IN THIS WEEK’S FACTS BY EMAIL:
- QUESTIONS, QUESTIONS
- PRIME RATE HIGHER?
- HIGHER MORTGAGE RATES AHEAD
- THE NUMBERS: TORONTO
- Richmond condo $389,000
Questions, Questions, Comments
Quite a few comments on the Harry Dent and Garth Turner piece. This one sums it up: “If you go to either of these gentlemen’s website or blogs you see they have been forecasting terrible crashes for a long time. Maybe eventually they will be right?”
A: Well, maybe. BUT: Harry said he started his worry about real estate markets in 2002 – and he was right (in the US) from 2007 to 2011. But none of his philosophy based on demographics applied then or does now. The US crash came largely about by idiotic lending practices and today’s Vancouver market is not based on home grown population growth either.
Q: A veritable storm (63 emails on our ‘interest rate rising’ worldwide piece) – too many to do an answer justice here. I did answer every one personally though. Let’s wait for Wednesday’s announcement. I’ll respond after.
Interest Rate Rises
Possible outcomes: 1. No increase in rates; 2. Increase in benchmark overnight rate .25%, banks follow with a .25% increase in prime rate; 3. Increase in benchmark rate, banks only raise prime by .15% (the last time the government lowered the rate by .25% banks lowered their rate by only .15%. Fair is fair, they should only raise .15% now). Likely? No. 2. The banks are no angels.
If I am right and the bank is targeting a 1% increase in its benchmark rate in the next 12 months, then what we need to understand is that a 1 percentage point rise in interest rates doesn’t mean your interest rate goes up by 1 per cent, your debt rate goes up 33 per cent, not 1 per cent. I.e., going from 3% to 4% debt rate is not a 1% increase but a 33% increase! If the average Vancouver mortgage is $500,000, that would be a $5000 per year increase in payment.
The Numbers, The Numbers – Toronto
Some 7,974 sales took place took place in June – down by 37 per cent in comparison to June 2016.
“We are in a period of flux that often follows major government policy announcements pointed at the housing market. On one hand, consumer survey results tell us many households are very interested in purchasing a home in the near future, but some of these would-be buyers seem to be temporarily on the sidelines waiting to see the real impact of the Ontario Fair Housing Plan.
“On the other hand, we have existing home owners who are listing their home because they feel price growth may have peaked. The end result has been a better supplied market and a moderating annual pace of price growth,” said Board president Mr. Syrianos.
June’s average selling price for all home types combined for the TREB market area was $793,915, representing a 6.3 per cent increase compared to the same month in 2016. A better supplied market has certainly been a key factor influencing the moderation in price growth.
“Recent Ipsos survey results suggest that home buying activity in the GTA will remain strong moving forward. The year-over-year dip in home sales we have experienced over the last two months seem to be the result of would-be buyers putting their decision to purchase temporarily on hold while they monitor the impact of the Fair Housing Plan.”
We at JREI are not so sure about the word “Temporary”. This was not just a foreign buyer tax, but a whole slew of changes for investors and landlords.
|Y-O-Y Percent Change||2017||2016||%|
Major Point: I would agree with the Board, that the reasons for the enormous change lies in the Government regulations – primarily because there is nothing fair about it. The new regulations are onerous and represent dramatic change. People are responding. NOTE: Sales are down 37% and active listings are up by 60%! 60%! Result? Prices will come down – first in the single family home sector – by 20% by September. Condos will fare better.
OSFI Proposes A New Stress Test!!
OSFI is proposing changes that align with their July 16 letter and strengthen the expectations they have in a number of specific areas including:
- Requiring a stress test for all uninsured mortgages of at least 2% above the contract rate!
- Requiring that LTV measurements remain dynamic and adjust for local market conditions where they are used as a risk control, such as for qualifying borrowers
- Expressly prohibiting co-lending arrangements that are designed, or appear to be designed to circumvent regulatory requirements.
Industry Association: “We have initial concerns with the impact the 2% stress test will have on Canadian consumers and questions around the uncertainty that the dynamic Loan-to-Value (LTV) measurements may have in the marketplace.” Indeed! JREI also is concerned. Read their position here: PUSH BACK HERE TO YOUR MP: www.tellyourmp.ca
Dustan Woodhouse, mortgage expert shares his very strong views: “The new guidelines being proposed would reduce ALL Canadians mortgage qualification limits by 20%, no matter your impeccable credit, no matter your impeccable employment record, no matter your down payment (even an 80% down payment would not get you special treatment). A nationwide blanket lending reduction of 20% will effectively result in the elimination of 20% of homebuyers from the market. Although the effects in the Vancouver and Toronto market will in fact be negligible, the impact felt in small town Canada will be nothing short of devastating.” He adds: “And we already have the results of the Oct 3, 2016 cutbacks on insured mortgages that make this forecast clear. First time buyers have been removed from smaller markets where incomes are much lower, and there is a greater number of single income households.”
Major Point: The OSFI discussion paper is open for comments till August 15. If you are concerned voice those concerns NOW!
Tool Box: What Is Title Insurance?
Title insurance is an insurance policy that covers the lender (and yourself, if you decide to take it) in the event of:
- Fraud, forgery, and false impersonation where they affect the validity of title
- Encroachments onto an adjoining property, and setback violations
- Existing liens, realty tax arrears, existing work orders, and outstanding municipal utility charges
- Violations of municipal zoning by-laws
- Lack of legal access to the property
- Unmarketability of the property that would have been revealed by a survey
Title insurance has been an increasingly popular request from Canadian mortgage lenders over the past few years, following our US counterparts who have been using title insurance much more heavily for 30 years. Unlike the US, where the cost is about $800 on average, the cost for Canadians is generally around $150 – $250, depending on the coverage. In the US, their land registry system is considered inferior to ours and more problems tend to occur due to their title system and soft rules regarding land surveyors.
Unfortunately, with mortgage fraud up over 450% since 2006, lenders don’t want to take the chance that something goes wrong with title that would negatively impact your ability to repay the mortgage. Also, lenders don’t want to get caught holding the bag if an impersonator stuck a mortgage on your title and walked with the cash. Some lenders will still accept title insurance in lieu of a survey, but it’s becoming less and less common.”
For more information about title insurance, the two large insurance providers in Canada are:
I receive a number of inquiries about my continued reference to a possible game changing BACK SWAN event. So I again recommend: THE BLACK SWAN by Nassim Nicholas Taleb. His black swan theory describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The theory was developed to explain the disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology. It is an eye opener that makes you realize that both in our business and (yes) personal lives, the major events were not predictable and indeed Black Swans. BC tax was a black swan!
(We sent this to you already last Friday. But still available.) 3 bdrm in Richmond below 400k! Fully renovated. $389,800.00 Not a leasehold, Freehold strata. Contact Marcjurock@gmail.com
Get ready for the annual Real Estate Outlook 2018 conference, held September 30 in Vancouver.
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To subscribe to Jurock’s Facts by Email call 1-800-691-1183 or 604-683-1111 or fax 604-683-1707. While the above information is compiled from sources believed to be reliable, its accuracy cannot be guaranteed. Any type of investing carries inherent risks; as such, JREI cannot assume responsibility for any subscriber’s actions.