Happy Friday, folks!

I hope you’ve enjoyed the first two installments of this lengthy 3-part series to start 2021.

It certainly gave me something to do over the holidays. 🙂

So without further adieu, here are Burning Questions seven-through-ten…

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7) What policies will the federal government, Bank of Canada, and CMHC undertake and how will they affect the real estate market?

This isn’t exactly my area of expertise, so I’m going to ask my mortgage broker, Tony Della Sciucca, to handle this

Here’s what Tony had to say:

COVID-19 has forced many of us to adjust and alter our way of living, both personally and financially.  Governments continue to impose lockdowns and restrictions amidst rising COVID-19 cases, forcing businesses and financial institutions alike to modernize and adapt to a pandemic, crisis-ridden economy.  However, despite all of the restrictions, lockdowns, and rising  COVID-19 cases, the GTA real estate market seems to continue to flourish, defying speculators and leaving forecasters to scratch their heads.

So what has 2020 taught us?  And what can we expect for 2021 when it comes to mortgage lending?

On June 4^th, 2020, CMHC was first to react by tightening mortgage rules in response to COVID-19.  Some of those changes included;

• Gross Debt Service (GDS), and TDS (total debt services) to be reduced from 39%/44% to 35% to 42%. GDS refers to the percentage of your gross income needed to pay for all of your monthly housing costs; mortgage payments, taxes, heat, and 50% of maintenance fees, while TDS refers to the percentage of gross income required to assume any outside debts above and beyond the household.
• Minimum credit scores to change from 600 to 680.
• No borrowed funds for down payment. Gifted funds still permitted.
• Qualifying stress test to remain the same

Tightening the noose for many trying to enter the real estate market seemed unfair and unreasonable, however, Genworth and Canada Guaranty, two other insurers, did not follow suit.

Paradoxically, while CMHC was making it harder to qualify for insured mortgage financing, the Government of Canada enhanced the First Time Home Buyers Incentive (FTHBI).  To recap, under the program, the government provides first-time buyers with an interest free down payment loan of up to 5% of resale purchases and 10% of any new build/pre-construction home or condo.  The government would benefit in any rise or fall of the value of the home, and the loan would need to be repaid in full within 25 years.   The changes below are expected to take place in the spring of 2021:

• First-time buyers will be able to purchase a home up to 4.5 times their household income vs 4 times their current income
• Can participate if the household income is $150,000.00 or less vs $120,000.00 currently.
• With a minimum down payment for each, the maximum purchase price rises to approximately $722,000.00 vs $505,000.00

With high hopes, many consider the FTHBI a failure. The program, which was intended to assist 100,000 first-time buyers, yielded only 9,520 applications in its first year according to Canada Mortgage Housing Corporation (CHMC).  Perhaps, there is a psychological factor to also consider; that being, many may not want to give CRA tax-free money as a trade-off for lowering their mortgage payment by a few hundred dollars.

With respect to interest rates, it’s quite likely that we will continue to see both fixed and variable interest rates sub 2% well into 2022. BoC (Bank of Canada) has made it very clear that it has no intentions of raising rates in the near future.  Borrowers with interest rates hovering around 2.79% and above should seriously consider refinancing their mortgage to get into today’s low rates, albeit if the interest savings on their new rate offsets the penalty it’s costing them to break it.  Further to this, we’re slowly starting to see the gap between fixed rates and variable rates widen as well.  For those who believe that fixed interest rates will continue to fall, variable rates are a strong consideration.

As walk-in traffic continues to decline for major banks, market share for mortgage loans and acquisitions remains highly competitive.  As a result, HSBC had decided to enter the broker space, signing exclusivity with Dominion Lending Centres.  HSBC is considered to be one of the most competitive mortgage lenders and earlier this year, they launched the first ever 0.99% variable rate mortgage for insured, high ratio mortgages, leaving its competitors in the dust.

With many of us itching to return to a sense of normalcy, we don’t anticipate lenders to make any major changes to their lending guidelines/policies. Over the course of 2020, institutions were heavily encouraged to provide mortgage deferral programs overs fears of rising unemployment and the ability for people to repay their mortgage.  Government incentives have come to the rescue for many, but as these incentives begin to slow down and come to an end, there is always a growing concern of rising mortgage defaults. Expect banks to tread cautiously in the early stages of 2021.

