Mortgages

For sound home-buying decisions during unprecedented times, enlist professional help  

The recent real estate and mortgage markets have defied expectations across Canada, recovering from near-paralysis after the Covid-19 shutdown to break sales activity records in some regions in August and September.   

“Through April and May, to no one’s surprise, we saw a dramatic drop off in real estate transactions,” says Mortgage Professionals Canada (MPC) CEO Paul Taylor. “New business processes had to be created. Appraisers couldn’t get into people’s homes. Many pending sales still needed conditions removed; some municipalities closed land transfer registries, even though they were deemed essential services. There was an awful lot of uncertainty, even about whether people would be able to continue to work.”

Rising confidence in income stability, record low interest rates, revaluations of home suitability for people working from home, and Bank of Canada economic stimulus combined to drive a resurgence in the home market in June. July sales were robust, followed by record-breaking activity in August and September.

Much of the initial anxiety has eased, says Mr. Taylor, with a substantial majority of Canadians back at work. 

Given the overall economic slowdown, the recent activity levels can’t be expected to continue indefinitely. But it is impossible to predict when a slowdown will happen or what else may change in the meantime. “That’s why it’s absolutely critical that homebuyers talk to an accredited mortgage broker before talking to a realtor, even before they start looking at homes,” says Mr. Taylor. “There have been an awful lot of changes to underwriting guidelines and lending policy, so it’s crucial to understand your borrowing capacity.”

A broker can also share insights on activity in your immediate area, he adds. “It’s very segmented. Even within the hot segments like Toronto, we’re seeing multiple offers and over-asking sales on single-family homes, but price reductions in condominiums in most areas of the city.” 

Immigration numbers have fallen off dramatically; international students are not arriving, so there is less strain on the rental market. Investment condominiums are seeing far less demand; that’s putting downward pressure on rents and driving more condo listings, impacting prices. 

One of the hallmarks of the “new normal” is the unprecedented level of uncertainty. In March, MPC’s chief economist Will Dunning removed forecasts from the organization’s reports. “In the past, we could assume that historical data told us a lot about the future – that isn’t the case now,” he explains.

The market is exceptionally dynamic, with many competing pressures, says Mr. Dunning. “The end of mortgage deferral programs, of CERB – any change will have implications everywhere.” 

The organization has just published the second in a planned series of four reports entitled Rapidly Evolving Expectations in the Housing Market, tracking homeowner and consumer expectations. 

“What we see is that most Canadians are expressing confidence about their home-buying decisions and their mortgages. A significant minority, those most affected by the current situation, are facing difficult choices. But our government, along with the governments of most developed countries, has introduced thoughtful policies to ease the pandemic’s impact. 

“I think we can take some comfort in this reminder of what it means to be a society, taking personal responsibility but also taking some responsibility for others, when it’s necessary and we find ourselves in the fortunate position of being able to do so,” says Mr. Dunning.

The next policy shift MPC is advocating for is an adjustment to the mortgage stress test. “In the current environment, asking homebuyers and those facing mortgage renewals to qualify at 4.79 per cent does not seem reasonable. Even if you take current rates out of the picture, the test measures only one kind of stress, the possibility of rising interest rates. It doesn’t take important factors like incomes rising over time into consideration.”

In the grip of what is so far the greatest “stress test” faced by most people alive today, 98 per cent of Canadians surveyed are still happy that they bought a home, the most recent MPC report shows. Surprisingly, the number of non-homeowners planning to buy a home in the next year has doubled over the previous year, pre-Covid, to 16 per cent.

It’s a vivid reminder that whatever happens going forward, ensuring that homeownership remains sustainable is a crucial element in Canada’s economic recovery. 

For more stories from this feature, visit globeandmail.com