Month: April 2021

There’s no doubt you haven’t missed the news about record-breaking home buying activity and price increases across Canada. The current market frenzy of homebuying is being driven by millennials, resulting from a combination of record-low interest rates and a strong desire to change our housing arrangements. Supply has fallen short of demand by a long shot, and the result is prices are very rapidly increasing while the affordability window is closing fast on aspiring homebuyers.

Parental assistance with living-inheritances is the No. 1 factor pushing up the prices in Canada’s largest urban markets. Given the crippling amount of student debt millennials have racked up, thus hindering their savings efforts, the gift of down payment from boomer parents enables them to enter markets that require a minimum of $50,000-200,000 down payment for a single-family home or townhouse.

An estimated 60% of millennial first-time homebuyers are getting some degree of help from the bank of mom and dad, either through some or all of the down payment, or in many cases as co-signers to help with increasingly more difficult income qualifications. Millennials need parental support now more than ever to compete and tender strong offers.

Boomers are having multifarious effects on the real estate market during the COVID-19 pandemic as they’re extremely confident that real estate will outperform other financial investments, and they want their adult children to enter the market before it’s too late. According to a Sotheby’s report, 60% of boomers are waiting for a “trigger” before they gift a living inheritance to the younger generation to assist with buying a home. The pandemic could certainly qualify as a trigger because it highlighted the need for adequate shelter that may be out of their heir’s price ranges.

Some trends in the next 10 years for intergenerational wealth transfers

Trends by region

There is a clear regional trend in early wealth transfers for the purpose of purchasing properties in the three biggest metropolitan centres—Toronto, Montreal, Vancouver. Thirty-five percent of Toronto boomers and 36% of Vancouver boomers have given or intend to give for real estate purchases, and that’s just based on surveys done in those cities. Wealth transfer trends by gender

By gender, women are inheriting a disproportionate amount of wealth due to the fact that they outlive their partners by an average of five years. While only 20% of land is owned by women worldwide, this is expected to even out significantly over the next 30 years. When women do control the purse strings, their habits as investors tend towards making safe bets, such as property. Seeing as they tend to be more risk-averse and communal, they will be supportive of helping their adult children with an investment asset like real estate instead of, say, investing in the stock market. In the U.S., approximately $30 trillion in wealth is set to change hands in the next decade and women are poised to inherit a sizable share, according to research by McKinsey & Company published in 2020.

Wealth transfer trends by ethnicity

Considering that property ownership is often the largest asset and portion of investments a given family would have, minorities that were excluded from the ability to accumulate wealth through land ownership due to systemic oppression and red-lining are at a disadvantage in the long term. According to a Princeton study in 2005, caucasian families are 4.3 times more likely to receive large money transfers, and four times more likely than minority families. Immigrant families that came to Canada as refugees have to start from scratch, so they are also unable to help their adult children to the same degree as third- and fourth-generation Canadian families are.

Wealth transfer trends by household income

Household income is another contributing factor if a living inheritance is given, and how much. We can see a continuation of the widening income inequality gap here as well. Boomers with annual household incomes over $100,000 are almost twice as likely to give a living inheritance for the purpose of buying real estate. Household income also affects how early beneficiaries receive their gifts. For those with household incomes over $100,000, 83% of recipients got their gifted down payment prior to the age of 35, compared to 70% of those with household incomes below $100,000. About 10% of beneficiaries received gifts between $100,000-200,000.

Some boomers are leaning on reverse mortgages to access their equity early

Approximately half of reverse mortgage takers are doing it specifically to assist their adult children with down payment. With a reverse mortgage, it offers a tax-free solution to transferring wealth, and there is an “income advantage” product through Home Equity Bank (CHIP) that offers no monthly payments. Many people who don’t know about reverse mortgages, or don’t qualify for more than 30-40% of their home equity, may go for a home equity line of credit, where they can get up to 65% of their home value as liquid cash, but they would have to make monthly payments on that.

