Mortgage 101 – (Not Quite) A Buyer’s Market | June, 26 2023

Clinton Wilkins and Todd Vienotte discuss the flexibility of a variable mortgage, why we aren’t in a buyer’s market yet, and why first time homeowners are buying homes right now.

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Clinton Wilkins 00:00
Oh I feel jolted you know what I feel jolted by the bank again, and what’s going on with interest rates right now.

Todd Veinotte 00:10
So you know, nice, nice work, nice work. That’s why…

Clinton Wilkins 00:13
I’m sure some of our customers are jolted. And I think Canadians are jolted in general, I think people are jolted when they get their mortgage renewals from their banks to have it. But we’re going to talk about the spring market, and really what’s going on this spring, how was your spring, Todd?

Variable mortgages are flexible

Todd Veinotte 00:26
Oh, my spring was fine, because he didn’t have to renew mortgage, although I do have a very variable mortgage. And of course, I’m a client of yours.

Clinton Wilkins 00:31
And I’m in a variable mortgage

Todd Veinotte 00:32
And you and your advisors. So let’s, while we’re on that, just quickly, let’s talk with you. And you still feel that a variable might for some people be the proper vehicle?

Clinton Wilkins 00:42
I’ll tell you who it’s right for. It’s right for people that maybe have a little bit more room in their debt servicing ratio. So if you have a little bit more income, and if you’re not right on the line, I think a variable is okay. Historically, variables lower obviously, we know right now it is not lower. Will it be lower again? Likely, yes. How long? We don’t know, again –

Todd Veinotte 01:00
Could it be months, years?

Clinton Wilkins 01:02
I think it’ll be months into years, probably. So I think that’s where people need to think, if you have a really good variable, at like prime minus 90 prime minus 100 or more, you know, it makes sense sometimes to just continue. I think that if you have a variable, and if you’re prime minus 50, or 40, or something like that, it might make sense to switch. Because the penalty to get out of variables, only three months of interest. But the challenges are, the fixed rates are very high. So then you really are in a commitment. The reason that a lot of consumers took a variable in the beginning was because it was lower than the fixed, okay, number one; historically, it’s lower, number two – right now it’s not. And thirdly, it’s very flexible, because you can convert into a fixed with your existing lender. And you can also break the mortgage early with the penalty of only three months interest. So for some people, it’s right. For some people, it’s not, I’m still doing variable rate mortgages today. So what does that tell you?

Todd Veinotte 01:59
So generally, what would be the circumstance, obviously, if somebody can afford it.

Clinton Wilkins 02:03
I think if somebody can can afford it.

Todd Veinotte 02:04
And if perhaps they may feel they may want to move or sell in the next –

The two types of variable mortgage payments

Clinton Wilkins 02:09
Or break their mortgage early. And sometimes people just have always been in a variable rate. And that’s what they’re comfortable with. They understand how it works. And we need to remember that there’s two types of variables, ones with an adjustable payment, and one with a fixed payment. Again, if you’re in one of those mortgages that have a fixed payment, I happen to be in one of those. My amortization has gotten longer and longer. When the rates go up. I was down to like 16-18 years on my amortization, and now I’m almost 40 years on my amortization. So I’m gonna have to do another payment increase to keep up, keep up with the times. And that’s really impacted customers that are looking to buy new homes. And you don’t normally in the spring, it’s the busiest real estate market of the year. We had reports, we had Realtors here on our show, and they were telling us, you know, there’s been less listing, there’s been less activity, there’s been less offers on homes. And part of that is people can qualify for less, you know, first time homebuyers because the rates are higher based on the stress test. They have to qualify on the contract rate plus 2%. So they’ll qualify for less today than they would yesterday and less yesterday than they would the week before because the rates have been going up. So that’s something to think about. I think there’s less buyers in the market, because they’re like, Oh, well, I’m going to wait for the rates to go down. Or I’m going to wait for this to become more of a buyers market. In Halifax, I don’t know if that’s going to happen. But certainly other areas of the country, it already has.

Is it a buyer’s market?

Todd Veinotte 03:34
You still don’t think it’s a buyers market here, here in Halifax?

Clinton Wilkins 03:36
I don’t think it’s a buyers market, there’s not enough inventory. Still, there’s still not enough in other areas there is, you know what I mean? Here, they’re still not enough. I think, you know, those homes that are in the first time homebuyer range into that average range, you know, the three, four or $500,000 range, those ones are moving quite quickly. I think the higher end homes, yes, those ones are sitting longer. And I think the longer it sits, I’ll be honest with you, I think buyers have more negotiating power. I don’t care what realtors say, if the house has been sitting for a longer period of time, you know, either there’s something that’s not as marketable about the home, whether it’s condition or area or features or whatever. Or maybe the price is too high. It is okay to negotiate. You know, I think we’ve just been living in this world that everything goes above list. Houses are listed way above the assessment. The assessments have gone up. So I think it’s something that we need to think about. And the other thing that I think sellers need to think about, if you’re trying to sell your home, you want to get it sold. And sometimes what is it? A bird in the hand is better than two in the bush? And I think we forget that sometimes. So I’m hearing some stories like people are getting accepted offers like I have clients like you today that already had accepted offers, which is great news. I mean, I think it’s so important to work with a realtor that you know lives and works in that area and they can give you the advice. Not every realtor is the same.

