Q&A Session with Our Mortgage Broker, Tony | Episode #3

Mortgage | April 20, 2020


 

For those of you who don’t have the time to watch a 25-minute video, here are the questions covered, and the times at which they appear so you can skip ahead…

 

Question #1 from Natrx @ 2m 38s

What are the chances, the lender reduces the amount from their pre-approval during closing?

I’ve heard even before this, brokers were seeing an uptick in deals not being able to close.

 

Question #2 from Mike @ 5m 34s

Great topic, David!

My question is not necessarily COVID related: can the banks pull a firm mortgage commitment at any time?

If the borrower has signed all the paperwork let’s say one week before closing, can the bank get out of the deal?

 

Question #3 from Condodweller @ 11m 09s

I’m curious if Tony has any data on HELOCs whether banks are reviewing them, reducing them (due to income loss or new lending criteria), or even changing interest only HELOCs to principal + interest payments and if so how are they handling these as presumably the change has a good chance of triggering the necessity of refinance or in the least payment deferral as it would make the new payment unaffordable.

 

Question #4 from Deb @ 15m 29s

This might be a little novice for some people in here but can you explain the math in when it makes sense to refinance?

 

Question #5 from Chris @ 17m 16s

Tony, you want to wade into our guessing game?

When does Feb 2020 GTA average sales price get restrained?

 

Question #6 from Ed @ 20m 41s

If someone was on the edge of getting approved for a mortgage before this crisis how much harder is it for them to get approved today and why?

What has changed in the approval criteria?

Which of, if any, the big banks has made it much more difficult to qualify?

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54 Comments

  1. Appraiser

    at 11:24 am

    Teranet Index is out today: “Another strong increase in the Composite Index in March

    In March the Teranet–National Bank National Composite House Price IndexTM was up 0.6% from the previous month. As was the case in February, this was double the average March rise of the last 10 years…In March the composite index was up 3.8% from a year earlier, for an eighth consecutive acceleration of the 12-month gain to its strongest since June 2018.”

    Although the Teranet Index lags the MLS, due to being calculated utilizing closed transaction data, it is still an accurate snapshot of where the market was pre-COVID-19.

    Is there a strong argument to be made that the market can’t return to where it was?

    Or is the debate really just about timing?

    https://housepriceindex.ca/2020/04/march2020/

    1. Bal

      at 12:00 pm

      We all know that March was strong…Question is how April is doing?

      1. Appraiser

        at 3:09 pm

        @Derek: What I’m driving at is this. Did fundamental housing demand disappear or is it just hiding for a little while?

        The latest weekly MLS data from John Pasalis, Scott Ingram and Steve Saretsky, seem to indicate that the bottom for activity (transactions) is history and inventory may already be starting to recede in the GTA.

        1. Derek

          at 3:59 pm

          Okay thanks for clarifying–sometimes you’re too cryptic for my tiny brain!

        2. Natrx

          at 12:29 am

          Fundamental demand disappears if jobs or expectations that it will actually disappear for a sustained period. Demographically, Toronto is highly favourable. The ripple effect to the gig economy, airbnb, etc. will be felt. The question always is for how long and to what degree. No question without unprecedented government intervention, it would have gotten ugly immediately.

          The other issue for Toronto is the upward swing in rental prices, speculative demand for condos pre-covid. The more financial strain there is from this, the longer momentum it stays flat to negative. Hard to just change people’s expectations on a dime back to positive.

          1. Mark

            at 11:36 am

            @Chris
            You do you. I’m betting on a strong V SHAPE Economy. Remember?

  2. John

    at 12:58 pm

    Oh my David, you need to stop cutting your own hair! There are quite a few memes circulating on social media these days and I think you might relate.

    1. Bal

      at 4:37 pm

      Only emails I am getting these from housesigma is……terminated listings…so I guess sellers and buyers all are on the hold mode….. let’s see how things will turn out…..oil collapse is worrisome….

  3. Chris

    at 4:00 pm

    Alright, let’s add Tony to the board for January or February 2021!

    In other news out today:

    “Finally, good news for renters as prices are expected to lead property decline”

    https://www.cbc.ca/news/business/renters-covid-19-1.5536547

    With quotes from HIlliard MacBeth and Ben Rabidoux, I’m sure appraiser is going to love this mainstream media take on the situation!

