happens every year, year after year and this year looks to be the same. I keep driving by new sign after sign in lawns or developments, or signs promoting land assemblies and other properties for sale. We’re here to assist in providing tailored solutions for motivated clients at our Specialist Mortgage Advisory. 99% of the time our services are compensated by lender directly, so our goal is to keep you coming back for future advice and strategies (and bring your friends, family and co workers too please!)
For an update on your current real estate plan or new plan please email our office to firstname.lastname@example.org and myself, Sam or Emma will reach out to discuss.
Speak to you soon
It’s been a while since I’ve written a newsletter – too long I know because I now have too much to talk about! LOL.
The new mortgage rules have had an impact and a large one in fact, working in files day to day I keep catching myself presuming client’s affordability based on previous rules and this latest round really does drop overall affordability. Now this must be taken with the flip side in that MOST of my clients can still accomplish what they want to accomplish, many people were playing “within the rules” anyway so it makes it really that clients cannot overstretch themselves and have a full braking system in place. The new rules really just level the playing field and make it so new buyers can enter the market the same as people who have already owned and are sitting on equity wondering what to do with it. Our firms “find a way” attitude and access to many lenders and programs makes me thank the sweet Lord I’m a mortgage broker. If I was working for a bank I’d be …… Not as grateful 😊
The rules are not as great for our very ambitious clients who want as many properties as possible but these are good rules in general and we have work-arounds. I feel like I’m almost as busy as an accounting firm this time of year with all the calls we’ve been fielding from our big self-employed database wondering what they should file because they have money in their companies and what they should take – if you’re self employed and wondering whether to pay personal tax or keep in the Corp please reach out to discuss. Lending is now even more “in the box” and it comes down to what you file or earn in income. Credit is same same, down payment same same, so really it’s coming down to how much money do you earn on paper. You either pay the government in taxes once/year or you pay out the nose every month in your interest rate on your mortgage. Long and short – declare all income or pay higher rates. We must be reminded that owning real estate is a privilege and not a right. You must pay to play I believe the saying goes.
Interest rates have risen to between 3.29% and 3.84% on a 5 year fixed depending on lender, loan to value, owner occupied/tenant occupied and amortization. It’s Pandora’s box out there trying to sort which rate clients qualify for. The new rules are that you must qualify at contract rate (let’s say 3.79% is available for you) plus 2% – so you end up having to qualify at 5.79% to get your 3.79%
Variable mortgages still qualify at Bank of Canada posted (and have for the past three years) so to get a Variable now clients qualify at 5.14% – Variable rates are between 2.46% and 3.30% again pending lender and situation. Our “out of the box” recommendation remains taking the lower Variable mortgage and paying as though taking the higher fixed rate especially because Variable is now “easier” to qualify for but there’s a 7 year fixed at 3.39% that is all of a sudden attractive if you’re keeping your property long term, planning to turn your property in to a rental, or just getting skittish about rates overall. Email us for a strategy specific to you.
NDP Budget & Projections below
Wow. I was nervous as hell going in to Tuesday, but I have to say I’m impressed with the “focus on locals” approach NDP has unveiled. Overall, I am surprised to say I like their plans. Maybe I just don’t understand them fully just yet, but they seem quite common sense (Government using common sense, I know, it’s odd to type…)
Focusing on taxing larger corps for health taxes and deleting MSP for individuals – smart, and a win. Increased child care benefits for young families. Ferry price freezes (to help my Tofino trips!) are a win. Wildfires. Etc – Here’s the best article I’ve seen for a quick summary – CBC 10 things to know
IF the NDP can enforce the 2.0% foreign owner tax it will mean good things for the local economy and the reason why we are seeing more money in ChildCare/Health reductions/Wildfires etc. The 5% increase on foreign purchaser’s tax to 20% from 15% is “nominal” now that the tax has been implemented especially given foreign currency to Canadian. I truly hope these measures allow local BC residents to enter the real estate market as home owners. Let’s see how this plays out in to 2019 amidst ICBC & BC Hydro meltdowns (please bring on the privatized insurance!)
Our projections *with caveats everywhere to not be sued* – The bottom of the market is still expected to increase and likely significantly. We’ve already seen $250,000 condos in many burb areas suddenly increase to $400,000 basically “overnight”. Migration to BC (from Canada or overseas) is resulting in increased housing demand and upward pressure for values on all properties sub $1.5M. A huge amount of our client base continues to find out ways they can keep their current home and still buy more. NOBODY is thinking of selling unless they must so there really is slim pickings out there.
