BoC to reduce the qualifying rate ten basis points

Clayton Jarvis
Mortgage Broker News

The Bank of Canada is set to reduce its qualifying rate ten basis points, from 5.04 to 4.94 percent, sources tell Mortgage Broker News. After the decrease, which is expected to be announced by Monday, the five-year fixed mortgage rate will have inched another step closer to a level not seen since 2016, when it was reduced to 4.64 percent.

It’s a small change to be sure, but in the current environment, says BMO chief economist Doug Porter, every bit helps.

“Any change can make a difference at the margin, even if tiny,” he says. “I believe the much bigger issue for the housing market will be the broader economic outlook and the extent to which activity and jobs can recover as the re-opening progresses. Rates still matter, but much less so than in the recent past.”

John Vo of Spicer Vo Mortgage doesn’t expect the decrease to work wonders for his clients, but he applauds the Bank of Canada for the move all the same.

“Is it going to make a huge difference in affordability?” Vo asks. “No. But it’s encouraging to see that the Bank of Canada is cautiously looking at ways of helping people qualify.”

Centum Intouch Mortgage Solutions broker Anthony Venuto sees the lower qualifying rate as being primarily helpful to borrowers are on the verge of receiving funding who still need a slight boost.

“It’s not like a person was going to qualify for $500,000 and all of a sudden they can qualify for $550,000,” he says.

But the extra few thousand dollars the lower qualifying rate may provide could be a game-changer for first-time buyers, especially at a time when so many of them are struggling to set enough capital aside for down payments and closing costs.

Venuto thinks the lower rate may have one more benefit.

 “With those posted rates changing on the five-year fixed, that’s going to help Canadians if they potentially have to break their mortgages with their institutions, because [the competing rates] might be lower,” he says.

Copyright © 2020 Key Media

BoC analysis makes Canadian household debt most vulnerable

Ephraim Vecina
Mortgage Broker News

Over the last few decades, household debt growth accelerated faster than every other debt class, according to real estate information portal Better Dwelling.

Citing data from the Bank of Canada, the analysis said that the trend “makes Canadian households [among] the most vulnerable” globally.

“In 2000, household debt was just 58% of GDP. By the end of 2019 Q4, that number has hit 100% of GDP,” Better Dwelling said. “This is amongst the highest of advanced economies.”

BoC numbers indicated that national household debt hit a peak of $2.28 trillion in March, increasing by 0.44% from February and 4.6% from March 2019. Outstanding mortgages accounted for $1.64 trillion of this sum, rising by 0.49% monthly and 5.3% annually.

The impact on monthly budgets was inevitable: Even before the COVID-19 pandemic took hold, Canada’s insolvency incidence was already at 11,575 filings as of February, which was the highest level since 2010.

The Office of the Superintendent of Bankruptcy Canada said that this volume was 9% higher on an annual basis. Ontario posted the greatest increase during that month, at 3,837 filings (up 16.8% year over year), with Quebec’s 3,770 filings (up 1.9% annually) coming in at a close second.

“[These figures] underscore how vulnerable Canadian households are to income interruption. Over the next few months we’ll likely see an unfolding of two crises: the global pandemic and the bursting of the Canadian consumer debt bubble,” MNP LTD president Grant Bazian said. “Many households were already limited in their ability to face any kind of financial disruption. Now, all Canadians are feeling the effects on their paycheques, pocketbooks and stock portfolios. Those who were already saddled with a lot of debt are in economic survival mode.”

Copyright © 2020 Key Media

Housing may decrease due to reduced immigration

Ephraim Vecina
Mortgage Broker News

Flagging immigration numbers along with much-reduced purchasing power will pull down market activity for the rest of the year, according to the latest Teranet-National Bank of Canada House Price Index.

The steep climb in national unemployment numbers – from February’s 5.6% to 13% in April – will also have a significant influence in housing sales and values.

“In this context, demand for housing may decrease due to a reduction in immigration and would-be first-time homebuyers not being able to qualify for a mortgage loan,” Teranet said. “At the opposite, supply may be fuelled by homeowners unable to meet mortgage payments and for that reason will look to sell their home. In other words, a lasting high unemployment rate could mean downward pressure on house prices.”

The composite index in April was 5.3% higher than the same time last year. Ottawa-Gatineau (13.2% higher) imparted the most upward movement, along with Montreal (9.5%), Halifax (9.5%), Hamilton (8.9%), and Toronto (8.2%).

