Mortgage 101 – Look Out For Interest Rates

July is hot and so is the housing market! With a Bank of Canada interest rate announcement on the horizon, your hosts Clinton and Todd sit down to discuss the current state of the Halifax real estate market, including the impact of interest rate changes and challenges faced by first-time homebuyers.

Todd Veinotte
We’re recording the show on Barrington Street, not our studio, at the Podstarter studio, and it is hot, hot, hot out there right now!

Clinton Wilkins
I know it’s probably as hot as the real estate market. I don’t know if that’s a good segue or not. It is certainly great weather here. And I hope it’ll be great weather this weekend or whenever you are listening to us. I hope your weather is good! It’s July here in Halifax and again, yeah, we’re in downtown Halifax recording.

Todd Veinotte
Yeah. And of course, we’d like to start talking about the news cycle. And we’ve got another Bank of Canada interest rate announcement in two weeks.

Clinton Wilkins
It is right around the corner. I’m on the fence, Todd, on what’s going to happen on this announcement. I’m not gonna make any predictions this time. But the last time I was like, yep, we knew everybody knew. So it wasn’t really all that. I think there were some naysayers. Let me tell you. I told you I would fall on my sword for my last prediction, which I luckily didn’t have to do. This time I’m on the fence, I’ll tell you why. The inflation numbers were edging up a little bit. So that’s not great news for a reduction. But there are some other key indicators that are pointing towards rates going down. So I think there’s going to be more news releases over the next week, or 10 days that are going to point towards what’s going to happen with the Bank of Canada. I think we’ll have a better idea by the time the 24th rolls around, which is at the end of this month. The rates are going down. I think that’s the moral of the story. The question is when? And how quickly, are they going to continue to soften?

Todd Veinotte
But you said that it’s not going to be a big sharp decline, it’ll be like a slow burn, as you described.

Clinton Wilkins
I think it’ll either be a 25 basis points reduction or a hold. And I’ll challenge our listeners! I’m going to put a poll up on Twitter, and on our Instagram, on either the 23rd of the 24th, prior to the announcement. I’ll put it up. And then I want to hear from our listeners, what you think is gonna happen.

Todd Veinotte
And generally, what’s that translate into dollars and cents; a 25 basis point drop.

Clinton Wilkins
Again, it’s not a big variance. I think last time we said it’s like a couple of percentage points that it’s going to reduce. I think it was a 3% reduction in people’s interest carrying cost. So again, it would be similar, it really depends on what you owe, what your amortization is. This all will impact the actual amount of your payment, or your amortization. We need to remember that every variable mortgage is different. Some have an adjustable payment, and some have a static payment where the amortization will get shorter when the prime rate goes down. Anybody who has a home equity line of credit, obviously, that’s going to impact their cost of borrowing right at the get go. And we also need to remember that every lender doesn’t just automatically change their prime rate when the Bank of Canada changes the key overnight rate. Some change at the first of the following month, some change it as soon as they can, but, it’s not usually an instant update. And we’ve had some clients reach out that are curious as to when are we going to see a change. You know, after the first of the month, that’s when it happens usually.

Todd Veinotte
Sometimes with a percentage point of a drop like that, is that a deciding factor for somebody to say, “now’s the time, I’m gonna get into the housing market!” Can it be kind of that threshold?

Clinton Wilkins
I don’t know if a 3% reduction in total cost of borrowing is gonna make a huge, huge difference. In terms of the numbers, I don’t know if that’s gonna be enough to move the needle. But, you know, it’s a positive news story. And we need positive news right now. You know, with the cost of everything out there? I think having the cost of housing being less is positive.

Todd Veinotte
Yeah. As far as the cost of housing goes, I was listening to a news report today. And the cost of buying a house across the country is up 7%, something like that, year over year. I think that was the number that I heard…

Clinton Wilkins
Which is pretty amazing, considering there’s less transactions happening.

Todd Veinotte
What’s what’s going on?

Clinton Wilkins
That’s not necessarily driven by GTA or GVA, I mean, it is in a sense that the market was just so bad last year, that they’re starting to see some rebound. But our prices here are continuing to increase.

Todd Veinotte
I hear somewhere and again that housing is now becoming more expensive in Toronto than it is in New York. Is that true?

