Be honest: do you find mortgages to be somewhat, oh, I dunno, say, boring?
Of all the topics that we cover on Toronto Realty Blog, is this the least exciting?
Some people like MLS Musings and Photos of the Week. They don’t love stats-based blogs like what you’ll find in the “Market Stats” category, but the regular readers love a solid stat, either to agree with, or poke holes in.
“Stories” from the trenches, or anything filed under “Opinion” always make for interesting reads and have some of my highest view rates. Who doesn’t like to hear behind-the-scenes war stories from multiple offer nights?
Condo development, renovations, international real estate – I think all of these topics are a bit sexier than mortgages.
But you know what? Like it or not, this is going to be one of the hottest topics over the next few months, at least for those who actually care, and don’t just want real estate porn and click-bait.
I feel as though those who comment on TRB regularly will benefit from an update on the mortgage market, as the goings-on will either strengthen or hinder their respective bullish/bearish arguments.
Personally, I thought there would be a lot more going on than there actually is; not to spoil the surprise.
Nevertheless, I sat down for a good chat with my mortgage broker, Tony Della Sciucca this week, and hammered out what I think are the most burning questions.
I’d like to share that with you, but I would also like to know what you want to know.
So have a read through today’s blog, and then Tony and I will put together a subsequent Question & Answer for next week, answering your questions, which I’ll let up a thread for below.
David: “Tony! What’s keeping you busy these days?”
Tony: “Haha you mean in work or life? Um, Netflix? I must say, some good shows out there. Unorthodox was great! Did you watch it? Work-wise, it’s a lot of calls with clients, lenders, referral sources, etc. Trying to stay top of mind and help out any way I can. There’s a LOT of moving parts right now and I’m just trying to stay up-to-date with everything.
David: “What’s coming across your desk the most?”
Tony: “It’s a bit of a mixed bag right now, but the bulk of it was refinances, with a few purchases and secured lines of credit thrown in there. In terms of transactions, it’s slowed right down.
David: “Are a lot of people refinancing?
Tony: “Up until two or three weeks ago when 5-year, fixed-rates were 2.49%, many people were. Now, with fixed rates hovering around 2.99%-3.09%, there aren’t as many. It’s easy to justify breaking your mortgage when the interest savings offsets the penalty it’s costing you to break it. But when it doesn’t, I generally advise against it.
David: “Are you still doing pre-approvals? Are the banks doing them?”
Tony: “Personally, I’m not doing as many these days. COVID has really slowed the pace down, but the good news is that banks are still adjudicating and underwriting them.
David: “Is there any point in doing a pre-approval right now if we don’t know what’s happening with the mortgage landscape in 3-4 months’ time?”
Tony: “Of course there is! It’s never a bad time to get pre-approved, especially during these times. There’s obviously quite a bit of uncertainty out there right now for everyone, but it’s always wise and prudent to be as prepared as possible. Banks are still lending, rates are still low, and many people are still working, albeit remotely. Not to mention, pre-approvals come with the added value of locking in rates for 120 days. If you’re on the fence and thinking of ultimately buying, it’s always best to get one done.
David: “We read in the newspapers last week that banks are doing mortgage deferrals but are charging interest on the interest. What’s that about?”
Tony: “The short answer is: yes. There’s a bit of ambiguity around this as each lender has their own guidelines, but it seems to be the case with our big banks. I think the media has done a poor job in disclosing the fine print. Headlines can feel warm and fuzzy, but the reality is, and pardon the expression, there are no free lunches. Borrowers are simply deferring their payments to assist with temporary cash flow relief, only to have those payments accumulate and increase later with additional interest.
David: “What’s happening with interest rates?”
Tony: “Both fixed and variable rates have remained quite steady over the last week or so. For refinances and those purchasing over $1,000,000 and putting 20% down, the 5-year fixed rates are currently trending around 2.99%, while variable rates are trending around prime plus 0.25%, so 2.70%. High-ratio and insured mortgages (those purchasing with less than 20% and/or purchasing under $1,000,000) are getting 2.79% on a 5-year fixed, and prime plus 0.10%, so 2.55%.
David: “A lot of people were upset that the Bank of Canada reduced the overnight lending rate twice, right down to 0.25%, and the Big-5 banks didn’t lower rates, but actually raised them.”
Tony: “To clarify, banks reduced their prime lending rate equally by 50 basis points from 2.95% to 2.45%. What they are not doing is providing a discount to their prime lending rate. You’re right, they’re adding a surplus to it. Historically, banks would offer a discount to prime rate. Today, because margins have been significantly reduced, it’s not the case. The good ol’ days of “prime minus” are gonzo. Unlikely, the will make a comeback any time soon.
David: “Are banks still doing rate-holds?”
Tony: “ Yup! Rate holds and pre-approvals have not stopped. The show goes on.
David: “Are banks pulling out of pre-approvals and mortgage commitments?”
