Mortgage 101 – Housing and Inflation: How It Affects You | September 4th, 2023

Why is the housing market so difficult right now? In this edition of Mortgage 101, Clinton and Todd are discussing the critical issues surrounding the housing market and inflation. They talk about supply and demand issues, how inflation impacts the Bank of Canada, trends in buying rentals and the condominium market compared to freehold properties.

Todd Veinotte 00:05
Alright, so speaking of the news cycle, the Bank of Canada, grrr. And this is –

Clinton Wilkins 00:10
Not very happy with the Bank of Canada right now.

Todd Veinotte 00:13
Well nobody is with a variable line of credit or variable mortgage, why would you? Why would I be right? When I look at what my payments are now?

Clinton Wilkins 00:21
I’m in the same boat.

Housing is a critical issue for the federal government

Todd Veinotte 00:22
Right. Hundreds of dollars a month. And that’s straight out of our bank accounts. Right? And that’s, that’s tough. I mean, the Bank of Canada. So the methodology here behind all of this is supposedly, that if you are charging people more money to borrow. You certainly can correct me if I’m wrong here. It’s pretty, it’s pretty –

Clinton Wilkins 00:41
You go. And I’ll tell you.

Todd Veinotte 00:42
It’s pretty simple. If you’re charging more money to borrow, people will borrow less, therefore people will spend less. And if things cost them more while they’re borrowing, they’ll have less money to spend, that’s less money in the economy, therefore less purchases are being made. Therefore, the economy theoretically cools down. That’s basically the theory is it not?

Clinton Wilkins 01:04
I think you hit the nail on the head.

Todd Veinotte 01:06
Right, right. So but it’s not happening to the degree that they had anticipated.

Clinton Wilkins 01:12
Because Canadians had paid off a lot of debt during the pandemic, and they saved a lot of money. And now they’ve blown through all their savings, and now they’ve racked up all their debt, people are getting close to the breaking point,that they will need to stop spending, need to stop spending. I’m hearing people they’re coming in, and they’re doing trying to do mortgage transactions. And I’m needing to pay off people’s car loans and prepay their car leases, to make the numbers work, because the rates are at a certain level. This is new, I haven’t seen this type of, you know, maneuvering that’s needing to happen in years. People that normally we’re in a good situation, their situation has worsened. And it’s not because they were in a variable rate mortgage. It’s because of everything else. And now, guess what, now this is just one thing on top of the other. So I think it takes several months, for every increase to actually show results for the Bank of Canada, and the Bank of Canada is too anxious to bring inflation down. It’s certainly going in the right direction. Yes, we might have seen a little bit of a spike in the inflation from the July results. But overall inflation is pretty much where the Bank of Canada wants it to be, except for housing, which obviously is being impacted by the current Bank of Canada key overnight rate, which is the prime rate. That’s something that they certainly need to get it under control, and the cost of fuel. So there’s certainly some things that the bank can can do. But I think if they didn’t start lowering the rates, it would bring the cost of housing down in theory, but there’s still not enough supply. So, you know, I think really what the what the bank end needs to do is work with the federal government or the federal government needs to work with the BOC. And we need to get more supply going. How can we incentivize provinces and municipalities to get more housing starts going?

Todd Veinotte 03:14
Yeah, well, it’s interesting. You talk about affordable housing and housing in general. And this is a big issue. Now Shawn Fraser, of course, who is a Nova Scotia Member of Parliament from the Pictou area, he’s now the housing minister, a new position and and this is becoming a critical critical issue for the federal government. Because the goal is that people should not spend 30%, more than 30% of their income on housing.

Clinton Wilkins 03:40
Many are paying 40% or more or more. Many. I’m not saying, everybody but many.

Not enough supply, too much demand

Todd Veinotte 03:46
So this is untenable. I mean, this is this is a situation that leads to abject poverty in many cases, right? How does government besides I guess what, what? monetary or fiscal policy that we’re talking about with the Bank of Canada, what other levers are there?

Clinton Wilkins 04:01
Well, I think we need to create more housing. And I think if there’s more supply, it will bring the price down, and maybe not bring the price down, but level off the price even Todd. You know, I’m hearing apartments that are $2000 $3,000 a month, like apartments are as much as a mortgage. Right? And, you know, we were never one of those cities here in Halifax that had apartments that are just like so Uber expensive, like our apartments are similar prices to like Toronto and Vancouver.

Todd Veinotte 04:30
Why? What’s going on with that?

Clinton Wilkins 04:32
Not enough supply, too much demand. So the landlords, you know, there’s 1% vacancy. I feel bad for landlords in many cases as well, because, you know, their cost of borrowing has gone up, their cost of utilities have gone up, but they have not been able to increase the rent so their landlords are not in good shape either. Nobody’s having a good time. Nobody’s having a party here right now. And we just need more and more starts. And it’s not just single family homes we need. We need apartments, we need condos. We need low income. We need townhouses we need every form of housing 10x. We need 10x of what’s going on right now. Maybe 100x I don’t even know. But we certainly need much, much more supply. And that’s going to take several several years to be righted, at least here in Halifax. In Halifax is going to be a while.