Living inheritances just make sense

From a psychological standpoint, the pandemic has given boomers a visceral experience with their own mortality. They want to see their adult children benefit from their hard work so they can become more resilient now, when they need it the most. Instead of waiting for the inevitable to happen, the smartest strategy they can undertake is to start unwinding their estate early on so they can avoid some of the estate taxes the family would have to pay. It only makes sense.

Much hinges upon the resettlement of Toronto’s downtown core—after the COVID-19-induced exodus of 2020, some wonder if people will ever return to the city—namely the health of its condo market, but according to a prominent developer, Toronto will bustle again one day soon.

“If you look at the things that are driving people away from the downtown core, or did for much of 2020, it’s obviously driven principally by COVID-19 and the things that make people want to live in the downtown core in the long run—employment opportunities, food and beverage, and the ability to be in a high-density area with lots of energy and socializing—is what makes Toronto an attractive place, not just for people who have lived here all their lives but also to immigrants,” Gavin Cheung, executive vice president of CentreCourt, told CREW.

Cheung, who will be taking over as CentreCourt’s president in January, has much to say about what will happen in downtown Toronto in the near future. For starters, he noted that humans crave social interaction and that the dearth to which we’ve grown accustomed over the last 13 months is the likeliest reason Toronto will soon resume its 24-hour city status. However, that won’t happen until people feel it is safe enough to return.

“The timing really hinges on when people feel safe coming back to the downtown core because it is more dense and you’re exposed to a lot of people, and you need to feel it’s not a risk,” said Cheung. “I feel the federal government has set a goal they could beat when they said September is when everyone who wants to be vaccinated will be, and despite hiccups along the way, I think that will stand or improve. I think sentiment will change when people are vaccinated.”

Domestic yearning for The Big Smoke is sure to return, especially because some expect the Roaring Twenties 2.0 post-COVID, but immigration is the sure-fire factor in need of consideration when appraising Toronto’s future. With over a million new immigrants expected to settle in Canada over the next few years—not to mention the government’s recent announcement that 90,000 foreign workers and students will receive permanent status—it’s foregone that many, if not most, will choose Toronto, the country’s economic engine.

“I think the government is doing exactly the right thing when focusing on immigration because it’s always been a source of economic prosperity, and Toronto is one of major beneficiaries of that thinking,” said Cheung. “Before the permanent residents announcement, the government was already on track with increasing immigration. Those sorts of goals and immigration objectives are critical to our economy for any number of reasons: not only are all universities reliant on that, but aside from higher education and skilled workers, it’s critical for our population growth, the economic progress we make as a country, and the most important thing is it’s a very focused source of long-term growth in Toronto.”

Indeed, people are attracted to cities that have premier financial and educational institutions and great healthcare, which bodes well for Toronto’s condo market, says Cheung.

In fact, CentreCourt sold out 8 Wellesley, a 55-storey, 599-unit tower slated for occupancy in 2025, in what Cheung says was basically a weekend, and it’s an indication that Toronto’s condo market isn’t a reflection of our pandemic present, but rather our post-COVID-19 future.

“As far as I know, it’s a record for the GTA. We were under contract within a week of opening the gates to 8 Wellesley for over $500 million of revenue. Call it a full week but basically within a weekend. That, for us and our industry, was a real signal that the people buying into this project see a lot of value in condos as they relate to the low-rise market today, and also that they have a long-term lens on what they’re doing. They’re betting on high conviction and they believe Toronto will get past COVID-19.”

Times are changing and so has the demand for parking spaces in the GTA.

A decrease in vehicle ownership and increases in driving alternatives like ride-sharing and public transit has resulted in reduced need for parking spaces by residents who buy units in new developments.

Thankfully, the city is now reviewing its parking regulations. Planning staff have proposed less restrictive parking space requirements for developers, and they’re looking at ending parking minimums in favour of parking maximums on new developments. This would lower construction costs—and result in savings for home purchasers. A win-win, as they say.