With the COVID-19 pandemic continuously savaging global markets, Canada Mortgage and Housing Corporation (CMHC) said that the pace of recovery will be markedly slow, with pre-recession prices returning only after three years.

“For Canada and for Ontario, I think, the best case we’re looking at … house prices getting back to their pre-recession levels, at the earliest, by the end of 2022,” CMHC Chief Economist Bob Dugan said.

Copyright © 2020 Key Media

One in five mortgages could be in arrears by September

Clayton Jarvis
Mortgage Broker News

In comments delivered to the Standing Committee on Finance on Tuesday, Canadian Mortgage and Housing Corporation CEO Evan Siddall laid out a potentially bleak scenario for the country’s homeowners. Siddall told parliamentarians that by September, if Canada’s economic recovery fails to generate enough momentum, 20 percent of mortgages could be in arrears.

“A team is at work within CMHC to help manage a growing debt ‘deferral cliff’ that looms in the fall, when some unemployed people will need to start paying their mortgages again,” Siddall said during the Committee’s videoconference. “As much as one fifth of all mortgages could be in arrears if our economy has not recovered sufficiently.”

It was one of many disturbing claims made by Siddall, who also told the Committee that the nominal house price in Canada could fall by as much as 18 percent over the next six to 12 months, with the biggest losses expected in oil-driven economies like Alberta and Saskatchewan and in overheated markets like Toronto. If prices fall by 10 percent, Siddall said first-time buyers could lose as much as $45,000 on a $300,000 home.

But the deferral issue didn’t seem to phase him.

“Canadians do a very good job of paying their mortgages, even when they’re under water, so our loss forecasts are not extreme,” he said in an exchange with Progressive Conservative MP Pierre Poilievre. When asked by Poilievre for CMHC’s potential loss forecast, Siddall estimated that it could be as high as $9 billion.

According to DLC’s Dr. Sherry Cooper, Siddall’s claim that 20 percent of mortgages could be delinquent by September borders on the ridiculous.

“It’s kind of bizarre to me,” she says. “Most economists are finding fault with it.”

An arrears rate of 20 percent would essentially mean that the Bank of Canada’s efforts to ensure the availability of credit and the federal government’s pumping of billions of dollars into the economy to prevent business closures and forced bankruptcies will actually accelerate the rate at which Canadian mortgages are turning sour.

“The Bank of Canada estimates that the delinquency rate could possibly move up from .25 percent to .8 percent. And now we’re talking about 20 percent delinquency rates?” Cooper says. “Give me a break.”

When asked if there was a possibility that Siddall was referring to deferrals when he used the word “arrears”, Cooper was doubtful.

“No, he’s a very smart guy,” she says, despite the unlikelihood of his prediction.

“It’s not going to happen. The highest delinquency – which is what ‘arrears’ is – rates we’ve ever seen in history are nowhere near [the projected 20 percent],” she says.

Centum FairTrust owner Jimmy Hansra agrees with Cooper’s assessment.

“The government has been pretty proactive in terms of providing as many programs as they possibly can to weather the storm,” he says, adding that there’s “no way” Siddall’s arrears projection is accurate.

“Even his comments about CMHC seeing housing prices falling by 18 percent I think are overblown, too,” says Hansra. “Nobody knows what’s happening with house prices.”

Hansra isn’t preparing for the kind of worst-case scenario Siddall laid out. Instead, he says his team is readying themselves for a potential, although still unlikely, stream of borrowers looking for refinancing or equity take-out solutions that will require private money.

“I don’t see it happening,” he says, “But if it does, I think that’s the only way mortgage professionals are going to be able to provide financing for their customers. Because if they’re not going to be able to make their mortgage payments and they have equity sitting in their home, either people are going to look to use home equity lines of credit to make those payments or they’ll look for some sort of second or third mortgage financing.”

Hansra stresses that projections like Siddall’s, particularly when they’re made at a time with no parallel in human history, need to be taken with a few million grains of salt.

“It’s all a guess,” he says.

If CMHC did envision a 20 percent arrears rate by fall, a fair question to ask, says RateSpy founder Robert McLister, is why they are not acting now to mitigate what would be an utter catastrophe for the Canadian economy.

“I think that if the government really thought there was going to be 20 percent arrears, they would take action,” McLister says. “You can’t have one in five homeowners not paying their mortgage, with a large percentage of those leading to liquidation. You know what that would do to home prices. You know what that would do to the economy. It’s not going to happen.”