Are people buying to rent?

Todd Veinotte 05:20
Right. So when it comes to a rental unit, so are you seeing the number of people purchasing rental units drastically decreasing?

Clinton Wilkins 05:30
Nobody buying rentals right now. Nobody’s buying to rent, at least not small rentals. And that’s the market that we work in like 1, 2, 3, 4 units so that’s really what the market that we’re in. Nobody’s buying properties as a rental. I would say very, very few. Many, many less than were before. Less people are buying second homes as well. People are really focusing on their primary residence and the people that are buying homes right now, I would say primarily are first time homebuyers. People are not selling their starter home and buying a bigger home. That’s not happening. So then first time homebuyers can’t buy their starter home. It’s just so many layers of complexity that we’re really are getting into the situation that we’re in right now. Some of this will be fixed. If we can get more permits, more condos, more single families, more townhouses built. More supply, then there will be some vortex of you know, vacuum that will suck these people into the new housing and then will open up some of the existing resale housing. The marketplace that you know there certainly are people out there that are shopping we have so many people pre-approved we have so so many borrowers. They just either can’t find something within their price point. Or there’s just really not enough for sale. They’re just really truly is not.

The condo market vs freehold property

Todd Veinotte 06:49
The condo market. Where would you say the condo market is in Halifax?

Clinton Wilkins 06:53
Not as hot as the single family freehold type properties. Condo market certainly is not as hot. I would say downtown the condo market certainly is better than it is in the other areas of the of the city. Downtown Halifax, yeah, the condo market is pretty good. But it’s still not as hot as a freehold property. It may never be here in Halifax, you know, our condo market here is very juvenile compared to other cities our size or bigger, you know, in downtown cores in a lot of big cities, it’s all condos, there is no you know, freehold properties available. But guess what? One block off spring garden road you can buy a freehold property if you really wanted it. It is available. We just have a very old city and condos are really in their juvenile kind of stage. Infancy really. And you know, I think condos will get more and more popular as years go on, specifically, you know, freehold properties keep on increasing in price. People will be forced into smaller housing situations and I think in a lot of cases condos are right for a lot of people. Obviously they’re not right for everybody. You know if you need a backyard if you have kids you have an animal whatever like condos are not right for everybody but the right for a lot of people.

Todd Veinotte 08:07
Well, there’s an there’s a form of governance in the condo market as well, right? You have condo board.

Clinton Wilkins 08:11
There’s a lot of protection as well. You know what I mean? You know, with a single family or freehold type property, if the roof goes you have to replace the roof. The roof goes of the condo, you know you have a lot owners that are going to get on that and plus the condo corps have contingencies. They have these funds ready to go for things like this. So pros and cons. I think a lot of people are like, ah condo is not for me, I don’t want to pay the condo fees. Well, the condo fees are really just prepaying a lot of your maintenance. Really they are.

Todd Veinotte 08:41
And for I would think for seniors in many cases it would be an ideal fit right? Depending on people’s situation.

Clinton Wilkins 08:48
I own a condo. I’ve own condos before I’ve owned several condos, actually. I always say I’m like oh yeah, I want to have a house again. I think it’s just because I want to have more space again. It’s not so much that he don’t like the idea of condos. Condos works really well for my lifestyle. I was just away for the last like 10 days or so I was telling Todd that I took a bit of a break. And it was really nice to just be able to the turn the key of my condo and walk away. You don’t really have to worry about too much. My biggest worry was is there a place for my dog to go? And is someone going to come and water the plants?

Todd Veinotte 09:26
Was there a place for your dog to go?

Clinton Wilkins 09:28
Yeah, the dog stayed down in the valley and had a little vacation with my dad.

Todd Veinotte 09:31
Oh nice.

Clinton Wilkins 09:31
And we had a friend come in and take care of the plants. It was pretty painless.

Todd Veinotte 09:34
Yeah, did you have to pay either of those any money?

Clinton Wilkins 09:36
Neither were compensated monetarily.

Todd Veinotte 09:40
But they had a lot of emotional gratitude.

Clinton Wilkins 09:43
Of course. Of course. And, you know, when you own a home, there is a lot of responsibility. We keep on saying, you know, talking about things like insurance, we’re talking about some of these worst case scenarios, but homeownership can be very rewarding as well. Yeah, and you know, I love the idea of homeownership, we’re in the homeownership business. And we’ll certainly talk more about that when we come back.

Todd Veinotte 10:05
Absolutely Mortgage 101 your guide to homeownership, we will be right back.

Clinton Wilkins 10:17
if you’ve liked what you’ve heard, and you want to learn more, feel free to visit us online at Tim clinton.ca