May 11, 2022
There Will Always Be Stress In the Canadian Real Estate Market
Did you know that on June 1st, 2021 borrowers applying for uninsured and insured mortgages, (typically those with more than a 20% down payment), will now have to qualify at their mortgage contract rate plus two percentage points or 5.25%, whichever is higher?
Remember back in 2019 when this stress test was introduced for high ratio buyers, and the market ground to a halt? That B-20 stress test, implemented in January 2019, required homebuyers to qualify at the higher of either the 5-year posted rate or the contractual rate plus 200 basis points, reduced purchasing power by 22%.
Do I think the same will happen now? Not really, and here is why. The stress test currently has a minimum qualifying rate of 4.79% - approximately 50 basis points lower. I believe that it will make things more difficult for buyers who do not have the benefit of “The Bank of Mom and Dad”. These new regulations will reduce the purchasing power of conventional borrowers and high ratio borrowers by between 4% and 4.5% - from $442,000 to $422,000 for a median-income household.
Let’s keep things in perspective. The highest actual average lending rate we have experienced was 3.76% back in 2013, so 5.25% seems excessive. Also, remember that many Canadians usually take a 5 year mortgage, and in 5 years Canadians will have higher incomes, which will more than compensate for the potential interest rate increase.
The question is, were you in front of this announcement, or were you playing catch-up when your clients asked you about it?
Bank of Mom and Dad is Here to Stay
As of the end of March 2021, it took an average of 63 months or 5 plus years to save for the minimum down payment on a home in Canada. Thats up from just 55 months in Q1 of 2020. (source: National Bank of Canada’s housing affordability monitor - image inset). This calculation is based on a 10% savings rate of the median household income. In the Toronto region it takes 277 months; Vancouver 317 months; Montreal 37; Ottawa 39; and in Hamilton it takes 63 months.
It would be interesting to do the calculations for all of the areas we serve, including Niagara, Haldimand and Halton. Maybe even broken down into neighborhoods etc. (possible vlog opportunity about the affordability factor of various areas we serve?). Also, get in front of this first-time buyer dilemma and show parents how they can help their children buy a home by investing the equity in their existing home with their children.
More and More of your Clients are Getting Their Real Estate Licence
When I first obtained my real estate license, many people gave me sage advice. One great piece of advice was from my dad, who had been licensed in 1968. He told me that you should always treat your clients as if they were your mother. In other words, treat them like you would treat your family. Give them the advice that you would give to the most important person in your life, and take full responsibility for your actions and you will be successful.
I am not sure that is good enough anymore. Today you have to be 2 moves ahead with technology, market knowledge and overall instinct. You have to be so good at what you do, that you will make them second guess working with their family/friends in the business.
Our Homes Must Be Able to Multi-Task
Most people in North America are spending 9 more hours in our homes. People are frustrated with their homes and we are witnessing the greatest re-shuffle from urban centres to the suburbs. People are re-evaluating where they live, how they live, whether they cash out and rent, or cash out and buy up. Recently there was a study commissioned by Zillow in the US that discovered that 14 million households are waiting on the sidelines to sell and/or buy a property once the worst of the pandemic is over. Given that, in a regular year there are just under 6 million homes changing hands in the US, that means we are looking at almost 3 times the amount of activity in the market.
The Zillow study went on further to say that 1 in 7 home owners are considering selling within the next 3 years. Those numbers are unprecedented and can easily be applied to Canada where we love our real estate.
It’s All About Life-Sized Content
What are you doing to nurture this pent up demand/supply? How are you preparing your potential buyers and sellers for this upcoming market? Don’t just mail or email your clients an annual CMA/equity check. Do it by way of video. Have multiple screens opened up with your local MLS, Google Earth, CREA HPI, and any other supporting websites which will help you narrate a story about your client’s unique home and its unique value. Send it through a video email app and you will see how many times they watch it or share it with their friends. Now that’s doing something that will catch their attention.
Feature your client’s success story videos - those first time home buyers you helped buy through multiple competitive offer situations, the empty nesters who downsized, or the move-up buyers who bought their dream home with you. People will see themselves in those success story videos and that could be the nudge they need. Create downloadable guides to moving to your city or neighbourhood. Create a video series on how to do improvements to your home that net the most return.
It is time you empower your business by empowering your customers, and video is the quickest way to do so.