In this episode of Mortgage 101 with Clinton Wilkins and Todd Veinotte, as heard on…
In this episode of Mortgage 101 with Clinton Wilkins and Todd Veinotte, as heard on CityNews 95.7 and CityNews 101.1, the guys talk about the Halifax fall market trends that they have noticed, and what borrowers need to know. Learn what people aren’t talking about with variable rate mortgages, some good news for first time home buyers, when the right time to buy and sell is, and so much more!
Mortgage 101 with Clinton Wilkins & Todd Veinotte: Halifax fall market trends
Don’t feel like watching the video? Check out the transcript below.
What people aren’t talking about with a variable rate
Todd Veinotte: [00:00:00:02] Before we get to talking about the market situation, you had some follow up that you wanted to talk about with variable. I think you call it a trigger rate?
Clinton Wilkins: [00:00:07:23] Yeah. And that’s one thing that we didn’t get to before we ran out of time on our last segment. No one’s really talked about the trigger rate. And, you know, it’s something that certainly being more top of mind right now. For those of you who are in a variable mortgage, this is the version where the payment is static and the amortisation changes.
You may be getting a call, a letter, an email from your financial institution saying that you need to make a lump sum payment, or your payment needs to increase. Because for those borrowers who got a variable mortgage with a static payment when the rates were low, obviously their payment has not increased, and the amount of their payment that’s going towards principal now has been eroded. And that is not acceptable.
You can never owe more than basically what you borrowed. So many borrowers are now getting close to that trigger rate, if they have not already. So I think it would be very prudent if you are in a traditional variable mortgage where the payment does not change: proactively, do a payment increase. You know, everybody who has been in an adjustable rate has done it because they want to keep their amortisation in line. So that’s something to think about. Maybe take some action.
We are certainly talking to some of those folks that are in those variable mortgages and we’re talking about kind of what the best solution is for them. So, you know, look at your situation and potentially take some action now proactively.
Halifax fall market trends
Todd Veinotte: [00:01:36:22] Okay. So you wanted to talk about the market. You want to spend some time discussing that. Obviously, that’s always front of mind for buyers and sellers and everybody involved along the whole thing, for obvious reasons. But this has been a wild ride, this market thing nationally, right?
Clinton Wilkins: [00:01:52:17] It’s not just in Halifax, you know, really across the country. And I think in some areas of the country, the ride has been even wilder and I think the ride is going to continue. So, I think borrowers and homebuyers need to really buckle up because it’s going to be a bumpy ride and I think it is bumpy right now. So I think that’s something to think about. And, you know, the news is really, ‘home prices are going to crash 25%.’ I do not think that’s going to be the case here in Halifax and Atlantic Canada, but we are already seeing some signs of that here, but not as dramatically as what’s going on in Ontario and B.C.
There certainly have been some major softening in those markets. Here in Halifax our average sale home price is down. But does that mean the home prices are down? Not necessarily. The average is down. There certainly has been some more inventory on the market, which I think is very healthy. But we are still in a seller’s market. We’re not in a buyer’s market yet. It is not balanced.
Some good news for first time home buyers
There is more demand in our market than there is supply. But the one thing that really excites me about what’s going on right now, Todd: If you’re shopping for a home, there’s not 20 offers. There are one or two offers. And in some cases there are some homes that are sitting on the market. And there are some homes now that are only selling a little bit over ask, or maybe selling at the ask, or maybe even selling a little bit below the asking price.
And, you know, that is a lot more palatable for people that are a first time home buyer. And I think it is better for the marketplace. It was too heated for much of the last couple of years. Too much.
Todd Veinotte: [00:03:41:20] And you’ve been consistent with this when it comes to the Halifax market ever since I’ve met you. You’ve said Halifax, the market, is not boom bust.
Halifax is usually a very level market
Clinton Wilkins: [00:03:49:21] We are very level.
Todd Veinotte: [00:03:51:21] Very level, and you said that you felt that this has always been deflated to a degree and this is naturally where it should have been.
Clinton Wilkins: [00:03:58:26] We are typically at a 1%, 2%, 3% growth. We’ve not had the double digit growth that many areas of Ontario, in B.C. have seen year, after year, after year. That is not sustainable. It is not. And yeah, we appreciated some good growth to the tune of 15%, 20%, 25% over the last couple of years, year over year. But now guess what? I think we’re getting back into the normal growth and that is okay. And will it eventually become a buyer’s market here? That’s the real question.
Todd Veinotte: [00:04:31:12] Well, at some point. I think everything changes.
Clinton Wilkins: [00:04:33:29] It may be years away, especially with the population growth. We don’t have enough housing. We certainly don’t have enough rental stock and we certainly don’t have enough homes for sale.
I think the average turn time in Halifax from the time homes listed to the time it was sold, you know, at certain points depending on, you know, is it a recession, you know, where is the market at? We’ve been at 30, 60, 90, 120 days in terms of the average. The average is like seven days. So things are certainly still moving very quickly, but maybe not as quick as it once was.
The right time to buy or sell is when you are ready
Todd Veinotte: [00:05:11:05] Almost impossible to time any market though is it not? Like to really time a market?
Clinton Wilkins: [00:05:14:18] Yeah it’s like the right time for someone is the right time when you are ready. There’s no perfect time to do anything. And I think that’s kind of the right message to remember: If you want to do a transaction, if you want to buy or if you do want to sell, it’s what’s going to work best for you in your life and your lifestyle and your household.