The matter is a bit complicated but under current rules the city requires a minimum number of parking spaces to be provided by a developer based on the location and use of new buildings.

However, a report prepared by the planning staff has recommended the city instead implement a maximum number of required parking spots. Removing minimum parking requirements will allow market trends to determine parking necessity. The change would reduce the risk of future oversupply of parking.

Recommendations on long-overdue changes to the zoning bylaw, which governs parking requirements, will be presented to Toronto’s planning and housing committee by the end of 2021.

In downtown Toronto, builders are supposed to provide 0.3 parking spots for a bachelor condo, 0.5 parking spots for each one-bedroom condo, 0.8 spaces for a two-bedroom, and one parking stall for condos with three or more bedrooms. A single parking space costs between $80,000 and $100,000 in downtown Toronto, so it certainly adds to the cost of construction. These additional costs negatively impact housing affordability and represent an unnecessary burden for certain demographic groups that are not interested in vehicle ownership.

Going deep underground for parking also adds to the construction time to complete high-rise buildings. We are therefore advocating for innovative above-ground parking options to be considered. The focus must change to recognize the environmental consequences of building more underground parking.

Simply put, the further down a builder must dig to provide parking, the higher the cost of the digging deeper and the process can have a negative impact on stormwater capacity and result in challenges for sewer infrastructure.

We believe the city should consider above-grade parking because it is less expensive and, at the same time, allows for the repurposing of parking spaces if they become redundant in future.

Building above-ground parking also greatly increases the speed of construction and minimizes the disruptive impact. On average, two months of construction could be saved per parking level, according to anecdotal evidence. This means that up to 12 months could be shaved off a construction schedule.

This is critical because we are presently short 12,000 housing units a year. A 2020 report by the Canadian Centre for Economic Analysis indicated the GTA could see up to 100,700 additional housing units by 2040, with the City of Toronto seeing 21,100 additional units by 2025, if there was a reduction in delays to the approvals process by six months and a 10% increase in investment.

In rethinking its methods, perhaps the city should look west to Edmonton which adopted an approach called open option parking that removes minimum on-site parking requirements and allows developers, homeowners and businesses to decide how much on-site parking to provide on their properties.

That, in our books, seems to be a good idea.

Richard Lyall, president of RESCON, has represented the building industry in Ontario since 1991. Contact him at [email protected]

Finance Minister Chrystia Freeland’s first federal budget projects deep deficits for years to come as it promises to support people through the pandemic crisis and make Canada’s economy greener and more cognizant of working mothers’ daycare needs.

Chrystia Freeland’s first budget is as promised

In more than two years, the first federal budget extends Ottawa’s COVID-19 “lifeline” for workers and struggling businesses another few months as it aims to pull Canada through the pandemic once and for all. Clocking in at a bulky 724 pages, this is a highly detailed budget that sets the stage for post-pandemic policy in Canada.

Finance Minister Chrystia Freeland’s first crack at a budget plan is also widely viewed as a pre-election platform with more than $100 billion in new spending over the next three years targeting a wide variety of voters, from seniors and their caregivers to parents and business owners.

The government will need to get at least one opposition party to support it to avoid a pandemic election this spring. Much of the redistributive “investments” and social spending are right up the NDP’s alley, so that should be no problem. Canada’s net debt is now over $1 trillion for the first time, after a $354 billion deficit for the pandemic year just finished. It is expected to keep climbing with deficits of $155 billion this year and $60 billion in 2022-23.

That is driven in part by more than $100 billion in new spending over the next three years, including costs to maintain federal wage and rent subsidies and aid for laid-off workers, until September now, instead of cutting them off in June.

Freeland is also looking ahead to the post-pandemic Canada the Liberals want to see, one with $10-a-day childcare, the ability to produce its own vaccines, national long-term care standards and small- and medium-sized businesses equipped with the workers and technology they need to survive.

It also includes a greener, cleaner Canada, with a promise of more than $17 billion in climate change programs, many of them in the form of incentives that encourage heavy industry to curb their emissions and grow Canada’s clean technology sector.