Tony: “Personally, I haven’t experienced any of this, but banks are entitled to cancel or change approvals if there is material changes that have occurred from the original pre-approval, ie. job loss, income reduction, changes in employment etc. On a positive note, lenders are working with those borrows that have been impacted by COVID-19 to ensure they can still meet their mortgage payments and/or have savings set aside for those payments. No one wins if we’re putting our clients into mortgages they can’t afford to make payments on.
David: “Have you had any clients come to you sand say that the bank pulled their commitment, and now they need you to work some magic and find them another lender?”
Tony: “To date, thankfully not!
David: “This might be tough to answer, but in a hypothetical situation where two people buy a house and are scheduled to close in June, but one loses their job, what does their mortgage frontier look like?”
Tony: “This is a tough one, but assuming all conditions have been met, the clients are expected to close, unless they’re willing to forfeit their deposit on the purchase. Anyone in this situation should try to close on their purchase and work with their bank/lender to defer mortgage payments down the road. Alternatively, if you can lean on family or friends for some help, that’s always a good idea. If you have access to credit, use it. Lastly, if you can get an extension to closing, that’s always a bonus!
David: “What type of fears do the banks have right now?”
Tony: “I’d say quite a few. Everything from mortgage defaults, rise in unemployment, potential extension of mortgage deferrals, implementation of new policies and procedures, stock prices, and most importantly timeline on a vaccine.
David: “What’s the worst-case scenario for these banks, and how does that affect their lending criteria?”
Tony: “My own personal thoughts on this: if we continue on the same trajectory for another 3-6 months, liquidity will become a growing concern, lending will tighten and mortgage defaults will sky-rocket.
David: “Do you know how banks have changed their criteria now?”
Tony: “Lending policies and guidelines are still somewhat the same. Banks want to ensure that borrowers can afford to make their payments. If anything, we’re seeing banks become a lot more conservative in overall lending.
David: “What happens to people who have had trouble with mortgage approvals in the past, ie. contract, commission-based, stated income, etc.?”
Tony: “For those of us that are commissioned based, contract or self-employed, the struggle continues. This has been the case for quite some time now. Particularly during these times, banks are primarily concerned with confirmable income regardless of credit score, down payment and current equity in home. After expenses, if you’re reporting very little income to Revenue Canada, don’t be shocked when the banks decline your request for financing. In most cases, we turn to our good friends in the alternate lending space who do a very good job at accommodating these borrowers.
David: “Do you foresee any new mortgage products on the horizon when things get back to ‘normal,’ whatever that may be?”
Tony: “ We’ve been hearing rumblings of various products for quite some time now, but nothing concrete. It would be nice to see insured mortgage over $1,000,000 and the possible resurrection of a 35-year amortization, but this is just wishful thinking on my part.
David: “Any idea what mortgage defaults are looking like?”
Tony: “ I think it’s still a bit too early to tell, but I suspect it will not be pretty when those numbers come out in 6 -12 months from now.
David: “What about B-lenders, credit unions, and mono-lines. What are they saying? Anything different from the Big-5 banks?”
Tony: “Some changes, but as previously mentioned, the majority of lenders are being extremely conservative and cautious when lending. On refinances, we’re seeing some of our alternative lenders reduce their loan to value to 65%-75%.
David: “What’s going on in the private mortgage market right now?”
Tony: “With some of our investors, we’ve seen a total shut down. No new lending at all. While others are still open to the idea of lending subject to: loan amount, loan to value, allocation of funds etc. Most investors are hoarding cash until there’s a sense of normalcy out there.
David: “How are banks adapting to social distancing when it comes to closing deals?”
Tony: “To their credit, they’ve adapted quite well and very quickly to the overall lending environment. Electronic signatures, remote signing with a lawyer, and virtual appraisals are just a few changes they’ve adopted in the last 3-4 weeks.
David: “Back to the Big-5 for a moment. If the banks aren’t discounting rates, and are charging interest on the mortgage deferrals, do you think there’s an opportunity for the federal government to bail them out, since the federal government has bailed out everybody else?”
Tony: “To be clear, banks are still offering discounts on fixed rate mortgages. Interest rates, both fixed and variable are still sub 3%. Relatively-speaking, very cheap money to be borrowing these days. I’m not sure if I would use the term “bailout”. The Bank of Canada, along with other central banks, have taken every measure possible to support the functioning of core financial markets and provide liquidity to various financial intuitions. I don’t see our banks becoming fully illiquid anytime soon.
David: “Okay man, that’s just about every question I had come up with. I’m sure I’ll have others as I start writing this all up, but I think we should do a follow-up when the readers have had a chance to poke holes in some of your comments, and ask questions of their own.”
Tony: “Haha yeah your readers are a fierce bunch! I’m happy to clarify any of the answers, or even debate them if they want. I’m also obviously happy to do a follow-up too.”