Tony Della Sciucca
Mortgage Agent
Dominion Lending
tony.dellasciucca@dominionlending.ca

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8) Whatever happened to that government-backed shared-equity mortgage?

To quote the legend that was Salt & Peppa: “Here I go, here I go, here I go again, girls what’s my weakness?”

Unlike the answer in the song, mine is “politics,” although something tells me that wouldn’t have won them a Grammy.

Yes, politics is my weakness.  I find it very hard not to click on an article in my news-feed that’s about politics, and equally as hard not to stress over something that I shouldn’t care about.  But as I write this, I’m reading about Israel having vaccinated 10% of their entire country’s population, and here in Canada, we’re taking a holiday “break” from vaccinating a few thousand people…

See what I mean?

I get angry when I read about, think about, or discuss politics!

And before the last federal election, this idea of a “shared equity mortgage” from the government really irked me, since I knew it was nothing but political rhetoric and would be useless in practice.

Liberal, Conservative, NDP, Democrat, or Republican – they all lie.  They all manipulate.  They all play dirty to stay in power, and they all make promises they never intend to keep.  Most of the time, 95% of the population remains willfully ignorant, and like a good ostrich, simply bury their heads in the sand.

But when you are a subject matter expert on something that finds its way into a federal budget, or a campaign promise, or a government announcement, you’re going to take notice.

This is how I felt in 2019 when the Liberal government announced this ridiculous shared-equity mortgage, or “First Time Home Buyer Incentive,” as they called it.

The idea of loaning money to buyers and becoming “partners” with those buyers, at the risk of Canadian taxpayers, is something that many Canadians wouldn’t agree with.  But when you consider how this program was rolled out and how the numbers work, it was revealed to be nothing but lip service.

The plan was to set aside $1.25 Billion for the program.

But the maximum purchase price was $565,000, meaning that people in major metropolitan areas couldn’t benefit.

Just consider how little $1.25 Billion is, for a moment.

The federal government handed out $240 Billion through the first eight months of the pandemic, and while I don’t mean to suggest that this was entirely unnecessary, I think we could all agree that when given the opportunity to do something unprecedented, and without parliamentary approval, Trudeau’s government has certainly taken advantage!

So what’s a paltry $1.25 Billion, over three years, for first-time buyers?

It’s nothing.

And that’s exactly how I would describe the First Time Home Buyer’s incentive: nothing.

It was much ado about nothing.  Just a campaign promise in an election year, but in practice, I don’t know of a single person out there who has used this program, and a recent poll of agents in my office shows a lack of one, single identifiable buyer who used the program, across the board.

$1.25 Billion over three years, for houses up to $565,000, is peanuts.

Don’t get me wrong, I am not in favour of this program!  But if you’re going to do something, do it right.  Do it well.  No half-measures.  If this government was really serious about implementing a home-buying program with teeth, then there should have been no maximum on the purchase price, fewer restrictions, and easier implementation.

This was a silly idea, proposed on the campaign trail, by a government that has handed out far more of our taxpayers’ dollars to other countries through random acts of Canadian kindness – acts I don’t agree with.

Take care of your own, first.  If you want to put forward a housing strategy that will actually work, then do so.  But don’t spoon-feed us bullshit like this shared-equity mortgage anymore.

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9) What other innovative, unique, or laughable home-ownership ideas will the government, or others, provide for us?

That was a leading question, I know.

But come on!  That shared-equity mortgage?  Give me a break!

Recall that in January of 2020, the provincial government put out the following:

“Ontario’s Housing Supply Action Plan: Co-Owning A Home”

And recall that I responded with this:

The Friday Rant: This Is A Terrible Idea

It drives me crazy, it really does.  It’s like when all else fails, and the government has no good ideas, they’d rather put out a bad one just to show people that they’re trying.

I’ll save you the recap of my 2020 blog post about co-ownership, but suffice it to say, I think it’s a terrible idea and ultimately we would end up creating government jobs to deal with dispute resolution and litigation resulting from people that never should have tried living together, let alone owning together.

That was 2020’s “bright idea,” after the aforementioned shared-equity mortgage in 2019.

What will 2021 have in store?