We still have a supply and demand issue and we have a huge amount of job creation happening across many industries. The tech industry alone is expecting another 200,000 new jobs in BC over the coming three years. Those jobs all paying $100,000 or more and possible spouses income as well. Construction – still booming and trades can’t keep up. Auto industry. Fisheries. And possibly, if the Federal Government actually steps in, the LNG pipeline creating thousands of jobs and income to our Province. $46.7Billion dollars is projected in the first 20 years of operation. IF it can get underway. FYI 0.0003% is the BEST case scenario for reductions in global emissions if Kinder Morgan pipeline is cancelled.. Common team… Aside from that BC is kicking ass at the moment, and should things continue the real estate market will continue to follow suit. We just all hope at not as frantic a pace as the last couple years. We’re seeing a few less properties in multiple offers but I mean like… Very few. And Spring market isn’t here yet, I’m referring to right now during SnowMageddon. We’re expecting another hair on fire year in our office and ready to assist should you, friends, family, coworkers or anyone else need help sorting through the mess that is “How do I buy a house in 2018?”
The latest mortgage rule change comes with no surprise, something “rumoured” since the late Spring of this year. Whenever OSFI is “considering” anything, it’s happening. Let’s be very alert not to hit the panic button. All this change does is level the playing field between qualifying for a Variable Rate and qualifying for a Fixed Rate Mortgage. Three years ago, OSFI passed legislation that anyone choosing a 4 Year Fixed Rate or less or Variable Rate Mortgage would have to qualify at their posted rate (hovering around 5%) Starting Jan 1, 2018 ALL mortgages must qualify at that benchmark rate OR the Contract Rate they offer you + 2.00% – Most banks are around 3.49% for a 5 Year Fixed Mortgage so you’d have to qualify at 5.49% to obtain that product. This makes Variable Rate Mortgages more attractive again as the posted rate is 4.89% in comparison. It’s likely we’ll see Fixed Rates come down a bit more but still harder to qualify for those rates presently.
People ask me – IS this the sky about to fall now? No. Not even close. Many people have still been qualifying for Variable Mortgages for the past 3 years after the same rule was implemented. Who does this affect? Current applications in the que requiring qualification at a Contract Rate. If we’ve sent you in for a Refinance or a Purchase based on say the 3.14 or 3.19% 5 Year Fixed we still have available then you’re getting scaled back pretty hard. Like 20% less. If you were qualified for a $500,000 mortgage now your max would be approx. $400,000 and so on. This is not to be taken lightly if your Purchase or Refinance needs to qualify at the lower rate. My phone has been ringing off the hook this week with fence sitters that are now jumping in the direction of acting prior to December 31st. With good reason. It’s going to slow down people using the equity in their home to Refinance or our “Classic” Refinance to Purchase more property (I can’t count the number of those we’ve done over the past three years as our motivated clients have capitalized on rising rental returns and capital appreciation of real estate) – If this is something you want to or need to do, call me today. Will this affect overall prices of average homes? We think No. Maybe it will stop real estate from appreciating at 25% per year and bring it down to a modest 5-10% (modest, HA!)
In BIG news – Amazon HQ2 could be moving HQ to Vancouver. This is MASSIVE. Other tech companies have been expanding and hiring here and in the Okanagan rapidly. Amazon alone will be bringing 50,000 jobs (and families, and business, and growth, and and….) to our picturesque city. Major business growth in the tech and medical sectors are why believe we will see a continued rise in real estate prices. We still think any property sub $2,000,000 in Vancouver and $1,500,000 in the burbs will remain a very hot commodity. I can’t remember who I was chatting with that “never thought they’d see a $1,000,000 1 Bedroom condo in San Fran” and guess what, it’s happened. $2000/sqft downtown Vancouver is something we’ll see in our lifetime, for sure. (I’ve got a good 70 more years to go pending scientific advancements, lol)
OK so if I’m the Bank and I see that the Bank of Canada just raised Variable rates by 0.50% in consecutive decisions ummm yea I’m going to raise Fixed Rates arbitrarily!! Panic stricken people all over the country have undoubtedly been herded in to the Fixed Rate corrals. The bond yields have not risen enough to warrant the increase from 2.69% 5-year Fixed Money two ish months ago to 3.49% 5-year Fixed on average right now. One thing I always like to point out this time of year is that Banks fiscal year end is Oct 31st. Every year for the past four years as we’ve had banner real estate growth Banks will chuck up their rates really high because they’ve already smashed their targets and hit bonuses. They start discounting rates again in the early Spring to meet the real estate market and compete for the mortgage biz. Mortgages for banks are typically their loss leader products necessary to obtain much more profitable 19% credit cards and banking fees.