All of it comes with a pandemic-sized asterisk that things could still change drastically if vaccine supplies are delayed, or they prove not to work that well against emerging variants of the virus. The budget includes alternative scenarios that show where the fiscal picture might go if the worst-case scenarios of the pandemic play out.

Those risks seem even more real as the country is battling the worst wave of the pandemic yet, with record hospitalizations and patients in critical care and doctors and nurses repeatedly warning of a health care system on the brink of collapse.

The debt-to-GDP ratio will rise again to 51.2%, up from 49.0% in FY20/21 and just over 31% before the pandemic. However, this year should mark the peak for that ratio before declining below 50% by FY25/26.

Help students and low wage workers

The Budget aims to create 500,000 training and work opportunities. It pledges $2.4 billion over three years to develop skills and trades, with about 40% earmarked for training in sectors ranging from health care to construction.

It adds on $8.9 billion more to beef up the Canada Workers Benefit in a boost to low-wage workers, who will have a higher income threshold at which their benefit starts to shrink.

Other measures include bumping the federal minimum wage to $15, pledging $300 million to programs for Black and women entrepreneurs and other underrepresented groups, and recommitting to protect gig workers through promised amendments to the Canada Labour Code.

About 300,000 Canadians who had a job before the pandemic are still out of work.

Help for small businesses, tourism industry and the arts

The government announced extending the Canada Emergency Rent Subsidy (CERS) and Canada Emergency Wage Subsidy (CEWS) past their current June 5 deadline but added it is planning to wind them down gradually by the end of September. The government also announced a new hiring credit and some aid programs for the hard-hit tourism and arts industries. Firms that collect the CEWS will face a clawback of the aid if their executives earn more in 2021 than they did before the pandemic. A step critics said should have been taken when the subsidy first came into force in mid-2020.

The hard-hit tourism sector is also getting $500 million for a Tourism Relief Fund, to be administered by regional development agencies to help local tourism businesses recover from the COVID recession. Another $100 million is going to a marketing campaign that will encourage Canadians to visit vacation spots in this country. Never mind that they are fully booked for the rest of the year.

The budget also unveiled $200 million in spending to support major arts and cultural festivals, which will flow through regional development agencies.

The Trudeau government is betting measures will improve productivity and pay for themselves

The government’s budget estimates its spending plan will create or maintain some 330,000 jobs next year and add about two percentage points to economic growth, part of a three-year boost from $101.4 billion in new spending over that time.

The largest contributor is almost $30 billion over five years to drive down fees in licensed daycares to reach $10 a day by 2026. That money is on top of already planned child-care spending. However, the problem is that it will take provincial buy-in as it requires a 50/50 split of the expenses. This could cause untold delays.

There is also more money for broadband infrastructure and $7 billion in cash, financing and advice to help companies adopt and invest in new technologies intended to address ongoing concerns about the country’s productivity gap.

Ottawa is trying to jump-start the jobs recovery with a new program that offsets a portion of employers’ labour costs. The Canada Recovery Hiring Program (CRHP) would run from June 6 to November 20 and cover as much as 50% of incremental pay to workers, whether through higher wages, more hours or new hires. The program is estimated to cost $595-million.

The labour market has mostly recovered from the pandemic. The number of employed Canadians is down by roughly 300,000, or 1.5%, from pre-pandemic levels. At this point, the damage is mostly confined to a handful of sectors – such as hospitality—that are curtailed by public-health measures. At the same time, employment has increased in many white-collar industries.

Housing and real estate

Much like past budgets, the federal government has proposed a series of measures on housing, although they are unlikely to curb the robust activity and speculation of the past year.

Canada will impose a 1% tax on the value of real estate held by foreigners if the property is left vacant, beginning in 2022. It follows foreign buyers’ taxes in British Columbia and Ontario. The move is estimated to bring in $700-million in revenue over four years, starting in 2022-23.