David: “Okay well that will be on video though, so just don’t do anything stupid like grow a moustache.”
Tony: “Alright, duly noted! I’m looking forward to seeing what you guys come up with.”
As I said at the onset, there’s a lot less going on than I thought there would be.
Does this mean I’m just pessimistic, and/or have no faith in the banks to play fair in tough times?
Yes, it does.
I thought the banks would be way tougher right now, but there’s still time for that.
I hope this answered any questions you folks might have had, but I’m assuming there will be others.
I’ll create a thread immediately below, and if you’ve got follow-up questions for Tony, please ask. I’ll put together a video for next week with the questions and answers.
Tony’s contact info for anybody in need:
Tony Della Sciucca
Mortgage Agent, FSCO Lic: #12214
Dominion Lending Centres
tony.dellasciucca@dominionlending.ca
David Fleming
at 9:23 pm
Any questions for Tony, please ask them in this thread!
Natrx
at 10:21 am
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.
Mike
at 11:02 am
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?
condodweller
at 1:45 pm
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.
Deb
at 9:44 am
This might be a little novice for some people in here but can you explain the math in when it makes sense to refinance?
Chris
at 12:31 am
Tony, you want to wade into our guessing game? When does Feb 2020 GTA average sales price get restrained?
Ed
at 8:08 am
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?
Ed
at 11:39 am
oops, my questions are in the wrong thread.
me no read english good maybe?
Chris
at 9:34 am
Looks like OREA is starting to clamp down on those who don’t toe the line:
“Realtor faces professional, community backlash for incendiary letter warning of bank foreclosures
An advertisement from a London realtor, who warned people to sell fast to get top dollar before the coronavirus pandemic triggers “many home losses to the banks,” is disappointing, the head of Ontario’s Real Estate Association said.”
https://lfpress.com/news/local-news/realtor-faces-professional-community-backlash-for-incendiary-letter-warning-of-bank-foreclosures
I wonder if they sent similar warnings to agents who told their clients to “buy now or be priced out” a couple years ago?
Graham
at 10:00 am
She works in the Hamilton Road area of London, eh. Nice. Here’s a sample:
https://www.realtor.ca/real-estate/21749467/627-hamilton-road-london
https://www.realtor.ca/real-estate/21736227/159-st-julien-street-london
https://www.realtor.ca/real-estate/21488132/103-vauxhall-street-london
https://www.realtor.ca/real-estate/21726677/44-giles-street-london
$375,000 on Giles Street! Come on Amanda.
Pragma
at 10:07 am
It’s called a credit cycle which Canadians are unfamiliar with. All that most people know is that real estate goes up always so take the biggest and lowest quality loan you can get because higher prices will bail you out. Anyone who thinks house prices will bounce back in a year or two is delusional and has no concept of how markets work. Real estate is a slow moving market. It will take many years to reach a cyclical low and many years to return to current levels. Just ask anyone in the US or Spain or Portugal on how real estate works. All of these countries were once at the top of the debt leaderboard. Now we are. What does everyone expect, we’re going to spend another 10 years leading the world in debt? How come no other country has managed to do that?
Chris
at 10:17 am
“Anyone who thinks house prices will bounce back in a year or two is delusional and has no concept of how markets work.”
Care to join in our guessing game? We’re trying to predict when GTA Average Sales Price will re-attain $910,290 hit in Feb 2020.
David’s guess is Oct 2020
Condo’s guess is Feb 2023
Derek’s guess is April 2022
My guess is April 2024
Potato’s guess is the 2030s
Pragma
at 10:36 am
oh wow David guessed October of this year?! I will guess 2028.
Chris
at 11:09 am
You and Potato are making me look positively bullish.
David Fleming
at 11:49 am
Is it too late to revise my guess?
I still think you guys predicting 2023-2024 are insane, and Potato is downright wacky. I think the average home price in “the 2030’s” will be in the mid-million range.
But October? Hmm, probably not. We shall see!
Chris
at 12:02 pm
Might have to ask Derek for permission, it was him who launched this game.
But, I’m curious to hear your new prediction, David. If not October, when do you think $910,290 will re-occur?
David Fleming
at 9:53 am
@ Chris
I still don’t think it’s that much further off. I would say March/April of 2021.
But this isn’t based on a bull turning bear. This is just understanding how the market is functioning right now.
The only product moving right now is low-end condos, and low-end houses. The “luxury” market is going to be on pause for the rest of the year. This, alone, will push the average sale price down massively, irrespective of any actual price declines.
The problem with the “average sale price” metric is that we use it for value purposes. I will admit that a $1,000,000 house in February will not get $1,000,000 today. But is it “worth” less? Or is it just a bad time to sell? Is a property worth what somebody’s willing to pay, or is there an intrinsic value?
If the Ford government lifts the state of emergency on May 14th, then listings will pour in. Buyers will slowly return, and our market will be functioning this summer. This will lead to an odd, somewhat sluggish fall, but properties will move. Then the “normal” returns in January, and we build momentum and return to where we left off. That’s my prediction.