At this point, I would be randomly speculating and inventing ideas, simply to fill this space.

So while this paragraph is short and devoid of an actual answer, I’m asking more to make you all aware of the fact that the government will throw something at us, we just don’t know what.  And you can call me a cynic, but I don’t think it’ll be a great idea…

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10) What changes, innovations, and/or new entrants to the real estate industry can we expect in 2021?

I’ve been licensed to sell real estate now for almost seventeen years, and one of the recurring themes, all the while, has been change.

At first, it seemed to be the lack of change, the objection to change, and the level of discomfort that the mere idea of change brought among so many in organized real estate.

Then, it seemed that change was accepted, often welcomed, and at times, fostered.

Today, it seems like talk of change is the actual theme, and any changes we do experience are often short-lived.

When I started back in 2004, very few real estate agents actually owned personal websites.  Then again, the cable modem was only about 3-years-old.  Think about that for a second; remember dial-up.  Those of us who started with dial-up remember it well, and we also remember the first time we opened up an internet browser that was hooked up to a cable modem.  I certainly do!  It was the spring of 2001, and I was with a buddy who was house-sitting on Parkhurst Boulevard, which meant, of course, that we went there to party.   The home-owner had an office with a laptop, and I booted it up; low-and-behold, his Netscape Navigator loaded in one second.  I swear, my head just about exploded.

I didn’t get a cable modem at school until my final year in 2002.  Consider that only two years later, I found myself working in real estate.  And with the amount of time that we spent on the Internet, I couldn’t imagine doing this job on a dial-up modem.

Tell that to the people who have been selling real estate since the 1990’s, let alone the 1980’s or 1970’s.  But then again, the younger agents today ask me, “What in the world did you do before DocuSign?”  I remember that like it was yesterday.  We would email documents, have our clients, print, then scan them back to us, and it always ended badly.  Technical issues, out of ink, out of paper, file sizes too large, file sizes too small, or somebody signed in the wrong spot and we had to do it all over.  Before that, we’d actually go in person to meet our clients!  And often we combined the scanning/printing/signing with in-person meetings, and often with fax machines too!  Oh, the fax!  Does anybody remember the all-night Kinko’s on University Avenue?  I sold a lot of real estate in there!

Some changes in real estate are gradual and some are immediate.  Others go completely unnoticed and just sort of seem to be absorbed by the folks involved.

I’ve ruffled a lot of feathers over the years with changes I’ve brought about, or championed.  In fact, I almost got fired, on more than one occasion, when I first started Toronto Realty Blog.  I mean, imagine the idea, back in 2007, of a registered real estate salesperson giving his or her opinion on properties?  Egad!  That person should just shut up and say, “Everything is fine here, folks!  Good time to buy, good time to sell.  This house is great, this condo is wonderful.  All good, all happy!”  That’s the way it used to be.

Thankfully, today we see all sorts of real estate agents giving their two cents on the market, whether it’s on social media, on a website, or a podcast, and this is what the public always wanted.  Whether the attraction among the public is to real estate as housing or real estate simply as a hobby, people have always wanted more, and for years, we just weren’t able to give it to them.

When it comes to real estate listings, photos, or data, I still believe there’s more change afoot.  Maybe not as quickly as many would like, or including certain data points, or with the interface that a user wants, but real estate is too powerful and too important not to evolve and improve.

The one change I would like to see, and have for quite some time, is with respect to www.realtor.ca.  Many people are under the impression that this site is run by TRREB, but it’s not.  It’s run by the Canadian Real Estate Association, which is a country-wide association that oversees the website and all its listings.  To obtain these listings, CREA has agreements with all the individual real estate boards, whether it’s the Toronto Regional Real Estate Board or the Nova Scotia Real Estate Commission.

I’m of the opinion that www.realtor.ca is one of the worst real estate websites out there, and that’s a shame.  It really is.

Some folks at CREA might be cutting-edge, but others might not be.  In fact, you don’t know if CREA will be run by a hot-shot from a busy market like Toronto one year, or by a townie from the middle of nowhere the next year.

So while some understand that Realtor.ca is a fantastic technology for 2008, others think it’s just “da bomb,” as their kids say, even though kids haven’t said that since 2008.  The same folks who find the television ads for Realtors – where the prospective home-owners walk in on a guy having his back waxed, funny, are probably the same folks who think that Realtor.ca is a-o-kay.