Bank of Canada’s next announcement is next Wednesday. Again, if I’m putting my psychology hat on, I’m thinking they purposefully raised Variable Rates twice in July and September to avoid raising in October, they wanted two raises in 2017. Reason being is consumer confidence would be hammered heading in to Christmas season and the Government still needs people to spend spend spend. We’re not anticipating another increase to Variable until the New Year after this latest round of OSFI Mortgage Rule Belt Tightening plays out.
I still like my Variable Rate Mortgage. It’s lower than a Fixed Rate and gives me a lot of flexibility. Technically it’s now easier to qualify to obtain a Variable. For those who NEED to qualify at a Contract Fixed Rate in to 2018 my firm has excellent relationships with Credit Unions who do not fall under OSFI rules. They will still be able to use the old criteria. We’ve been strengthening our relationships with many CU’s all year for this reason and because a few have some awesome products to boot!
For more information or specific questions please reach out direct via email or phone above.
Speak to you soon
Data had been recently released from Statistics Canada’s showing second quarter numbers. Canada’s GDP grew by 4.5 per cent in the second quarter. This impressive growth rate nearly tripled the previous quarters’. The result of a strong growing economy almost always comes with an increase in interest rates. This time is no exception. Unlike July, this time there was very little notice of the rate hike. The closest thing to a warning came in yesterday when a couple banks announced fixed rates were rising this week. It seems as though they must have had received the heads up before hand and could now take advantage of panicky people who quickly lock-in their Variable Rate Mortgages to a Fixed Rate when a bank rep calls them this week with the news.
If we keep on the same trajectory the BOC is expected to raise their rates by two more 0.25% increments by 2019. In general this is good news for the Canadian economy as a whole as it shows we have weathered the oil & gas crisis from two years ago and are taking measures to expand beyond real estate and construction as it’s main driving force.
Rising interest rates is usually a move to deter spending and borrowing among Canadians. The result will bring an end to the equity ATM that many Canadian’s have used in the past few years, as property values have soared and spending habits have loosened. Non-mortgage consumer debt rose 3.3% year over year in the second quarter of 2017 with an average of $24,026 per person here in British Columbia. It’s not a whole heck of a lot when that includes credit cards, lines of credit, vehicle loans and student loans. However, a rise in that financial section is never good. Canadians will likely and certainly SHOULD buckle down and take advantage of the incredibly low mortgage rates to accelerate their payments and delete as much debt as possible. We still recommend obtaining as low a variable rate as possible and accelerating that payment as though taking a fixed.
Now for the future mortgage rule changes if you’re still reading….. OSFI has rumored more rule changes will be coming down the pipe “at some point”. Historically whenever they rumor a change, the changes will be implemented. Three years ago the qualifying rate to obtain Variable or any Fixed Rate under 5 years changed to Bank of Canada’s posted rate which is currently 4.84%. The changes are two options:
Option 1: All mortgages must be qualified at Bank of Canada posted no matter what the term (4.84%)
Option 2: All mortgages must be qualified at the Contract Rate plus 2.00% (5 year fixed 3.19% Contract rate would have to qualify at 5.19%)
Because this will make mortgages more difficult to attain I have been encouraging people to look in to financing sooner than later if their goal is to acquire more properties or make any changes.
If you or anyone you know has questions about your mortgage please call us. My team and I would be happy to together to discuss the most educated decision specific for your individual needs
We are fence sitting probably just as much as the Governor of BOC, Stephen Poloz. This is not a simple decision and one that could still be tabled for 2018.
The US has increase their rates three times consecutively in the past year and every time this happens our dollar gets weaker. We’ve lost nearly 25% since the high of near parity to USD in 2011. The Loonie raised $0.02 to $0.776USD on the rumours of an increase to Bank of Canada’s Prime rate and one can be certain if they do not raise rates the Loonie will react negatively. Poloz might have his hands tied in an effort to maintain a marginal pace with the US who has been gaining serious economic ground since Trump took office late last year.