Derek
at 9:01 pm
First case of guesser’s remorse! You, of course, will be looked upon for updated commentary and opinions as events evolve. But, Chris has chiseled the original guesses in stone!
Chris
at 10:17 am
Alright, we’ll put you down for March/April 2021!
“Is a property worth what somebody’s willing to pay, or is there an intrinsic value?”
John Pasalis had a good post on this topic a couple days ago. Essentially, he feels that one sale does not dictate market value, but multiple sales begin to shift it.
https://twitter.com/JohnPasalis/status/1249727726812106755
You’re more optimistic than I am with regards to re-starting our economy. Personally, I don’t see us lifting restrictions by mid-May, but that’s just my guess. Further, Trump essentially deciding to prioritize the economy over pandemic mitigation isn’t going to help (although I’m sure Brad Lamb welcomes it).
From the Bank of Canada’s Monetary Policy Report published this week, their optimistic scenario has GDP back to pre-covid levels in early to mid 2021. However, their pessimistic scenario doesn’t have us back to pre-covid levels until approx. 2023.
Call me negative, but given how many data points have surprised to the downside, how quickly economists have been revising down their projections, and how vulnerable our economy was even before the pandemic and oil price crash, the pessimistic scenario more likely in my view.
But who really knows, this whole thing is a crapshoot!
Jeff
at 1:25 pm
In real inflation adjusted terms? My guess is never.
We’ve hit the peak of the “city cycle” and I think cities are again on the long path to becoming viewed as inner city slums once again. But it will take a decade or more for that to fully realize.
Chris
at 3:22 pm
Alright, let’s update the board!
David: April 2021
Condo: Feb 2023
Derek: April 2022
Chris: April 2024
Potato: Sometime in the 2030s
Pragma: 2028
Jeff: Never (adjusted for inflation)
Still waiting on appraiser, Kyle, Bal, Kramer, Shanker, Housing Bear, Ed, J G, etc.
Condodweller
at 7:29 pm
So when would Potato have to lock in the year? By 2029?
Also, what happened to predicting the bottom?
David Fleming
at 8:17 pm
@ Condodweller
We’re at bottom, buddy. Trust me on this.
There’s going to be a lack of supply when things start up again. Bears think that job losses are going to force mass sales, but I think the would-be downsizers are all going to hold off for another year or two, and we’ll see a drop in detached, single-family homes over $1.5M.
Derek
at 8:47 pm
Wow ???? bold call!!
Chris
at 9:34 pm
David, can you clarify your comment? You think the $902,680 average price of March 2020 is the bottom?
You’ll forgive me if I’m skeptical. That average price is still 14.5% above March 2019, and a mere ~$20k off the all-time-high of 2017.
Meanwhile, our lockdown continues and will remain for “many more weeks” per Trudeau, immigration and population growth have ceased for the foreseeable future, the Bank of Canada is predicting our economy will contract by between 6.5% and 19% in 2020, and 7.9M Canadians are currently out of work and on CERB/EI (37% of our entire labour force for anyone curious).
Sorry, but I think you’re going to be pretty disappointed if you’re predicting a quick rebound to normalcy here. Or if you think $902k is the bottom.
David Fleming
at 10:46 pm
@ Chris
Sorry, I was speaking off the cuff, and somewhat metaphorically.
I mean that the time period we’re in right now, ie. a pandemic, is the bottom of our current curve. Generally-speaking, and with a long-term view, I do believe that this pandemic and the associated prices that buyers might obtain, and sellers might endure, will represent “bottom” over the course of 2-3 months.
I don’t believe that the market conditions, and real estate prices, in, for example, the fall of 2020, will be worse than what we’re seeing now.
Derek
at 9:59 pm
My guess (I’m sure he will speak for himself tho) is that he means April is down from March and is the low subject to end of Ontario emergency @ mid May
I’m skeptical also, but optimism is not a terrible thing these days.
Chris
at 10:15 pm
Most preliminary data I’ve seen (Zolo, some realtors doing their own tracking, etc.) looks like average price is down about 10% from March’s figure.
So, if we assumed that will hold relatively consistent to the end of the month, that would put GTA average price at about $815,000 for April.
For reference, January 2020’s average price was $839,111. April 2019’s was $820,373.
More plausible than the $902k bottom, but still seems overly optimistic from my bearish perspective.
condodweller
at 12:24 am
“I mean that the time period we’re in right now, ie. a pandemic, is the bottom of our current curve. Generally-speaking, and with a long-term view, I do believe that this pandemic and the associated prices that buyers might obtain, and sellers might endure, will represent “bottom” over the course of 2-3 months.”