The budget also proposes to send an extra $2.5-billion to the CMHC for various initiatives, including the construction of affordable housing units and plans to reallocate $1.3-billion for such things as the conversion of vacant offices into housing.

However, the budget was just as notable for what wasn’t there: new measures aimed directly at cooling the real estate market.

Measures for the elderly, the green economy, reduced tax evasion, and luxury taxes on yachts, expensive cars…

If all goes well, and the pandemic is largely behind us by September, the government forecasts a marked drop in deficits and debt over the five-year planning horizon.

– As a share of the economy, the fiscal track is about where it was in November, with annual deficits averaging 5.8% of GDP over five years versus 5.7%.

– Bond issuance in 2021 will decline to C$286 billion, from C$374 billion in the previous fiscal year. The government wants to issue more than 40% of its bonds in maturities of 10 years or more, up from 15% pre-pandemic. That includes a re-opening of 50-year issues.

– The government pledged to reduce federal debt as a share of the economy over “the medium-term” in defining its new fiscal anchor.

– Canada plans to implement a digital services tax on tech giants at a rate of 3% of revenue. It would be effective Jan. 1, 2022, “until an acceptable multilateral approach comes into effect.” The tax is projected to raise C$3.4 billion in revenue over five years

Bottom line

There is no plan to balance the budget, but one area of focus ahead of the budget was whether Ottawa would commit to a specific fiscal anchor. And while a precise figure was not mentioned, the budget states: “The government is committed to unwinding COVID-related deficits and reducing the federal debt as a share of the economy over the medium-term.” With the proviso that the economy recovers roughly in line with consensus expectations and that borrowing costs don’t flare dramatically higher, this suggests that the anchor is a 50% debt/GDP ratio. For the deficit, this implies a reversion to pre-pandemic levels of around 1% of GDP (or about $30 billion later in the decade). In a sense, then, the pandemic has been “paid for” by a one-time level step-up in the debt/GDP ratio from 30% to 50%.

As expected, the federal budget released Monday afternoon contained measures to, at least ostensibly, cool runaway prices in Canada’s housing market.

Most notably, the government is introducing a 1% tax on non-residents that’s believed will generate $700 million in revenue through four years beginning in 2022-23. Additionally, the budget will apportion the Canada Mortgage and Housing Corporation with funds that will be spent on social housing programs.

“The government has a plan to invest $2.5 billion, and reallocate $1.3 billion in existing funding to speed up the construction, repair, or support of 35,000 affordable housing units. And, the government will introduce Canada’s first national tax on vacant or underused residential property owned by foreign non-residents,” said a federal government statement.

However, at 1%, the non-resident tax is nominal and, therefore, too meek to make any sort of difference in the housing market, charges a wealth advisor, adding that, on a $1 million home, the tax amounts to a paltry $10,000.

“It’s probably not going to cool housing because if people are speculating on real estate, I don’t know that 1% is much of a deterrent,” Paul Shelestowsky, a senior wealth advisor with Meridian Credit Union, told CREW. “They’ll just factor 1% into what they want to get on their returns. It will generate revenue for the government because it wasn’t there before, but I don’t see it slowing things down because there’s so much demand for so little supply.”

Ultimately, creating more demand for housing will exacerbate unaffordability, and Shelestowsky believes that raising interest rates is the only way to quell scorching demand. However, he noted that rate hikes would undo everything that’s sustained the economy for the last 12 months.

Low interest rates aren’t the only reason Canadians are buying real estate in a frenzy. The COVID-19 pandemic has adversely affected lower income earners, but for the middle and upper-middle classes, it’s been fortuitous. The Canadian savings rate has surged 28% and there’s believed to be close to $200 billion surplus cash in the country’s households, which, in tandem with low interest rates, has sparked a housing rush. But things could become dicey when that excess cash is rapidly injected into the economy.

“What has economists worried is all this stimulus out there; the vaccines are rolling out, so we could see something in three to six months where people have all this extra money to spend and they may want to go on trips again, but when they spend their excess savings, it drives prices up and that creates inflation,” said Shelestowsky. “The way you slow inflation down is by raising interest rates.

