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发表于 2020-10-9 11:13 PM
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Refi Ahead of Condo Trouble?
By The Spy on
October 7, 2020
—The Mortgage Report: Oct. 7—
- Toronto condo listings have exploded 215% to a record high, reportsBloomberg. And they’re projected to be even higher in October, according to HouseSigma.
- Driving that surprising number:
- skittish investors (many with negative cash flow given surging rental listings and a 14% y/y drop in rents)
- “elevator phobia”
- people coming off mortgage deferrals
- relatively higher unemployment among condo dwellers
- office-liberated workers ditching the city for bigger, greener spaces, and
- the damaging self-reinforcing psychology of surging listings.
- It’s like that tropical storm in the Atlantic. You see it building and wonder if it can become a Cat-5.
Well, the winds are picking up and lenders are risk averse. If urban
condos depreciate more from here, more appraisals will undershoot
expectations and lenders will underwrite
mortgages secured against such properties noticeably more
conservatively. “…We do see things softening enough to drive condo
prices down,” RBC economist Robert Hogue told the Globe recently. - In
other words, if you own a big-city condo downtown, plan to keep it for a
while, are contemplating refinancing and need to borrow the full 80% of
your property value, contemplate quicker. If condo values dive (which
is not a prediction, but a real possibility) your loan amount could dive
with them. - So far, major brokers we talk to like Monster
Mortgage’s Vince Gaetano, Butler Mortgage’s Ron Butler and Sigma
Mortgage’s Shawn Stillman, say they’re not seeing serious appraisal
trouble or credit tightening on condos yet. Although:- Gaetano notes, “Appraisers are a little hesitant on refinances, but are less worried on purchase values.”
- Stillman
says some lenders are now scrutinizing condo status certificates more
upfront. They’re trying to spot anything that could adversely impact
resale value if a client defaults, like low reserve funds or
potential/pending lawsuits.
[img=sold and active condo listings in Toronto]https://www.ratespy.com/wp-content/uploads/2020/10/image-1-700x400.png[/img]The explosion in Toronto condo listings. Courtesy of HouseSigma.
Lots of Buyers Holding Off
- According to the 2020 Scotiabank Housing Poll:
- 32% of younger Canadians are waiting for prices to drop in the next six to 12 months before making a home purchase.
- 38% of Canadians believe now is a good time to buy a new home.
- 42% of homeowners looking to buy a new property say they’ll use equity from their existing primary home to do it.
More Warning Bells From Siddall
- The head of Canada’s housing agency will tell anyone that
listens about how risky Canadian real estate is. CMHC President and CEO
Evan Siddall talked to Mortgage Professionals Canada on Tuesday. Among
his statements:- Canadian home prices “bear no relationship to underlying economics.”
- “Trees don’t grow to the sky.”
- “Trust me, this game of musical chairs ends and the last people standing are these folks loaded with debt.”
- “If you think this all ends well, go to Detroit.”
- “The
thing that causes people to lose their homes is unemployment…So, the
fact that they can currently service their debt is irrelevant to whether
they’re going to have a foreclosure or not…The real issue is their vulnerability to unemployment.”
- Mortgage brokers provide “more value” than Realtors and are “essential to our real estate markets.”
- A
quick comment on this one: Siddall is no friend of the real estate
complex and vice versa. Hopefully his successor is less inclined to
throw the entire profession under the bus, as that’s a disservice to
Realtors who don’t over-hype real estate, are honest with their clients and work in their best interests. - As
just one little example of a fiduciary Realtor, earlier this year, this
author bought a property. Our Realtor negotiated an additional $20,000
off the price after the deal was signed, something we could not
have done without her. That saved the equivalent of five years of
mortgage interest. That’s more than any mortgage broker could have saved
us. The point: the right Realtor can add tremendous value. - On
the other hand, casual or inexperienced real estate agents in no way
justify 4-6% commissions—whether those fees are paid out of pocket or
baked into a home’s price. And yes, one could say something similar
about greenhorn/part-time mortgage brokers.
- Separately,
Siddall noted that CMHC will be advising the Finance Minister and
Minister of Families, Children and Social Development on the proposed revision to the First Time Home Buyer Incentive. This proposal boosts buying power for young buyers, running counter to what Siddall’s been preaching.
RBC Capital Markets on Mortgage Deferrals
- In a report Tuesday, RBC analyst Darko Mihelic shared new insights on Canada’s mortgage deferral quandary:
- “Currently
11% of mortgage borrowers in Canada are not making mortgage payments,
about 17 times higher than the worst mortgage delinquency rate in the
last 30 years…” - “We believe 10% to 15% of mortgage borrowers on deferral are unemployed,” he wrote.
- “We
believe 10% to 20% of mortgages under deferral are at a higher risk of
defaulting” implying a mortgage delinquency rate up to 2.3% when
deferrals end. - RBC does not, however, expect an arrears rate near 2.3%, in part because of:
A) government income support programs, and
B) “cash stockpiling” — i.e., deferring borrowers have “likely” saved
up 4+ months of mortgage payments on average, RBC estimates. - “We
believe mortgage impairments have been pushed out to Q3/21 maybe even
Q4/21,” RBC concludes, citing enhanced Employment Insurance (EI) and the
new Canada Recovery Benefit as two reasons not to panic.
Central Banks Dominate Rate Markets
 Canada’s 5-year bond yield
- The 5-year government bond yield,
which guides fixed mortgage rates, remains in a remarkably tight
trading range. We’ve never seen anything like it in 13 years of covering
the bond market. - Much of the flatness is thanks to the Bank of Canada, which has been buying 5-year bonds without taking a breath. The Bank is doing this largely to keep mortgage rates down.
- With all it’s buying, a CIBC report we read Wednesday suggests the BoC will own virtually half the 5-year government bond market by spring.
- Such
constrained movement (i.e., extremely low volatility) can only mean one
thing. Once there’s a significant surprise in the inflation outlook,
fiscal outlook, Canada’s credit outlook or the Bank of Canada’s bond
buying intentions, rates will vigorously uncoil. We just don’t know if
they’ll uncoil to the upside…or downside.
[img=central bank assets growth around the world]https://pbs.twimg.com/media/EjrnnU3UcAUL5Nc?format=jpg&name=900x900[/img]
Oil Not Coming Back: BP
- If you’re looking for more evidence to support a long-term
low rates thesis, BP’s opinion is worth considering. It’s the first oil
supermajor to pronounce that global petroleum demand growth has peaked. - If that proved true, it would be inarguably bearish for domestic mortgage rates (other things equal) given how vital energy is to Canadian GDP.
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发表于 2020-10-10 03:52 PM