I would agree that the low will be tied to the pandemic all though I would push out the low until some time after the pandemic is resolved where we get back to the new normal. However I believe it will take much longer than a few months. How prices recover after it’s over will depend on how bad things get economically during that time. The harder the “landing” the longer the recovery IMHO. The vaccine is let’s say two years away, adjusting for manufacture and time to immunize most of the population takes us to the end of 2022. If this plays out even my 2023 high is way too optimistic.
Having said that, if we get some relief in the form of a therapeutic drug which prevents deaths for those infected we could see the low sooner but even then, those drugs are subject to manufacture and distribution timelines. I heard the US is having some success with some of their drugs meant for other diseases and plasma transplants. So there is a glimmer of hope.
I think the fact that none of the bulls are weighing in indicates to me that even they are not so bullish anymore, for the short term anyway.
Kyle
at 5:37 pm
I’m with David, i see a definite recovery by Fall assuming restrictions begin to lift by this summer. Whether we’re higher than February’s number (which was just a hare’s breath from the all time high) is uncertain, but i see the trajectory being up. If it doesn’t surpass February’s number by Fall, then i see it happening by April 2021.
Chris
at 9:35 pm
Alright, let’s add Kyle’s unsurprisingly bullish guess (or pair of guesses) to the board!
As things stand now, sorted by date:
Kyle: Fall 2020 or April 2021
David: April 2021
Derek: April 2022
Condodweller: Feb 2023
Mxyzptlk: April 2023
Chris: April 2024
Pragma: 2028
Potato: Sometime in the 2030s
Jeff: Never (adjusted for inflation)
Mxyzptlk
at 12:19 am
I consider myself somewhat more bullish than Chris yet somewhat more bearish than Derek, so April 2023 therefore sounds about right to me (pretty much where Condodweller sits).
Chris
at 12:26 am
We’ll add you to the board!
And hey apparently I’m not that bearish – have you seen some of those other predictions??
Appraiser
at 10:38 am
Bounce-back? How much have they dropped?
Chris
at 11:03 am
“5) What will prices look like?
Down.
To the seller in the story above, stop denying. Stop with your agent’s pathetic, see-through, counterproductive tactics. That will backfire. Accept that prices are down, and move forward, not back.”
– David Fleming, April 14, 2020
Derek
at 8:58 pm
C’mon Appraiser, make a guesstimate.
Appraiser
at 10:09 am
Condos were up 18% year over year, just before COVID.
If the market drops 18%, it will be where it was last year.
Which was already outrageous – no?
Bears won’t be happy no matter what.
Chris
at 10:48 am
The question was to predict when we’ll re-attain Feb 2020 average price; not what will make bears happy.
Your math is also wrong. Up 18% then down 18% doesn’t bring you back to your starting point. For example, 100 up 18% is 118, then down 18% is 96.8.
Appraiser
at 10:35 am
OREA is powerless to “clamp down” on anything related to this matter – and a redundant mostly useless organization at this point.
They’ve evidently forwarded a complaint to RECO. Good luck with that!
” It’s the @OREAinfo who should be getting disciplined for limiting freedom of speech.” ~Steve Saretsky
https://twitter.com/SteveSaretsky?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor
P.S. Do you have any examples of agents professing the mythical “buy now or be priced out” analogy, or are you just parroting all of the other bears who are losing their minds and bloviating incessantly on social media about this supposedly unforgivable transgression?
Don’t bother – I already know the answer to that one. Still nothing original.
Chris
at 11:08 am
“OREA is powerless to “clamp down” on anything”
And yet, there they are, attempting to stifle one of their member’s professional opinion in the media. Saretsky is correct.
“Do you have any examples of agents professing the mythical “buy now or be priced out” analogy”
A quick search provides:
“Huge avg price % increase. The market is really heating up due to low inventory. #Toronto buy now save$. Contact me.”
https://twitter.com/MarkTORealtor/status/718797614360236032
Feel free to conduct your own search if you’re seeking additional examples. Google is a great resource.
“Still nothing original.”
Quite rich, coming from the guy who’s been pasting numerous quotes and article links the past couple days. Pot, meet kettle.
Appraiser
at 10:03 am
“Economists React to the Bank of Canada’s Rate Announcement”
“…Relevance to mortgage shoppers: Financial markets agree too. With risk premiums in the bond market falling — lenders’ costs of capital decline. When lenders pay less, borrowers eventually pay less, all else equal. That implies better fixed and variable-rate discounts to come.”
https://rates.ca/resources/economists-react-to-the-bank-of-canadas-rate-announcement?utm_campaign=BoCeconomists
Chris
at 10:07 am
From your article:
“In its statement, the Bank did say, however, that it expects GDP to drop as much as 30% in the second quarter, compared to the end of 2019. It also sees CPI inflation near 0%, a stunning change that reeks of potential deflation (one of the market’s worst nightmares).
“There may not be a traditional forecast here, but the Bank’s messaging is clearly ‘buckle your seatbelts.’ Even in its optimistic scenario, the Bank of Canada foresees an unprecedented economic shock,” said Brian DePratto, Senior Economist, TD Economics.”