Copyright © 2020 Key Media

This crisis isn?t over for BC businesses

Western Investor

Some Metro Vancouver businesses could be better off staying closed than risk re-opening during the second phase of the B.C.’s government’s plan to safely and gradually re-open the economy.

“This crisis isn’t over for BC businesses. You can go out of business much faster with a partial or failed reopen than you can a temporary closure,” said Val Litwin, president  and CEO, BC Chamber of Commerce. “Policy-makers must appreciate that business models will be very fragile during this early stage of the recovery cycle and that ongoing supports will be essential.”

Only 26 per cent of businesses impacted by COVID-19 feel able to restart and operate profitably with the gradual easing of restrictions, according to a survey of 1,343 member-businesses of the BC Chamber of Commerce, Greater Vancouver Board of Trade, Business Council of British Columbia, and other partners. 

The survey, conducted with the Mustel Group, was released May 22.

Given the challenges to restarting operations, over half of the members surveyed (55 per cent) expect it will take at least two months to restart. The survey also found that 43 per cent of  businesses expect that they will still require significant and additional financial support or incentives from the provincial and federal government in order to continue operating. 

One of the challenges for business tenants is paying the rent.

The survey found that 26 per cent of commercial tenants were unable to pay their rent in full in April. The primary reason is that they were shut down and had no revenue (75 per cent). Others had no access to the federal Commercial Rental Assistance ( 30 per cent), while 19 per cent said they could not come to terms with their landlord.

In terms of businesses that have closed temporarily, the level is slightly higher in urban markets (50 per cent) than in rural (42 per cent), with the incidence highest in healthcare and social assistance; arts and entertainment; and accommodation and food services, all above 68 per cent.

Among retail establishments, 58 per cent will remain closed, at least temporarily. 

“The survey data shows virtually all respondents continue to experience lost revenue as a result of COVID-19 and restart efforts will be hampered by an inability to attract new and returning customers. We are facing the worst year for B.C.’s economy and job market in a century,” said Greg D’Avignon, president & CEO of the Business Council of British Columbia. He called on governments to “expedite economic activity and address competitiveness barriers in the form of tax, regulatory and process costs that stand in the way of businesses re-hiring the nearly 400,000 employees who’ve lost their jobs.”

Copyright © Western Investor

Minister could extend deadlines for court actions in pandemic

Ryan Tumilty
The Vancouver Sun

With many courthouses closed for COVID-19, Canadians are facing ticking deadlines that can force people into divorce deals they don’t want or bankruptcies they could have avoided, but the Liberal government is promising new legislation to stop the clock.

Justice Minister David Lametti sent a letter to critics in all of the opposition parties Wednesday with a proposal for a new piece of legislation that would put some of these timelines on hold until September.

“Deadlines that have not been extended risk forcing people to choose between ignoring public health advice and protecting their legal interests by preparing for or attending court,” said Lametti in the letter.

The proposed legislation would extend timelines for nearly two dozen sets of federal rules, but Lametti cited the divorce act as one particular issue. Under existing legislation someone going through a divorce has 30 days to appeal if they disagree with a judgment, but with many courts largely closed, Lametti said that could be a real challenge.

Federal bankruptcy legislation also gives businesses a set timeline to file a restructuring proposal and if they miss that deadline they are forced into bankruptcy even when a viable business may have remained.

The proposed bill would also extend other deadlines in federal legislation. The government would get a longer period to review foreign investments in Canadian companies. Gun owners would have their expiring licenses extended and several government pension plans would have longer appeal periods for settling disputes.

Lametti said people representing themselves in court are facing the biggest challenges, because they don’t have the information to deal with these changes. He said the issues has to be addressed.

“Canadians and Canadian businesses may also simply lose their right to sue because of the impediments caused by COVID-19.”

Lametti’s proposed legislation includes a sunset clause that would reimpose all the deadlines by no later than September 30.

Tom Laughlin, a lawyer and board member with the Canadian Bar Association, said this is a change that needs to happen because of the closures that courts are dealing with.

He said some courts in the country are open, but there are restrictions in place and even if courts are functioning it may be harder for people see lawyers or get the documents they need to fight a case.

“It’s really a fairness issue to allow them a bit more time to access what they need to, in order to seek the justice that they’re looking for,” he said. “All justice systems should be fair and the concern here is that those individuals who should have access to the system, we’re not able to or are not able to access the system in a timely manner.”

Courts across the country have made significant changes to procedures to adjust to the pandemic, including holding some hearings via video conference and accepting submissions online.