  4. Derek

    at 1:45 am

    Bear with me here. There’s obviously a lot of print speculating on prices and where they may go with our Host, our LG and the other smart people, with their better than my grasp of data…

    I think about the multi year decline that I hear occurred here in 89/90 through 96((?) or so;

    I think about the action of 2016/17, the decline from that high and the seemingly, for some, casual dismissal of that whole cycle;

    And I wonder, I wa wa wa wa wonder why, present outcomes could be less severe than either of those decline patterns?

    1. Chris

      at 8:15 am

      I have no idea. Between the pandemic, negative oil prices, record high household debt levels, and very little scope to lower interest rates, we appear to be in a much worse position today than in 1989 or 2017.

      Yet some people seem to think the market will just shrug all this off? Demand will remain perfectly consistent and come roaring back, despite AirBnB being decimated, unemployment spiking, credit tightening, immigration slowing, etc.?

      I’ll admit the Toronto real estate market is resilient. But to skate through all of this seems like a tall order.

      1. Kyle

        at 10:11 am

        Demand doesn’t need to “roar back” to the near all time highs experienced just before the lock down happened, where it was far outweighing supply by multiples. It doesn’t even need to remain at the same level it was before. It just needs to remain above supply for prices to remain stable and begin rising again in Toronto.

        The key to this is high paying jobs staying intact, not irrelevant jobs like oil patch jobs or gig economy jobs, those have little to no impact to Toronto’s real estate.

        1. Chris

          at 10:34 am

          “The key to this is high paying jobs staying intact”

          “A Second Round of Coronavirus Layoffs Has Begun. Few Are Safe.
          People who thought their jobs were secure, including white-collar professionals, increasingly face unemployment”

          https://www.wsj.com/articles/a-second-round-of-coronavirus-layoffs-has-begun-no-one-is-safe-11586872387

          A few of us here were just the other day discussing layoffs at some of the big 4 accounting firms. While invariably lower income workers will take the brunt of the pain, higher earners are not immune.

        2. Derek

          at 10:34 am

          Kyle, I have seen the sentiment expressed a few times, that certain impacted jobs (you used gig economy jobs as your example) are not attached to people impacting the GTA RE market. Somewhere else, someone commented that those relying on the $2,000 income supplement were not buying houses anyway, as another example. Is anyone aware of any data? My thought is that there might be a much larger and significant proportion of couples where one person is a secure higher income bread winner, but the other’s gig economy work or service industry work, etc., is absolutely essential to the family’s finances and ability to carry the mortgage and other expenses. I’m just wondering if there could be an inherent error in dismissing the impact of those earners being out of work when many of them would have been critical to the family unit’s bottom line. Yes, no, maybe?

          1. Kyle

            at 11:12 am

            @ Derek,

            Sure there will be many unique situations that could be impacted, but to actually have a meaningful impact to house prices there needs to be a significant number of situations that *are* impacted. Which given were the job losses are occurring i don’t see happening. I know some people like to pollute the comments with a barrage of every negative thing they can possibly find without giving it the slightest second thought, but not all negative factors will have a meaningful impact to Toronto real estate.

            It isn’t simply whether there will be job losses in an economy, of that there is no doubt. It’s a matter of how many of those who were/are looking for a home experience job loss. And are there enough of those to actually shift to a situation where supply is greater than demand?

            When you look past the negative headline message and ask what the real impact is, then you start to realize why the Toronto market has been so resilient.

            Sure there are a lot of lay offs and people in Canada applying for benefits, but what percent of those people are in Toronto? And what percent of those were in the income bracket that actually transact in houses? And what percent of those were actually in the market to buy? Sure there will be some percentage remaining after you ask each question, but as you keep going through the logical progression the numbers start getting less and less material (i.e. a fraction of a fraction of a fraction, etc).

          2. Kyle

            at 11:21 am

            Also, if we accept the following two statements: 1) that lower income people are far more impacted than higher income people and 2) Renters tend to be lower income than home-owners/buyers, then we can take something away from the March rental defaults. 85% of renters were able to make a rental payment on April 1, so the number of people who can still afford homes should be significantly higher.

          3. Derek

            at 11:34 am

            Thanks Kyle, good points. I feel like there is a big smelly hot soup of factors, some yet to be added to the pot, and it remains to be seen which ingredients will dictate the outcome.