Ed
at 11:47 am
potential deflation (one of the market’s worst nightmares).
/////////////
Yeah I just don’t see deflation. Short term prices will most likely drop because of reduced demand, or should I say pent up demand. But there is too much money flowing into the system for any type of deflation to last long term. BTW I am not referencing the housing market.
Chris
at 12:06 pm
“Central banks’ innovations will also have lasting consequences. Few economists believe that the explicit co-operation between the fiscal and monetary authorities risks creating runaway inflation, as it has done in Venezuela and Zimbabwe, any time soon. (If anything, the bigger worry right now is deflation, not least because of a collapse in oil prices.)”
– Rich countries try radical economic policies to counter covid-19, The Economist, March 26, 2020
None of us can predict the future, but all the actions central banks are taking right now seem squarely aimed at preventing deflation.
Mark
at 2:05 pm
@Appraiser always spot on.
@Chris, “V-Shape” Lol.
Ed
at 3:07 pm
ok sure, let’s say because of the drop in oil everything becomes cheaper. For this ‘depression’ to take hold would mean people are going to hold off purchases because they think prices will fall even further and that is what I don’t see happening. This isn’t the 1930’s, given the chance to go out shopping (when we are finally allowed) and having some cash in your hand means it’s gonna get spent.
Today’s consumer in nothing like ones from 50 years ago.
Chris
at 3:33 pm
“having some cash in your hand means it’s gonna get spent.”
Maybe. But if you’re one of the ~6M Canadians who have applied for CERB/EI, chances are you’re going to be very careful as to where and how you spend your monthly $2,000.
Meanwhile, from the Bank of Canada’s Monetary Policy Report press conference, a major concern is clearly deflation:
“Today, the situation is very complex. However, Governing Council agreed that the balance of forces points to weaker demand and a decline in inflation as the dominant concern.”
https://www.bankofcanada.ca/2020/04/opening-statement-150420/
HVAC Mike
at 7:38 pm
Well I bought a house mid march and now I need to sell my place.
Do I try and put it up ASAP or try and carry both mortgages then try and list it end of summer? Or try and lease/rent one out in meantime? bad timing I know but been looking for a house last 8 months and finally found one we needed.
Dave
at 2:56 pm
I would try to carry both mortgages and look for a quick closing after Labour Day.
The risk of renting is that you get a bad tenant and have to carry both mortgage with no end in sight.
Ed
at 3:49 pm
Or maybe a short term rental to someone who is renovating their house.
condodweller
at 5:02 pm
It largely depends on whether or not you can carry both or not. Since there hasn’t been a significant price drop yet, one option would be to list asap before prices do drop further.
As David said in a recent article just because you could have got say 25k more for it in Feb doesn’t mean it’s a bad deal if you can get it now for 25k less. We might see the reverse of what happened with FOMO on the way up. As people accept lower prices, buyers will be offering even lower. The longer you wait the lower it will go….
I watched the BC update earlier today and it is looking like a vaccine will be the only way to go back to normal which means we’ll be locked up for a while i.e. if you are waiting for RE showings to go back to normal it will be longer than we think. But even then, with the fall out from the crisis prices could still head down.
The other option is becoming a landlord, if you can swing it financially. The question is are you ok with that in this environment and how much you can get in rent. You are also risking a tenant causing significant damage to the house.
HVAC Mike
at 6:07 pm
I’m leaning listing first week of may to see what happens and if nothing looks good from the offers I’ll hold both mortgages into labour day to re-list. Renting would be the last option but if i carry both mortgages until labour day and things get worse or get same offers it would have been a waste carrying both mortgages anyways. Good thing could be just carry both with one of the properties being deferred for 6 months and paying the other one in these times.
Chris
at 8:20 pm
“JPMorgan halts home equity loans due to coronavirus”
https://www.americanbanker.com/news/jpmorgan-halts-home-equity-loans-due-to-coronavirus
Credit tightening south of the border.
R
at 7:39 am
You don’t need quotation marks on every paragraph. You already indicated who is talking and it’s an “interview“.
Cal
at 3:47 pm
Since we all have our crystal balls and see the future so clearly, perhaps someone can enlighten me: What will happen to the trillions of dollars that central banks are now creating around the world? Some will be absorbed by the commercial banks as they shrink their balance sheets (loan defaults, not renewing mortgages, etc), but surely not all of it? There will still be massive amounts that will have to end up somewhere. After the GFC ten years ago the newly created money fueled booms in stock markets and real estate. Where will it go this time? Stamp collections? Private islands?