In recent years, we’ve seen sites like Mongohouse, Zoocasa, Zolo, House Sigma, and Bungol find their way to the top of the list of real estate searches and total users, and the market share among Realtor.ca continues to fall.

The folks in charge, whether it’s at TRREB or CREA, seem to think that shutting down these other sites is the answer.  But as I have written before on many occasions, I lived through the Napster years.  I watched the Recording Artists Association of America, and others, try to shut down Napster, instead of embracing the new technology.

Last year, Bungol was hit with a serious “cease and desist,” and I don’t think this will be the last time we hear about a third-party site being threatened by larger real estate powers.  In fact, if you go to Bungol’s website right now, you’ll read “Our Data Is Not Being Updated.  Last Updated: August 5th.”

That is how organized real estate can crush the so-called little guy.  Bungol is over.  Case closed.

But the public wants a newer, better, and brighter search portal for real estate!  They are simply not satisfied with Realtor.ca, nor should they be.  The interface is awful, navigation is terrible, and it’s clunky.  It looks old, probably because it is.

Why in the world don’t the folks at CREA see this?

For once, I wish organized real estate would be proactive rather than reactive, but I know I’m fighting an uphill battle here.

On another note, I found myself inundated with television ads this past Christmas for companies like “Wealth Simple.”

You know the ones?  Two people are talking, and one is a genius for switching to a company that charges lower fees, and the other branded a moron for not having done so?”

“Over the next thirty years, we could save $70,000 in fees.”

“If we switch now, we could retire five years earlier.”

These advertisements drive me insane because they ignore the fact that returns are where you make money, not saving fees.

If you paid a 3% fee to a private firm that produced a return of 18%, wouldn’t this be better than a firm that charges 0.5% and produced a return of 8%?

A small portion of my net worth is with a wealth management firm that has some of the highest fees you’ll find on the street, but they also have the highest historical returns.

And let’s not forget, many of these television ads are for self-directed investment accounts, so now we’re making every Dick and Jane into Warren Buffet overnight?

I know some of the regular readers are self-directed, and if they’re making money and beating the DOW/TSX, then good for them.  But there’s a very good reason that I don’t get the jack out of my trunk and lift my car off the ground to change a flat tire on the side of the 401…

The parallel here, in case it’s not obvious, is that discount brokerages will continue to pop up in our real estate market, and personally, I welcome them!  I absolutely love negotiating against a 9-to-5’er who tries to sell real estate “on the side.”  I have some great stories, let me tell you!  When the guy or gal on the other end of the line is making $900 to try and flog a condo, and has no clue what he or she is doing, they will literally write down what I’m saying on the phone, and use it on their “clients.”

You want to hire XYZ Discount Real Estate to sell your largest asset?  Have at it!

The same folks who don’t consider RETURNS on their investments, but only look at fees, are the same folks who’s first question when it comes to selling real estate are, “What are your fees?”

Last year, I was singing the praises of my accountant one day in the office, and a new agent asked, “What does he charge?”  I simply told this agent, “If you’re asking that question, he’s not the right guy for you.”

I don’t even know what he charges.  I don’t think I’ve ever asked.  Does that make me a moron, or does that mean I know what I’m doing?

That agent can go to the local mall and get H&R Block to file a return for $50, and avoid saving thousands through proper long-term tax planning and the “creative accounting” that so few people take advantage of.

New brokerages, new business models, and new fee structures aren’t actually “new” in our market.  In fact, they’re constant.

In 2021, I think we’re going to see a lot more options for buyers and sellers, and ultimately it will be up to the consumer to decide where the value lays.

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Phew!

Three days, ten burning questions, and too many words to count.

I enjoyed writing this, I really did.  The holiday break was long, and at times, it felt like Groundhog’s Day.  But being able to close the door to my home office, or head upstairs to the office I built at my mother’s house, and work for a couple of hours at a time, gave me the escape I sorely needed over the past couple of weeks.

By now, I’m sure the December TRREB numbers have been released, so perhaps I’ll take a look at those over the weekend and see if we can draw any inferences about the market when comparing to past Decembers.

For now, have a great weekend, and I’ll be back here on Monday!