Clinton Wilkins
I haven’t heard that. But it wouldn’t shock me. And a lot of this has to do with supply. In a lot of areas, I would say across the country, it’s not just Halifax, there’s such a lack of supply. And that’s what’s driving the price up. You know, in any type of market, it doesn’t matter if it is housing or otherwise, it’s a supply and demand issue. If we get some more supply, it’ll help ease that amount of demand, and it will keep the prices more leveled.

Todd Veinotte
Yeah. Are we getting lots of new supply?

Clinton Wilkins
Not yet! I think we will, especially with the plan that the federal government has. I think we’re gonna get a lot more housing come online with this accelerator fund, but it’s going to take a long time. Yeah, even if decided to build something today, it’s not coming online for one to three years, probably. It takes time between the planning, financing construction. Housing just doesn’t correct itself overnight. I think in Halifax, our issues are going to be for 20 years. You know, and our team talks about housing all the time. We have an office over in Dartmouth on Wyse Road, that’s no secret. And there used to be a hotel connected to our office tower that was leased for a three year period by the Province for housing assistance. And now they’ve announced even recently in Halifax, that they’re creating some more sites for those who are on housing assistance. I don’t remember this issue five years ago. I think there were always a few people that you would see maybe along Spring Garden Road, that would be what we would consider unhoused. But it wasn’t on mass. You know, we didn’t see tents, there wasn’t that that issue. And, I’ve talked to people that live next door to our office, and you know, there’s people that go to work every day! The issue is, they can’t find something that they can afford to rent. And I think what they can afford is much lower than maybe what the supply is offering, right? Which is tough. And I think we have this perception maybe as Canadians that people who are unhoused are either or have mental health conditions or addictions. But it’s not always the case.

Todd Veinotte
No. I’m assuming that perhaps you’ve seen a cohort of clients in the past that that are under $100,000 anual income, but you are still able to get them into something, and find them somewhere to live within the city. That’s becoming more and more challenging, if not impossible?

Clinton Wilkins
It definitely is! like I had a client today who’s an existing client, I’m not going to share their name or their specific situation, but they make under $50,000. Here, they own a home, that home is worth $400,000 plus, and they want to buy a new home. Well, the challenge is based on your $50,000 income, you can only really afford a mortgage for $200,000. So there’s only so much money to work with. And in that case, they need a bigger downpayment to be able to afford a better home. The good thing, and what’s really working for them, is they owe very little on their existing home. And the home that they’re in now has doubled, or tripled in value. So they’re able to use the equity and put it down as a big big down payment. But not everyone is that lucky, they made some good decisions, you know, 10 plus years ago with getting into the housing market. But the challenge is really for me, it’s still that first-time homebuyer. It’s breaking into the property ladder that is the most challenging thing for borrowers to do.

Todd Veinotte
So generally, the clients who you’re seeing, I’m assuming their income would be $100,000 plus in order to be in that entry point.

Clinton Wilkins
Yeah, I think the household income for clients that we see is typically $100,000 plus, yeah. Household. I’m not saying an individual, because you know what, that would be a high income earner. But I would say as a combined income, typically in our applications, we’re seeing $100,000 plus, it really depends. For existing homeowners, I would say that the average is lower. I think for the new homeowners, those first time homebuyers. We’re seeing definitely a higher average household income. It’s just a nature of where the rates are, and where the cost of real estate is right now.

Todd Veinotte
And again, back to the rates. That’s why a lot of people are looking at these rates, but I don’t think we’re gonna see these historically, low rates that we witnessed before.

Clinton Wilkins
It’s gonna be years before we’re back to these pandemic rates.

Todd Veinotte
I think we’ll return to that though.

Clinton Wilkins
You know, I think rates are trending down and it’s how long is it going to take? I think in two years, we’re gonna have a different conversation than we’re having right now. It’s going to be a completely different conversation. I did an interview today with another news outlet and it was really all about mortgage renewals and clients are just so concerned about the renewals. A lot of that is to do with interest rates and there’s so many misconceptions that there’s all these costs when you move from institution to institution, that’s not necessarily the truth. It’s really very interesting.

Todd Veinotte
Okay, lots to get to in July. July is Pride and we’re talking about pride and homeownership and we have a guest on next who is an employee of yours.

Clinton Wilkins
That is right. Yeah, we’re gonna do a deep dive into what’s going on with Pride. We’re going to talk about homeownership and everything else.

Todd Veinotte
Okay, Mortgage 101, your guide to homeownership. We’ll be right back!