          4. Chris

            at 11:38 am

            “Sure there are a lot of lay offs and people in Canada applying for benefits, but what percent of those people are in Toronto? And what percent of those were in the income bracket that actually transact in houses? And what percent of those were actually in the market to buy?”

            And what percent of those people are current homeowners, who are now without employment? And what percent are renters, who are now unable to pay their full rent? How is demand impacted by reduced speculative investment, less access to credit, and reduce population growth? How is supply impacted through all of this?

            Agree with Derek, there are a myriad of factors at play here, beyond simply white-collar job losses. Which, again, are also being impacted:

            https://www.washingtonpost.com/business/2020/03/28/white-collar-coronavirus-recession/t

    1. Chris

      at 8:10 am

      Capital Economics forecast is for home price movement from now until July. No mention of what happens after these next few months.

      And as Pasalis said the other day, a couple distressed sales are outliers. Start getting more though, and it begins to shift the market price. But as an appraiser, you knew that, right?

    2. Verbal Kint

      at 11:26 am

      Price is what people are willing and able to pay, today. Is there a better proxy than today’s price for today’s value? I don’t recall you ever suggesting a divergence between the two on the way up.

      1. Appraiser

        at 7:08 pm

        “Price is what you pay, value is what you get.” ~ Warren Buffett.

  5. Chris

    at 8:19 am

    Ron Butler with an anecdote:

    “Decent street in Oakville, not luxury homes but nice neighborhood

    Listed 5 weeks ago $1.070M

    Reduced to $995K 2 weeks ago

    Accepted $890K on the weekend

    There are comps on the street all slightly over $1M in 2019 so it’s not far out starting point on the list price

    That’s a 16% reduction and nothing has sold on the street under $955K for 3 years“

    https://twitter.com/ronmortgageguy/status/1252370348084883475?s=21

    1. Bal

      at 9:04 am

      I will be curious to know the streett name….as I did not find anything on housesigma….lol….i am interested as I am searching in Oakville..lol

    2. Jimbo

      at 4:17 pm

      Sometimes people just need to sell, divorce, death etc. I’m sure they are not complaining if they bought that house over 5 years ago…. Their neighbors on the other hand may be a little upset.

      1. Chris

        at 4:55 pm

        Ron Butler delves a bit more into the situation in some other tweets and replies to the one I posted above.

        Apparently they bought the home 11 years ago, so not an issue of losing money on that house. They had to sell because they bought a new home three months ago.

        1. Natrx

          at 1:14 am

          I don’t get how people have such a disparity of buying their new place.. then selling their existing place months later. Did they just get over excited and bid after going to an open house? Were they trying to squeeze extra months of income game? Maybe both?

          1. Jimbo

            at 9:24 am

            If you sell before you buy you could end up homeless in Toronto. Imagine selling your house and then bidding on and losing 5,6,7 times etc. You could end up buying something worse than what you were living in.

        2. Jimbo

          at 9:25 am

          That makes sense. Now increasing your mortgage amount could be disastrous if the bank says no!! My guess is they just have to eat that cost over 20 years vice 15.

  6. Mark

    at 11:27 am

    Trump just announced NO IMMAGRATION TO THE US!!
    That’s going to last a long while, as long he is leader. So, will they be coming to The GOLDEN HORSHOE of Canada?
    Just a thought….

    1. Chris

      at 11:32 am

      Our borders are essentially closed right now. Once they re-open, a spike in immigration alongside high unemployment sounds like a recipe for political suicide.

    2. Bal

      at 12:54 pm

      Good Point Mark..I thought about it too….I think immigration will increase in Canada…

    3. Kyle

      at 7:07 pm

      Mark, you are defintiely on to something here. There is a very clear correlation between immigration and economic activity. It isn’t a coincidence that Toronto and Vancouver (areas where a lot of immigrants settle) have been the centres of where most of the jobs in Canada have been created, while places where few immigrants settle such as the Maritimes have economies that struggle.

      I think as we get back to normal, there are going to be people from around the world who want/need to get back to work and will be willing to go where the work is. It would definitely be an advantage to welcome these hardworking people rather than keeping them out.

      1. Derek

        at 12:42 am

        I think immigration policy is more complicated than that. I wonder what percentage of the last couple years’ 600k or do immigrants are out of work right now due to covid.

        1. Chris

          at 8:15 am

          Yep, exactly right Derek.