Despite those interventions, Laughlin said the courts are feeling the impact of coronavirus.

“There are different approaches being taken in different parts of the country, but it’s certainly impacting the ability to carry out functions as usual.”

Lawyer Kamleh Nicola, who practices intellectual property law in the federal court, said all things considered, the federal court is adapting pretty well to the crisis and cases are still moving along with virtual sittings.

“They want to move ahead with hearings as much as they can, because if they don’t it is going to create a backlog of cases.”

She said one area the government is missing in its draft legislation is patent law. One of Nicola’s areas of practice has to do with drug patents and she said there are tight timelines for defending a patent, something she would like to see relaxed during the crisis.

NDP MP Randall Garrison said he has heard several concerns about divorce applications and is hopeful the government’s bill will solve the problem.

“Any of these court delays, in provincial courts or federal courts, have a differential impact on women, who often have to use the courts to assert their rights,” he said. “There are a lot of women not receiving alimony or child support payments.”

The government has given a 10-day comment period before the bill can be introduced, Garrison said he is still reviewing it, but hopes it will be brought in swiftly.

“It is urgent and we just don’t have a time frame at this point about when we are going to deal with the bill.”

© 2020 National Post, a division of Postmedia Network Inc.

It’s not business as usual, but here’s how real estate agents can adapt

Justin Kerby
REW

The impact of COVID-19 is being felt on all levels. No part of the economy has remained the same as it was in February, and as a result businesses in all industries have had to adjust their messaging strategy.

Real estate is no exception. 

Agents should be adjusting their messaging during the pandemic and continually reevaluating their success. This is a moving target, but with care and attention, real estate agents can come up with a plan to inspire confidence and retain clients throughout these difficult times. Here are 5 ways agents should change their messaging during COVID-19. 

 

1. Soften Your Tone Amidst the Uncertainty

If there’s one word you’ll want to focus your change in messaging around, “gentle” is a good place to start. Speak gently, and don’t assume that all of your potential and existing clients are having the same experience right now. People are facing health problems, family issues, job losses, quarantine fatigue, and everything in between right now. Just because the tides have begun to turn for some does not mean that they’re improving for all. 

You can sense the uncertainty in the market. Sellers have pulled listings from the market or are holding off on listing until they feel more comfortable, and many on the buyer-side have put their home search efforts on pause. To account for the uncertainty, we’d recommend staying positive, following up softly, and demonstrating your effectiveness as an agent without a hard sell. Ultimately, it comes down to doing what you’ve always done: focusing on what’s best for your clients. 

It’s extremely important that you consider your tone in every situation, be it digitally, on the phone, over video chat, or in-person when social distancing rules are eventually relaxed.  

 

2. Shift Towards Educational Content 

The best antidote for fear is education, and it’s for this reason that we’d recommend shifting your content marketing strategy towards educating with transparency. 

Typically, content marketing focuses on one of four themes: education, entertainment, inspiration, or engagement. During the COVID-19 pandemic, education should make up the bulk of your messaging. If you’ve sold a property during the pandemic, share the details of the sale with your social media followers, newsletter subscribers, and client list. Buyers and sellers are uncertain about even some of the most ordinary happenings right now, and they’ll welcome the transparency. 

Being direct and addressing the new normal is the best way to keep your audience optimistic about buying and selling. Sometimes it’s the small, unaddressed fears like how to conduct a home inspection or how to see a notary during the pandemic that can keep people on the sidelines. Layout the process for things that you would normally not have to address, and if things haven’t changed for a particular process, be transparent about that as well.   

 

3. Focus on Your Experience

This is a great time to demonstrate your expertise and offer your insights, especially if you can draw from past experiences. If you’ve worked through past market downturns or recessions, offer your take on the similarities and differences between then and now. If you’re an experienced agent you’re already likely fielding plenty of speculative questions about where things are headed, don’t be afraid to offer your thoughts to your client base. 

If you’re a new agent and don’t have much experience to draw on, there are other ways to show off your expertise. One of the best ways to gain credibility is to get featured on publications that your potential clients are already familiar with. Make a list of notable digital publications, find the contact information for their Editors which is typically listed in a company masthead, and ask if you can become a contributor. Offer your take on the current market conditions and when you get published, share your column with your potential clients. Being featured in an online publication will help you start building a positive reputation as a qualified real estate expert. 

 

4. Build New Retention Strategies With Social Media

Maintaining relationships with clients is always of the utmost importance, and solidifying your retention strategies during the COVID-19 pandemic is absolutely crucial. Keep retention top of mind when formulating your messaging. 