The majority of buyers are first time homeowners

Todd Veinotte 05:01
What about first time homebuyers. How many of these, how many are you seeing people of first time homebuyers?

Clinton Wilkins 05:05
I would say of the people who are buying homes? I would say the majority of first time homebuyers right now. The majority of our clients that we’re seeing buy homes today: first time homebuyers.

Todd Veinotte 05:16
Why do you think that is? That seems to be a bit of a phenomenon certainly.

Clinton Wilkins 05:19
I think they’re like, there’s a bit of a lull in the market spring wasn’t like how it normally was. And they’re not competing with 10 and 20 offers on properties. Even if maybe the prices are, you know, haven’t decreased, you know, I think it’s plateaued. They are more comfortable negotiating in a plateau situation. And in a very aggressive, you know, market, which we really were in the last two and three years.

Todd Veinotte 05:44
Yeah. Amortization, which is still 25 years max?

Clinton Wilkins 05:47
25 years on insured mortgage, and 25 years to typically get kind of the best rate even on a conventional mortgage. But on a conventional mortgage, if you put down 20% or more, you can go up to a 30 year amortization,

Todd Veinotte 05:56
If you put 20%, you can put it there over 30 years.

Clinton Wilkins 05:59
And some customers are choosing to do a 30 year amortization on a conventional mortgage just have a lower payment, but the rate is a little bit higher, typically, the rate is about 10 basis points. So point 1% higher.

Todd Veinotte 06:09
So I would think that if these would be some of the more expensive homes for…

Clinton Wilkins 06:13
Yeah, like, you know, when I bought my place, I told you as the owner an 18 year amortization, that was because I increase my mortgage payment, and I didn’t accelerate a weekly payment, or bi weekly payment. I started at a 30 year amortization. It wasn’t because I wanted a 30 year, I always knew I wanted to pay it off faster than 30 years. But I want to have the flexibility that, you know, I’m self employed. I don’t know what’s gonna happen next month, next quarter next year. You know what I mean?

Todd Veinotte 06:38
Like, you’re gonna be fantastic. And things are gonna be awesome, because you’re Clinton Wilkins.

Clinton Wilkins 06:41
Well, I think things are going to be fantastic, as we put in the work, but I’ll be honest with you, Todd, things started to slow for us last summer. And it started to slow, because, you know, I think there was a lack of inventory, rates were going up a little bit. Not and, you know, people were getting a little bit nervous. You know, I think that the market started to slow. And then I think by December, January, February, March, it was much slower than we thought. But luckily, we do a lot of refinances. And we do a lot of renewals for customers, or you have a lot of existing clients. So like we were busy-ish. But it wasn’t busy like the last two and three years, because we didn’t have the purchases or the purchases were not where they used to be. And I can tell you, and I said this before, if you’re working with a realtor, wrap your arms around them, because it is a very tough time to be a realtor right now. We thought it was really easy for them before. Because you know, things were moving so fast, but they didn’t make a lot of, a lot of offers to get an accepted offer. Right now. They’re working hard just getting an offer together at all, because obviously there’s less buyers in the marketplace. So…

Sellers are making more demands

Todd Veinotte 07:47
So based on that, you would think that this would be a buyers market based on what you’re just telling me.

Clinton Wilkins 07:52
If we had more inventory, it would be maybe, but we don’t have the inventory. So that’s why I think it’s still a seller’s –

Todd Veinotte 07:58
So it’s a bit of an anomaly, because we don’t have inventory yet, in a way sellers are kind of making more demands now than they were before.

Clinton Wilkins 08:06
And I think the sellers are still putting the demands on that they would have probably put on a couple years ago. So I don’t think it’s rebalanced yet. Is it getting more to a balance market? Yes, it is becoming more balanced. So don’t get me wrong. Sellers don’t have all the power here. But it’s not a balanced market. And it certainly is not a buyers market. At least not at this time.

Todd Veinotte 08:27
What about just quickly inspections? Are people still waiving inspections? Are you seeing less and less of that?

Clinton Wilkins 08:31
I’m seeing all the conditions. Inspection, water, everything. This day of no conditions, I think that’s done at least for a while.

Todd Veinotte 08:40
I think some people learned the lesson the hard way without it.

Clinton Wilkins 08:43
Yeah. And they should have because it was reckless. And I think that the market just became too overheated and everything needed to move so quickly. Some people found themselves in undue risk. But we’re recording here in the north end or central Halifax. There’s a house right around the corner from the studio. I’m gonna tell this story quickly. They bought it last year for 800 I think 50 or 60,000. They listed it for 750,000 literally about $100,000 less and it went for about 760. So those buyers in one year, well, they lost 90,000. I don’t know the story of the buyer or the seller, but I probably assume it’s a breakup. And you know what they bought at the top and now it’s not the top anymore.

Todd Veinotte 09:22
Yeah for sure. Right. Okay, Mortgage 101 your guide to homeownership. We’ll be right back.

Clinton Wilkins 09:35
If you’ve liked what you’ve heard, and you want to learn more, feel free to visit us online at teamclinton.ca