Chris
at 6:17 pm
Scotiabank’s forecasts revised down: assuming shutdowns lifted in Q2 2020, they see Canada returning to late 2019 levels of output in early 2022.
https://www.scotiabank.com/content/dam/scotiabank/sub-brands/scotiabank-economics/english/documents/forecast-tables/forecast_20200417.pdf
Chris
at 9:55 pm
Yet more evidence that a quick return to normal is likely to prove elusive:
“Déjà flu: A second wave of covid-19 hits northern Japan – Hokkaido imposes its second state of emergency in two months
POINTING TO A chart showing a flattened curve, Suzuki Naomichi, the governor of Hokkaido, announced on March 18th that the region had contained its coronavirus outbreak and could therefore lift its three-week-old state of emergency… Less than a month later Mr Suzuki warned that Hokkaido was “facing a crisis of a second wave”. He reimposed a state of emergency on April 12th.”
https://www.economist.com/asia/2020/04/16/a-second-wave-of-covid-19-hits-northern-japan
condodweller
at 12:39 am
Politician will be pressured to ease things to get the economy going once the curve plateaus. The WHO and other experts say we shouldn’t open things until we descend the other side of the curve to a low number of cases. What a lot of people don’t realize is that the x axis of the graph is time, therefore, the more we flatten the curve the longer time it will take. If politicians do open things up too soon, they will open us to a second wave.
During the BC press conference they showed a graph of the curve with various levels of ease of restrictions and only 20-30% less ease allowed the curve to stay low. Anything above that it shot right back up as if nothing had been done, i.e. simply delayed the exponential growth.
In Ontario we are still seeing record numbers and there is no sign of reversing the curve. Sure it looks like it’s flattening but if we ease even a little bit the number of cases, followed by the number of deaths is going to increase from the current numbers. It seems to me that we need to tighten more instead of thinking about easing.
Also, the method of easing will be to loosen things up a little bit at a time, and each time we will have to wait two weeks to see the resulting effects. That process alone can take months and much longer if things get worse after any of the loosening measures.
Chris
at 11:21 am
I think this is the graph from BC you’re referring to:
https://i.cbc.ca/1.5536294.1587147381!/fileImage/httpImage/image.jpg_gen/derivatives/original_1180/model.jpg
Clearly demonstrates that, while they hope to ease some restrictions, it will be a very slow and gradual process.
Additionally, from a Bloomberg article earlier this week:
“Wuhan’s 11 Million People Are Free to Dine Out. Yet They Aren’t
Millions of residents of Wuhan are again able to venture from their homes. But small businesses fret that the lockdown may have altered consumer behavior permanently.”
As I keep saying, I think anyone expecting a quick return to pre-COVID conditions is likely to find themselves bitterly disappointed.
Condodweller
at 4:56 pm
Yes that’s the graph. It looks like 30/40% of normal is what we should be aiming for, maybe 60%. What does that look like? I believe the current lock down is 30%. China was was probably, what, 10%?
So we know what it takes to stamp this thing out (second wave not withstanding), But instead of more tightening we are talking about easing. To be fair our leaders seem very realistic about next steps.
Mayor Tory seems to have a 6 month time frame after doing the math of his deficit prediction of weekly 65 million and 1.5 billion total.
Chris
at 5:59 pm
I think most Canadians are on board with extending restrictions until the situation is under control, as evidenced by recent polls. There’s a minority of loud and outspoken people who disagree, but they don’t speak for society at large.
And as you correctly point out, our politicians are not rushing to reopen the economy. They’re taking the cautious route, as the electorate wants them to.
Chris
at 12:14 am
David, hope you don’t mind if I reply here. I can’t reply directly to your comment, and that thread is getting tough to follow.
I see your point. I would again say you’re more optimistic than I am.
Much will depend on how the pandemic develops, which is entirely unpredictable.
If it abates faster, perhaps you’ll be correct and April through October will be relatively flat, before ticking back upwards.
But, it could also last longer than we initially thought, and have a more lasting impact. Look at recent news out of China (large GDP declines and difficulty in restarting consumer spending) and Japan (repeating states of emergency).
If the BoC’s more pessimistic projections come to fruition, unemployment stays elevated, immigration remains frozen, etc., I think it will be a tall order for the GTA real estate market to hold steady at April’s average price.
Chris
at 11:52 am
John Pasalis gave a great interview yesterday with the Toronto Star:
“Canadians are over leveraged… My instinct is that some of these risks, if we see some downward pressure on prices, I think it’s more likely to occur in the six to twelve month period, as opposed to the next two or three months. After six months is when these mortgage deferrals are probably going to stop, and it’s at that point we’re going to see how many people are working. And if we look at how housing markets unwind and slow down and you see downward pressure on prices, it’s typically during recessions, when people lose jobs and they can’t afford their homes, and they need to sell.”
https://www.thestar.com/podcasts/thismatters/2020/04/17/covid-19-and-the-toronto-real-estate-market.html
jeanmarc
at 7:54 pm
Chris,
John also made a great point of the “buying and selling first” mentality. People normally buy before they sell. Things can change on a dime (as we have seen last month) . This happened in 2008 and in 2017 when people bought and try to sell. Only to lose x amount of value on both the purchase and attempting to sell afterwards.
