I came across an article on the Mortgage Broker News website today briefly covering the US housing market conditions.

“Sales of new single-family homes in the US surged by 18.0 per cent to 504,000 annualized units in August 2014 to mark the highest level since May 2008,” a report from RBC Economics, published Wednesday, states. “The robust monthly gain, which handily surpassed expectations for a 4.4 per cent rise to 430,000, built on a 1.9 per cent increase in July (to 427,000) that was initially reported as a 2.4 per cent drop (to 412,000).”

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In my article yesterday, I had alluded to a story on the news about up to 25% of downtown Vancouver condo units being vacant. On the Georgia Straight website, there is an article also about this, and about a mayoral candidate that is campaigning to have vacant condos subject to a higher property tax.

The idea behind taxing absentee owners is to make Vancouver’s real-estate market a less attractive place to park offshore money. The revenue the city would take in from such a tax would go towards creating affordable housing, says Wong.

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There is an article on the Financial Post website today which quotes the CEO of CMHC saying that CMHC are evaluating restructuring the mortgage insurance risk exposure which could include the sharing of risk with mortgage lending institutions. (more…)

I came across an interesting article in the Huffington Post today about people borrowing up to the limits of their qualification to buy a home. From the article:

A homeowner who files bankruptcy typically has a mortgage equal to 95 per cent of the value of their house. For consumer proposal filers the number is 91 per cent, so 90 per cent appears to be the magic number. Hold a mortgage above that threshold and you are at significant risk of filing for insolvency.

This is an interesting statistic. Most of the people who file bankruptcy or consumer proposals are on average at about 95% of the value of their homes. I think this is understandable as those with more than 20% equity can pull it out via a refinance, which the government has now disallowed for any higher loan-to-value. I do think that it does only tell half of the story though.

High ratio mortgages profitable for insurers

The news has this year reported about how mortgage insurer Genworth has reported increased profits in Q2 of this year. As such, while the loan to value of properties owned by bankrupts is high, the question I think of is what percentage of people who apply for 90%+ mortgages end up declaring bankruptcy? I don’t know the answer to this, but if Genworth’s profitability is an indication, the percentage must be quite low. If it wasn’t, there wouldn’t be much of a business case for offering 95% loan to value mortgages, or they would increase the rate premiums. These companies are experts at assessing risk.

To those looking at buying a home with 5% down payment, I would agree with the sentiment to not use the highest pre-approval as the guideline for what you can afford. However, in a market like Vancouver, the cost of housing is such that it may not be possible to get something within your needs with a budget you are comfortable with. Luckily, mortgage rates remain at historic lows. However, I think it could also be said that the economy hasn’t been excellent for the time interest rates will be low, and so when interest rates go up eventually, it will be a result of an economy that is thriving, and that could offset the increase in rates on a macroeconomic level.

While I agree with the sentiment the article, for home buyers to buy something they are comfortable with affording, based on my points above, I would also say that many people buy with 5% down and do not go bankrupt, and the ones who do possibly have other factors in their lives that led them to that point. Poor financial management, high interest unsecured credit, life events, etc. could all be additional or primary factors in the bankruptcies.

On the Globe and Mail website is a story about the Bank of Montreal (BMO) lowering their 5 year fixed rate to 2.99%. From the article:

Bank of Montreal has once again lowered its five-year fixed mortgage rate to 2.99 per cent, from 3.29 per cent, a move that could cause more downward pressure on rates at a time when they’re already defying expectations.

BMO’s rate is not the lowest in the market, but it is the lowest that’s currently available from the country’s biggest banks. BMO sparked a mortgage price war among the banks when it first introduced its 2.99 per cent five-year-fixed rate in early 2012. That rate also earned the bank a lecture from then-Finance Minister Jim Flaherty, who had been taking steps to curb growth in the housing market amid fears that a bubble could be forming. BMO has repeatedly brought the rate back since then, most recently this March.

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Housing starts dropped from July to August, according to CMHC. From CTV News:

he annual pace of housing starts in Canada slowed in August to 192,368 units, down from 199,813 in July, according to the Canada Mortgage and Housing Corp.

The pace fell short of the 195,000 units forecast by analysts.

“The Bank of Canada may be looking for a rotation away from housing and the consumer, but low rates continue to support residential investment,” CIBC economist Nick Exarhos said in a report.

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The Mortgage Broker Regulators Council of Canada (MBRCC) which is an association made up of mortgage broker regulators across Canada, released a press release on their findings that mortgage brokers are doing a mostly good job in determining the right mortgage products to get for clients.

From the release:

The report indicates that most mortgage brokers work to direct their residential clients toward suitable mortgages. However, the report also notes that there is still room for improvement in a number of areas.

Canada’s mortgage broker regulators have identified mortgage suitability as a priority and a concern that is shared across the provinces. “Unsuitable mortgages can have a devastating financial impact on borrowers and their families,” MBRCC Chair Kirk Bacon said. “We’ve also seen national economies around the world suffer when too many households are stuck with unsuitable mortgages.” The report confirms that mortgage brokers have an important role in ensuring that the mortgages Canadians receive are suitable.

Mortgage brokers doing the “right thing”

The mortgage broker industry in Canada has at times been somewhat tainted by mortgage brokers in the United States and by implication of lenders in Canada that mortgage broker mortgages are riskier than bank mortgages. It is good to know that there is an independent report verifying that we, as mortgage brokers, generally try to do the “right thing” for our clients.

Although I am not a mortgage lender, I have personally always found assertions of broker mortgages having greater fraud rates unmerited. Compared to major banks, it seems that the major difference is that mortgage broker fraud gets reported more than bank mortgage fraud does, and according to one colleague, chartered banks keep such a great rating with mortgage insurers because these banks will pay the costs of mortgage fraud out-of-pocket instead of filing a claim with the insurer of the mortgage. From my experience, this has allowed chartered banks to approve mortgages when the mortgage is not even within their guidelines. It appears there is little outside review of these mortgages.

This should also help our mortgage lenders who are not large chartered banks to cement their reputation as reputable and solid institutions to arrange mortgages with, even if the public awareness of these brands is not strong. I am proud of the body of work I have done for clients in getting them solutions and I am pleased to have many excellent lending options to help my clients with.

I came across an article on the Financial Post today that addressed the costs of buying and selling real estate, and how it can minimize what looks like substantial profits on a real estate transaction. From the article:

Add it up, using the 7% figure for the first three sales and 9% for the last two, and that house that sold for $1.15 million has had close to $300,000 sucked out of it over the past decade through taxes, realtor fees and other costs. And, it should be noted, the owner who sold for $1.05 million in 2012 put $100,000 worth of renovations into the home. As long as real estate prices rise 5% to 10% year over year, the fees seem tolerable if you hold for a decent stretch of time. But moving five times in a couple of decades can destroy your equity gains even in the best of times. (more…)