“It’s a big paradox because Canadian savings has gone up by 28%, and that’s money that will create price pressure when it’s deployed. All the money sitting on sidelines is why the housing market won’t slow down—because interest rates are so low and people are sitting on all kinds of cash.”

The Office of the Superintendent of Financial Institutions (OSFI) recently announced it’s revisiting the stress test on conventional mortgage loans (i.e. at least a 20% down payment on a purchase or refinances), slated for June 1 implementation.

Currently, borrowers are stress tested against the current mortgage qualifying rate of 4.79%, or the contract rate plus 200 basis points (2%)—whichever is greater. Most Canadians fall into the former camp of having to qualify at 4.79%.

But, if the bank regulator has its way, this rate will increase to 5.25%, which will, on average, reduce the maximum qualifying amount for a mortgage by approximately 5%.

The problem here is that this policy change is meant to try and cool a red-hot market, but it’s focusing on the wrong variable. There are many mechanisms that have various effects on our housing market, but reducing the affordability of Canadians who are, by all accounts, in the lowest risk category for defaulting is just plain silly. These borrowers are already demonstrating a strong commitment to conservative spending by having the required 20% down payment to avoid the mortgage insurance. So why punish them? And what’s the real issue?

With mortgage interest rates currently below 2% and Canadians having to qualify at over twice this rate, we already have a robust stress test that maintains a healthy margin for Canadians to weather an economic storm. Most of my clients are paying thousands less a year than they were when they were renters, and these changes are only affecting the middle class’s ability to enter the real estate market.

There’s a really not-so complicated economic theory called the law of supply and demand. The more goods or services that are available (supply), the lower the demand (and, by extension, price). We’re facing a housing shortage. It’s one of the reasons we are witnessing record-breaking home prices and bidding wars on properties. With only so many properties available on the market, and COVID-19 sparking an exodus out of major urban centres, it’s sent a demand shock across many markets by outstripping supply by a wide margin.

For now, it looks like the proposed increase to the stress test will be on a federal level, affecting banks and not provincially-regulated credit unions. It’s especially important to monitor these changes if you are considering purchasing pre-construction or are already in a contract, as most require a minimum 20% down payment.

Regardless, if you have been planning to either purchase and will need a conventional mortgage, or are in the process of refinancing with a closing date after June 1, you’ll want to reach out to your mortgage broker to see how these changes will affect your plans.

Toronto’s condo rental market is showing signs of strength, according to a Q1 Urbanation report that revealed, at 11,928 units leased, transactions surged by 70% over Q1-2020.

Listings declined by 12% from Q4-2020 and brought the ratio of quarterly condo leases-to-listings to 61%—the highest since the COVID-19 pandemic struck in March of last year. However, it remains 10 percentage points below the decade-year average, although it’s at least broaching the lower end of balanced market conditions.

“In a sign that the urban rental market may be starting a comeback, the City of Toronto outperformed the 905 Region in terms of annual growth in lease activity in Q1 by a wide margin of 78% versus 46%,” said the report.

“Evidence of a bottoming-out for rents appeared in the first quarter data. On a quarter-over-quarter basis, average per sf rents decreased 1.4%—a significant improvement compared to the 7.5% quarterly drop recorded in Q4-2020. Furthermore, average monthly rents increased month-over-month in both February and March (each by more than 1%), suggesting that the market reached its low in January at about $2,000 and is already on the path to recovery.”

Rents averaged $2,037 last quarter in the Greater Toronto Area and $2,033 in the City of Toronto, year-on-year declines of 14% and 16.2%, respectively; in the 905, average rents, at $2,053, dropped by 6.7%, marking the first time that’s ever happened. City of Toronto rents were higher on a psf basis at $2.98 compared to $2.67 in the 905.