          “Yet, history shows economic downturns almost always lead to less migration into Canada, even without the unprecedented travel restrictions associated with the pandemic.

          “We may be left with a legacy of higher unemployment through 2021 that could cause governments to rethink the near term immigration targets,” said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce in Toronto.”

          https://business.financialpost.com/pmn/business-pmn/faced-with-crisis-trudeau-forced-to-shift-on-immigration

          Seems highly unlikely that, in a deep economic downturn, which we are almost certainly facing, immigration would remain consistent or increase. People will be less inclined to come if their job prospects are poor. And Canadians will be less receptive to migration if swathes are unemployed.

  7. Mark

    at 11:35 am

    @Chris
    You do you. I’m betting on a strong V SHAPE Economy. Remember?

      1. Bal

        at 12:55 pm

        I guess no one knows what is going to happen…everyone is just playing guessing game

        1. Chris

          at 1:52 pm

          Nobody can see the future, but they are making educated guesses. As the Bank of Canada said last week, “The outlook is too uncertain at this point to provide a complete forecast.” So, instead, they provided a range of forecasts, much of which depend on how the pandemic progresses, when lockdowns are lifted, and if second waves of infection materialize.

          1. Chris

            at 10:17 pm

            Does sound like mortgage deferrals, CERB, etc. are helping people keep their heads above water. Probably a big reason why commentators like John Pasalis think the next 2-3 months will be less telling than 6-12 out, once the deferrals and government handouts have presumably subsided.

          2. condodweller

            at 10:19 pm

            Everything is dependent on the virus. Be wary of anyone who tells you what is going to happen and when. Last I heard was that we might start thinking about easing when new cases get down to 200 per day. I’m guessing that’s at least a month away considering we haven’t peaked yet. In fact we are setting new records for the past two days.

            According to experts the new case graph is symmetrical therefore it should take about the same time to get down to no new cases as it takes to get to the peak. If we take the beginning of March since the start we are a solid month and a half into it and if today is the peak it would take us to mid June. That’s assuming the same restrictions. If we ease things on the way down it will take even longer. IMHO we should be patient and keep things as they are until we do get down to close to 0 new cases. But I know that’s not going to happen.

          3. condodweller

            at 10:22 pm

            @Chris I didn’t see your comment when I wrote mine. This is why I think it would be better to sit tight for the next couple of month and let new cases die down before easing. With deferrals and the CERB etc. we should be able to get by. The key would be to make sure no one falls through the cracks and we feed everybody in need.

          4. Chris

            at 10:50 pm

            “Everything is dependent on the virus. Be wary of anyone who tells you what is going to happen and when.”

            Exactly. People on this blog were initially confidently dismissing Covid-19 as a non issue. Then, once it became clear it was a serious concern, they started celebrating when new cases had fallen for a day or two in mid-March, prematurely claiming things were improving. Looking back, many of their comments have aged like milk.

            The reality is, we don’t know what is going to happen. The CDC in the USA is warning of a potential second wave come Fall. There are also numerous vaccines in development. So maybe things get worse, or maybe they get better?

            Condo, it continues to seem the majority of Canadians are on board with your opinion. From Angus Reid yesterday, 77% say it is too soon to begin relaxing social distancing requirements and business closures, with a plurality feeling May/June would be appropriate to begin lifting restrictions.

            http://angusreid.org/covid19-return-to-normal/

    1. Kyle

      at 7:30 pm

      According to Goldman Sachs, China’s industrial activity is back to normal
      https://twitter.com/jsblokland/status/1252701425798430722

      Meanwhile other are calling South Korea’s recovery a Nike Swoosh shaped recovery. Basically a v-shaped with a really long upward tail. And it looks like Ontario is not far behind.

      “Based on recent data, if current measures restricting spread of the disease remain in place, Ontario appears to be tracking toward the South Korea (“best case”) scenario,” the report said.

      https://globalnews.ca/news/6841797/ontario-coronavirus-covid19-updated-projections-modelling/

  8. condodweller

    at 11:54 pm

    Thanks for the Q & A. Good to hear things from someone close to the action.

    Correct me if I’m mistaken though but I seem to recall that Tony recommended borrowing from a HELOC to make mortgage payments instead of deferring payments. This may not be the best advice considering HELOC interest rates are roughly double of current mortgage rates.

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