I was fortunate to buy and sell within two weeks in June 2017. I am sure to think twice the next time.
Chris
at 9:29 pm
Yep, he’s raised that point before as well, and it’s a good one.
This marks the third time in 12 years that people have been caught out by buying first then selling.
As he says, it’s a risk, and one he would never recommend. We’re getting yet another reminder why.
J G
at 10:49 pm
Prices will recover by spring of next year. As much as I like to see a significant correction, it just won’t happen with all the QE and helicopter money (CERB).
Toronto RE price recovers by April 2021, and Amazon will be $3000 USD per share. That’s my prediction.
Chris
at 10:51 am
We’ll put you down for April 2021!
Though I’m less confident in the ability of $2,000/month, which is essentially the poverty line for an individual, to prop up the housing market.
Bal
at 12:43 pm
Lots of people are abusing free money provided by Govt….
some of the businesses are opened and asking for cash…as they want $40,000 from govt ( don’t forget it is free of interest and 10,000 will be forgiven).
Many employees are sitting on leave of absence, it is not that there is no work…they just know that they will be getting $2000 monthly just doing nothing.
All international students are also getting $2000 monthly.
Tour and tourism industry is truly impacted by this pandemic
Interest rates are very low and financially people are getting support from Govt..So I also don’t see much of the house prices changing…..
Chris
at 2:09 pm
Do you have any data to support the assertion that lots of people are abusing free money? Even if they are, the government’s plan always was to get people the money quickly, so they can feed and shelter themselves, and deal with claw backs for abuse later, when you file your taxes.
International students would only qualify if they are a resident of Canada for tax purposes and earned $5,000 in the past 12 months.
It’s also $2,000 a month. Poverty level wages. Far too little to move the needle on house prices.
In addition to tourism being halted, immigration has also ceased. So we have no population growth (and feasibly population decline as non permanent residents head home), and a massive increase in unemployment.
That’s not likely to be outweighed by a paltry $2,000/month.
Bal
at 3:23 pm
Chris – My data is my surrounding. My husband took his car to mechanic due to problem with his car brakes…Mechanic has a small shop…My Husband was stunned when he asked him to pay in cash as he is getting support from Govt.
How govt is going to claw back all this? All Govt is going to do check T4 end of the year and if there is no other income…..
As soon as Govt announced $2000.many employees took leave of absence…Many employees work on hourly and don’t make more than $2000. It is not that work was not there at that time, but why would they work when financial support is there…
They are staying home..
So how Govt will claw this back?
Many Owner Operators ( truckers) also applied for $40,000 free loan as they have small businesses…even trucking business is and was busy ..but they rather sit at home and get this free interest loan..bcz end of the day 10,000 will be forgiven. They know how to bullshit on their T4
how Govt will claw this back
I really hate when people abuse the system and sooner or later we all have to pay more taxes…..People Like me who are working nonstop will end up paying more in taxes…
Yes people who need the support must get the support. But Sad part is many people who are financially strong but getting the support from the Govt as they know how to play this game
The real estate is same way….many people made lots of money as they knew how to play the game….. (low interest rates. Foreign money)..I don’t think anything is going to change….May be i am just frustrated….:)
Chris
at 3:38 pm
That mechanic was likely under reporting income even before this. So he’s committing tax evasion and fraud. His prerogative to break the law, but I won’t be shocked if he gets caught eventually.
Working full-time (2,000 hours per year), at minimum wage ($14.00 per hour) means you earn $28,000 per year. Plus, to be eligible, you can’t have quit voluntarily. And again, $24,000 per year is a poverty level income. If someone was earning even $40,000, I doubt they’d be jumping at the chance to sit at home and earn just over half their previous income.
I know some people will game the system, and slip through the cracks. But most will act honestly, and many of those who do not will be caught.
And again, I just do not see $2,000 per month, or $10,000 of a loan forgiven, moving the needle when the average sales price in the GTA is ~$900,000.
Condodweller
at 4:13 pm
I don’t think anyone who truly relies on the $2000 is the demographic who will affect RE prices.
Chris
at 4:29 pm
Exactly. $2,000 a month is peanuts. You’d be hard pressed to survive in Toronto on that level of income, let alone purchase any type of property.
Bal
at 5:42 pm
Sorry guys….i cannot reply at the bottom of the page, so I am writing here…it is not about $2000 but it about abusing the system…how many landlords are getting cash as a rent and showing that in their income…so my frustration is the same way with the real estate is….many realtors bought many properties as they had a connection with the developers….many people brought money illegal way and got many properties….
Chris
at 5:53 pm
There are always gonna be people who bend and break the rules, Bal.
I still think they’re the minority, and many of those trying to take advantage of the pandemic to profit, through fraudulent CERB claims, or whatever else, will likely wind up being caught.