And, you know, for me as a mortgage professional, I can certainly tell you if you can afford it, and I can certainly tell you if we can get you approved. So obviously, that’s a factor for many Canadians. They need a mortgage. But the other factors around is it, you know, the price too high? Is a price too low? The price is what you’re willing to pay and what a vendor is willing to sell it for. That is what the price is.
Todd Veinotte: [00:05:59:26] With that said, though, I think that it’s important when you’re talking about an investment, the size that it is, and you talk about the Canadian dream, biggest purchase of your life. I think that as a buyer, certainly you can get caught up in the frenzy of the market.
Getting caught in the market frenzy
Clinton Wilkins: [00:06:14:00] Yeah, you certainly can. And some the emotion
Todd Veinotte: [00:06:16:06] And the emotion of it. Right. And some have felt that people have overpaid in this market and probably in Ottawa as well over the last year or so. What do you think?
Clinton Wilkins: [00:06:25:21] There have certainly been the $100,000 plus over ask. There certainly, certainly have. Do I think that’s happening now? No. With the caveat of me saying there are still some licensed real estate professionals that are listing properties well, well, well below the market with trying to get that stimulated, you know, really fight and, you know, those multiple offer situation. So that’s still happening a little bit.
But I think sellers, so vendors and I think realtors in general are listing properties closer to where they think the market value is and really what they want to sell these properties for. Which that’s much healthier for a market and I’m okay with it.
Am I concerned about what’s happening in other areas of the country? Yes, I am. We certainly have people that are moving from Ontario, from Ottawa, from Toronto, from other markets within Ontario, and they’re having a hard time selling their homes because not only is the market slow, there now is more inventory maybe than there are buyers.
So maybe it’s turning slightly more into a buyer’s market in some of these bigger areas. And I think the issue with the rates, so with obviously the key overnight rate increasing, so the variable have now increased and with the fixed rates being very high, borrowers are having a harder time qualifying to get a mortgage.
Other markets have much higher home prices than Halifax
Clinton Wilkins: [00:08:01:05] Right? So that’s now removed a section of the potential market from being able to do a transaction. And I think in markets where the average home price is much, much higher than it is in Halifax and Atlantic Canada, they are even more impacted than we are here.
And I’m not saying that we, a smaller percentage of our household income goes towards housing. I’m not saying that. But, you know, it’s scale. Like, let’s be honest, our average home price here is $500,000. And in Ottawa, it’s not double, but, you know, you’re getting pretty close. And at one time, Ottawa and Halifax, the home prices were very similar. But guess what? That’s changed now over the last several years. And will things come to more of a balance? I think time will tell.
And I think what we’re going to see in some of these bigger markets, if there continues to be more and more inventory that’s sitting and sitting longer, we may see more of a price softening because people will want to do transactions.
Lenders taking risks
Todd Veinotte: [00:09:05:20] Alright. So lenders obviously take on risk when they issue a mortgage or they fund a mortgage.
Clinton Wilkins: [00:09:11:11] Of course.
Todd Veinotte: [00:09:12:05] So they’re obviously lenders are looking at this closely. What’s the real value of a property? Is this a feeding frenzy? So how do they they manage that on that side?
Clinton Wilkins: [00:09:22:24] I will be 100% honest with you. There are some alternative lenders and some private lenders in different markets from around the country, including ours here in Halifax that have scrutinized some lending practices. So maybe they’ve pulled out of the market, or maybe they’ve reduced the amount of exposure that they’re willing to take on.
Alternative lender changes
A lot of alternative lenders and private lenders, you know, they would finance up to 80% of the market value of the home. And some of those lenders have cut that back to 65%, for example, because they don’t want that additional exposure. And with them cutting it back to 65%, if the price do soften, they still have that buffer and they’re still in a very safe position. And maybe in that same position they would be if they would have previously financed that 80%.
Will that continue? They are watching and they’re being cautious. Obviously, in Halifax, I’m very optimistic. I have to be optimistic. I’m in the business of optimism. The other markets from across the country, I am less optimistic just due to the sheer average home price. Just so, so, so much more.
Todd Veinotte: [00:10:30:11] How about high ratio mortgage? CMHC, these insurers. Is there some concern they may be overexposed?
Clinton Wilkins: [00:10:39:24] I would say not in the big markets because they only insure purchases up to $999,000. So there’s only so much exposure that they can have. CMHC is 100%, obviously, government owned and it’s a crown corporation and they provide 100% coverage to the lender on any losses. Sagen and Canada Guarantee, they provide a 90% coverage.
So that means that really the lender’s in for, let’s say, 10% of what the potential loss would be. Losses are not up. Canadians typically pay their mortgage. Will we see losses when the rates go down and when we enter into a recession situation.
Todd Veinotte: [00:11:26:20] When rates go up?
Clinton Wilkins: [00:11:28:00] When rates go down.
Todd Veinotte: [00:11:29:01] Or will they go down? Okay.
Clinton Wilkins: [00:11:30:19] We might see much more losses if we go into a recession because of things like job loss, loss of business. I am more concerned for Canadians right now with maybe a recession on the horizon.
Todd Veinotte: [00:11:47:13] Which is two quarters, consecutive quarters of loss, correct? GDP loss.
Clinton Wilkins: [00:11:52:16] And, you know, again, there are long lasting implications to these rate increases and there’s long lasting implications to a recession. So I think it’s things that we’re really trying to balance. And the Bank of Canada was trying to get to a soft landing. And you know what? It’s been a bumpy ride, and I think it’s going to continue being bumpy.
If you have any questions, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.