One of the ways that you can stay in touch with your clients is on social media platforms like Facebook, Instagram, and LinkedIn. REW’s most recent Market Report indicates that agents value social media activity as the second-best strategy for surviving the crisis, so be sure to brush up on your social media skills. Now is a great time to start and learn how to use a proper Facebook Business account for your brand. A Facebook Business account gives you the opportunity to take advantage of Facebook’s powerful advertising platform, deeper audience insights, and more customizations than a regular Facebook page. When you get used to the platform you’ll be able to stay in touch with clients via live videos, targeted ads, and Facebook Messenger. 

Use your social channels as a soft touchpoint to stay in touch with your clients. This way when things open back up your name will be top of mind. 

5. Increase Your Video Content 

Canada is at home right now, and video content is arguably the best way to stay in touch. Whether you’re using videos to update your clients on market conditions or as a means of direct communication in the form of video calls, it’s important to use video to stay connected with your clients. 

On top of video content being useful for staying connected with potential clients, it’s also a great way for agents to market their properties to prospective buyers during times when strict social distancing rules are in place. If you haven’t been using video or virtual tours to promote your properties in the past, now is a great time to get started. Virtual tours improve your potential buyer’s online experience, and during COVID-19 they’re the best way to evaluate a property. 

© 2020 REW. A Division of Glacier Media

Pandemic has CMHC guessing what to do next

Ephraim Vecina
Mortgage Broker News

Canada Mortgage and Housing Corporation’s top official said that the agency might downsize its mortgage underwriting business to stem the accelerating growth of borrowing.

Among other benefits, this step will buttress the organization against the worst effects of mounting unemployment, elevated debt levels, and dipping home prices, CMHC CEO Evan Siddall said.

“If there is an insurance claim, CMHC will be called upon to cover these losses,” Siddall said earlier this week. “We are therefore evaluating whether we should change our underwriting policies in light of these market conditions.”

CMHC predicted that if the national economy does not recover soon, approximately 20% of all mortgages could fall into arrears.

The COVID-19 pandemic has already led to a 42% annual decline in the economy during the second quarter, along with 3 million jobs lost since March, Bloomberg reported.

Average home prices could drop by 9% to 18% over the next 12 months, which might lead to “amplified losses” for young homeowners, Siddall said.

Market weakness will be especially apparent in the coming months, with TD Economics forecasting that the number of new mortgages nationwide will decrease by 35% to 40% in Q2-Q3.

The Canadian mortgage sector will encounter significant difficulties “over the near-term as employment trends weaken, credit loss provisioning moves higher, and housing / mortgage activity pulls back materially,” TD said in a recent study. “Collapsing equity markets have eroded an important source of down-payments. This is particularly true for first-time homebuyers, who disproportionately rely on personal savings to fund their payments.”

Copyright © 2020 Key Media

Water Street landmark office and retail building latest acquisition by Allied in Vancouver

Frank O’Brien
Western Investor

Toronto-based Allied Properties Real Estate Investment Trust (REIT) has bought the 115-year-old Landing, a mixed-use commercial landmark in Vancouver’s Gastown area.

The Landing was bought from Greg Kerfoot, owner of the Whitecaps FC, who had once proposed a soccer stadium on the site.

The eight-storey property at 375 Water Street, just east of the Waterfront SkyTrain station and at the northern foot of Richards Street, will be funded by the sale of 50 per cent of two properties in Allied’s Montreal portfolio.

Built in 1905, the Landing is valued in 2020 at $120.9 million by BC Assessments, with the land value of the 5.4-acre site pegged at $111 million.

The sale price was not released. The sale is set to close in June of 2020 as an all-cash deal, according to Allied informaion. Western Investor sources have pegged the sale price at “about $225 million.” 

The building contains 148,355 square feet of office space, 27,115 square feet of ground-level retail and 53 underground vehicle parking stalls. The property was extensively renovated in 1987 into modern office and retail space. The anchor retail tenant is the Steamworks Brewing Company.

The weighted average lease term at the property is 3.3 years, which should enable Allied to propel rent growth over the next five years, according to a company statement.

Allied Properties REIT is expanding its portfolio of buildings in Vancouver. With the Landing, it will own 12 properties with just over 643,000 square feet of gross leasable area. Upon completion of the nearly fully leased 400 West Georgia in early 2021, this will increase to 820,000 square feet of leasable space in the city.

Copyright © Western Investor