A falling Canadian dollar is good for our tourism industry, real estate (driven significantly by overseas buyers and speculation), as well as exports. A falling dollar though poor for manufacturing (a pretty near non-existent industry in Canada anymore), oil & gas which is still under performing, import related businesses and many consumer goods.
A rising dollar and rates historically have boosted savings rates, consumer spending and confidence. For the past few years our economy has been driven from housing and debt-financed consumption. A raise in rates could be sound reasoning by BOC to rein that in as household debt has been a main topic of warning from our Government. Raising rates and inflation have been a positive for many economies past and present.
I’ll stop boring you with the many reasons for why an increase can happen and focus now on how Canadians will be effected with their mortgages…
If you’re in a Variable mortgage right now chances are you’re hovering around Prime – 0.50%. Currently Prime rate for Banks (except TD who arbitrarily raised their Prime by 0.15% last year) is 2.70% so a mortgage holder is paying 2.20%
Let’s use a mortgage of $500,000 and a 25 year amortization schedule. Your current payment would be $2160/month. If BOC raises by 0.25% and lending institutions follow suit the monthly payment will increase by $65 to $2225/month
Comparatively if one were to lock in to a current 5 year fixed at 2.99% the monthly payment would increase by $200/month to $2365
Our most prudent past clients have already been paying as though they took a higher fixed rate. This is called an “Inflation Hedge Strategy” and it dramatically reduces the principle balance of ones mortgage. We still love Variable rates even with a slight increase because it offers a great deal of flexibility and likely still lower payment. If you have an extra $200 per month you can throw down against the principle balance of your mortgage we say “Do it.”
If the Bank of Canada does increase Prime chances are lenders will in turn offer further discounts off their Variable mortgages and it will continue to remain our favored product. For now our clients are holding tight and we are creating individual plans tailored for everyone’s differing need post announcement July 12th. If you have specific questions about your mortgage please do not listen to the fear mongering, profit maximizing bank rep or person who paid 20% on their mortgage nearly 40 years ago who are hounding you to lock in your rate to a Fixed rate. Instead please call us first and together we will make the most educated decision for your needs 🙂
POLITICS & REAL ESTATE
With an exceptionally strong real estate market since last March one must wonder how long will this continue, given all the political and economic uncertainty surrounding us. The Bank of Canada (BOC) held rates low for the 15th consecutive decision (every 6 weeks) and given the current state of affairs with our neighbours south of the border, it’s near certain we won’t see any upward movement through 2018. Prime rates set by the BOC are applicable to variable rate mortgages as those are closely tied to the Canadian Economy and have been our long-running favoured product. This is due to it not being expected to rise much, if at all until further notice (“further notice” having been targeted for 2011 back in 2010 and extended every year thereafter by our Finance Minister), we will likely have 9-12 months notice if we expect variable rates to rise and will report this promptly.
President Trump is revisiting the NAFTA agreement and discussions so far have flopped more than his hair piece. The outlook isn’t good as lay-offs have started in Quebec with the softwood lumber dispute. The BC’s forest industry is number one in 40% of the rural communities, and we will have an impact in our province. If the Federal Government continues to put a lid on the real estate market (the number one economic driver in 7 of 10 provinces) and NDP & Green’s majority government steps out of line, we’ll see an interesting next 4 years and an impacted real estate market. We can spin this viewpoint in many directions, but living in one of the most sought-after locations of the world with in-migration and migration bringing another million people to GVA, we can expect to see prices remain steady.
One would think after all the negative press the NDP has received regarding tanking Alberta’s previous “country leading economy” and BC’s economy 16 years ago, they would tread lightly on any decision that would impact our “golden goose” – real estate.
Macro and micro economic conditions aside, our inventory levels were poor a year ago and have moved to worse in 2017. The highly coveted $500,000-$800,000 purchase price point has little to no options, which is why we’ve launched a Purchase & Renovation program to help combat this problem. The condensed version is that home purchasers can buy a home with an unlimited renovation budget built in to their mortgage at competitive rates.
This, we hope, will increase the range of suitable properties, and clients can purchase in an area they like with an option to utilize a turn key renovation solution to give their home their individualized touch. For more information please contact our office directly at 604-329-9971