Purpose-built rental buildings registered as far back as 2005 saw vacancies increase by 6.6% GTA-wide at the conclusion of Q1-2021, according to Urbanation’s survey data, increasing from 5.7% one quarter earlier and 1.1% from the same quarter last year. In the City of Toronto, purpose-built rental vacancies rose to 8.8% last quarter from 7.3% in the fourth quarter of last year, and from 1.1% in Q1 of 2020. However, the vacancy rate in the 905 was 1.5% last quarter.

In the GTA, rental supply hit 100,000 units, and while there was deceleration in new rental construction activity, long-term planning for purpose-built rentals picked up. There were 1,009 new rental units that began construction at the conclusion of last quarter, which is a 73% decrease from 3,735 starts during the same time last year. At the end of Q1-2021, there were 13,563 units under construction, which is a marginal decline from 13,863 units at the end of Q1-2020, although it’s more than twice how many were under construction at the end of Q1-2016 (5,833).

“The total number of proposed purpose-built rental units that haven’t started construction reached a recent high of 86,683 units—34% higher than a year ago (64,757 units) and bringing the total pipeline of rental units under construction and planned in the GTA to over 100,000 units.”

A new survey of Canadians across the country revealed that over half don’t shop their mortgages around for more competitive rates, indicating that they’re likely paying more than they have to.

The HOMEWISE poll showed that only 49.1% of the 750 respondents aged 25 to 44 sought out better rates, while 37.9% remained with their bank and 13.1% said they would go to one of Canada the Big Five.

According to Jesse Abrams, CEO and co-founder of HOMEWISE, Canadians are paying thousands of extra dollars during their amortizations.

“We were surprised by how many Canadians would only go to one bank for a mortgage. This is an outdated and inefficient way to finance one of the biggest commitments of a homebuyer’s life. By not shopping around, homebuyers can lose money on rates, but that’s only part of the story,” said Abrams.

“Mortgage-providers offer different features such as penalties if a mortgage is broken before the term is complete, which can be thousands of dollars more depending on the lender. It’s a case of comparing apples and apples before signing on the dotted line, and it can be complicated.”>

Many of the poll’s respondents were first-time homebuyers, but according to mortgage broker Shawn Stillman, this cohort is overwhelmingly comprised of millennials who are tech-savvy and not averse to doing research for the purpose of shopping around.

“First-time homebuyers are a lot more likely to shop around and do their research. They do their research online and they usually go to one bank and one broker, “ said Stillman, principal broker at Mortgage Outlet. “If you’re going to have heart surgery, you’re probably going to do as much research as possible so that you can ask your surgeon all the right questions.”

Stillman added that first-time buyers are a lot more aloof towards financial institutions than their parents are.

“A lot of first-time buyers don’t have the same attachment to their bank that older people have. Banks don’t have relationships with people.”

Mortgage specialists who work for big banks are also far less likely to be forthright about borrowers’ options as their singular goal is to get the latter to sign on the dotted line. Stillman says mortgage brokers spend time educating borrowers in addition to securing them the best rate possible.

Moreover, he says that although alternative lenders charge higher rates, borrowers typically still come out ahead after at least a year.

“When you look back over the last 15 years, it makes sense to go with B channel mortgage because housing prices always go up by a minimum of 4% a year,” he said, “so it doesn’t hurt to go with B mortgage because you always come out ahead.”

The Office of the Superintendent of Financial Institutions (OSFI) is implementing yet another stress that’s slated to take effect June 1 and the likely result will be a surge in mortgage originations in the alternative channel.

Although the comment period for the implementation of Guideline B-20, as the stress test is known, ends May 7, it’s widely believed to be a nominal gesture. With the B-20 amendment all but guaranteed, mortgage broker Daniel Johanis says affordability on mortgages originated with the Big Five will decline.

“It’s unfortunate that when B-20 previously came into play in January 2018, we saw a huge drop in affordability for Canadians and it doesn’t make sense for conventional borrowers,” Johanis told CREW. “You have 20% or more equity sitting in your property, and you’ve shown the ability to save money for purchases when you put 20% or more down, but you get slapped on the wrist by this policy that’s supposed to help protect your affordability. It doesn’t make sense.”

The stress test will increase the qualifying rate from 4.79% to 5.25%, which, Johanis added, reduces conventional mortgage affordability by an average of 5%, and as a result, the number of borrowers who originate their mortgages in the alternative and private channels should see a notable increase.

“It’s going to move them towards alternative lenders, possibly provincially-regulated credit unions, because we’ve seen how they can skip stress tests by qualifying on contract rates and then with MICs [mortgage investment corporations]. It’s not doing anything except making it a little more expensive for borrowers to get into the game.”

Leah Zlatkin, a mortgage broker and expert with LowestRates.ca, agrees with Johanis’s assessment and anticipates that there will be a flurry of activity in the mortgage space ahead of June as more homebuyers try to get ahead of the OSFI decision.

However, she cautions homebuyers not to behave too hastily, because while it appears the banking regulator is trying to cool the housing market, that is not in fact what it exists to do.

“Cooling the housing market is not the bank’s main mandate, so we’re unlikely to see an increase in the prime interest rate soon,” she said. “The housing market is not really in trouble, in terms of stability. Even an unexpected rate hike would likely not lead to a crash. Canadian homebuyers need to keep a cool head, not make emotion-based blind bids on homes and work with experienced mortgage and real estate professionals to successfully navigate the current market.”

Although Johanis says that forcing copacetic borrowers out of the A channel isn’t fair, originating mortgages in the B channel won’t set them back much because all of the home equity their homes accrue will be enough to offset their higher borrowing rate.

“You make it back by the first year.”

RELNKS has enhanced its platform with the introduction of a function that enables users to find realtors who can help them with their home purchase.

According to Ryan Poyntz, RELNKS’s vice president of strategic partnerships, the value proposition is a two-way street.

“For realtors, it’s a great way to connect with consumers who are starting in the homebuying process and looking to connect with a local real estate expert who can help them navigate the local market,” said Poyntz. “It’s a great way for realtors to find leads.”

RELNKS, a platform that falls under The Nationwide Group of Companies, might be better thought of as a central database for a real estate transaction’s multifarious facets—a place where home buyers can apply for a mortgage, hire a lawyer, find home inspectors, insurance products and a rich resource of many other vendors required to close the deal, all the while letting real estate agents and mortgage brokers track the status of the process, from beginning to end.

Not just any agent is eligible for the program, though. RELNKS puts agents through a screening process to ensure the ones it onboards are both reputable and exceptional in execution.

Consumers are given the option of inviting their own real estate agent and mortgage broker onto the platform to help them complete their transaction, if they so choose, says Poyntz.

The platform functions as an one-stop shop, and although it’s just begun bringing realtors into the fold, mortgage broker Mark Squire, VERICO Financial Group’s COO and president, says RELNKS’ white labelling function is an excellent complement for the mortgage network, especially because it lets individual brokerages maintain their own brands.

“We have about 35 broker-owners who have gone on to the white label arrangement, which is really nice because they could have it on their website and share it with their clients, and it carries their brand power,” said Squire.

Above all, added Squire, RELNKS’s unification of typically disparate functions in the home purchase process—from finding a realtor and mortgage broker to uploading crucial documentation that the latter passes onto underwriters—saves time on transactions. And as the old adage goes: time is money.

“It connects everyone in the transaction so they can all communicate,” said Squire. “This really brings everyone together—the realtor, broker, client, and all the additional pieces that are needed to complete a transaction, including helping consumers, who are moving, change their postal addresses—and it keeps everyone in the loop. It’s a great tool for that reason, because we can all directly communicate with each other.

“It’s streamlined, so we close deals faster, clients are involved in the process and they can directly upload documents. A client who’s moving can also find a moving company, a storage pod, and I love that it’s connected to the Multiple Listings Service.

Realtors and brokers interested in joining the RELNKS Referral Program can e-mail [email protected] or visit RELNKS for more information.