What You Need to Know About Mortgages in 2021

MORTGAGE RATES

Rates are continuing to remain low, with 5-year fixed rates available in normal mortgages with full features and no odd restrictions, available at 1.84% and variable at prime -0.75% (1.70%). The sharpest rates are for high-ratio insured purchases. It’s nice to see some larger discounts off of prime for variable-rate mortgages, as those are finally starting to bounce back.

Historically, low-interest rates do continue to have an influence on homebuying optimism and psychology. The Bank of Canada has clearly stated that their rates will remain low until the economy shows sustainable improvement. The federal government is continuing to control fixed rates through large-scale bond purchases, and we’re unlikely to see a halt to these purchases until pandemic related risks subside significantly. Similar messaging from the US Federal Reserve has market watchers projecting that the current rates will persist into 2023.

As a broker, I shy away from rate-chasing and lean towards educating and strategizing with respect to specialist borrowing programs. I want to ensure an understanding of the dizzying difference in mortgage terms, qualifying for the greatest dollar amount, or managing portfolios of multiple properties and positioning for future asset acquisitions. However, if the rate is your only motivator, there are lots of brokers and lenders playing in that space. I believe that rate is important, but only after we’ve ticked all the other boxes.

Eventually, most lenders end up in about the same place on the rate (for the same asset class – ex: high ratio purchase can’t be compared to a refinance). The illusion that the various lenders have different rates due to a number of reasons: some may take up to a month to catch up, some price funds depending on capital reserves or when their fiscal year-end is, or some haven’t made their volume targets yet. At the end of the day, most rates only vary by 5-10 bps, which barely moves the needle on the payment. So of course the rate is important – I just don’t believe it to be the most important.

CANADIAN ECONOMY

For the second time this month, The Liberal Party avoided a snap election after lawmakers rejected an opposition push for a special committee to investigate the alleged mishandling of COVID-19 spending. The outside chance that we faced a near term election had no reaction in domestic bond markets, almost a non-event.

The latest employment numbers, coupled with the September reports from the Toronto and Vancouver real estate boards, have triggered optimism about Canada’s economic recovery and the state of the housing market. Current employment numbers are a key indicator of economic health.

The Canadian Real Estate Association is reporting its best September ever, with sales rising nearly 46% compared to 2019.  The increases appear to be driven by homeowners looking for more space, as most of the sidelined-spring-buyers have now been absorbed. The downfall: there is a chance that the condo market will not perform over expectations in the coming quarters, especially those that are smaller or in the city (i.e. micro-condos).

September’s report on job gains shows five straight months of increases, meaning that the majority of the population is back to work. This illustrates that we have recouped three-quarters of pandemic job losses. This is a phenomenal outcome, particularly when compared with that of the US, where jobs remain only slightly above the 50% threshold. The pandemic has disproportionately hit low wage workers and youth, explaining why housing activity has been so strong during an overall economic downturn.

In terms of the fiscal and monetary policy measures utilized to combat the economic fallout from the Coronavirus, Canada has outdone the average country. We also avoided bargaining with opposing parties, as is the case state-side, which explains why our economy has continued to perform well. However, much of what happens here, north of the 49th parallel, depends on what decisions are being made to the south of it. This leads me to regularly comment on the happenings below us. Canada is a small open economy with many forces beyond our control that determine its fate.

US ECONOMY

It’s alarming that prior to this week, stock market complacency had risen to sky-high levels. I was concerned that no one seemed to be worried. Value and price have become largely irrelevant concepts; however, in the last two days (I’m writing this on a Thursday), there seems to be some uneasiness creeping in. The market is recognizing that there will not be a fiscal package ahead of the US election and there is increasing evidence that the pandemic is worsening around the world. US COVID-19 hospitalizations have reached a two-month high and doctors are experiencing the negative effects of the growing “info-demic”, with large swaths of Americans believing the virus to be a hoax.

The current polls are pointing to the Democrats winning both the Senate and the Presidency, as well as increasing their majority in the House. This leads to expectations of more fiscal spending, which has pushed Treasury yields to their highest levels since June.

GLOBAL ECONOMY

Globally, COVID-19 cases have topped 40 million cases, leading countries in Europe to issue tighter restrictions. The EU has also signaled that a trade deal with the UK is still within reach. Remember when Brexit headlines were the most significant thing moving market headlines? Those were the days…

German infections have jumped to a record high and Spain’s Health Minister has stated that the spread is out of control in certain parts of the country. Although recovered, the oil prices took a dip and gold prices edged higher before going back down.

HOW A CHIP MORTGAGE RECENTLY HELPED MY CLIENTS

I recently worked with a couple in their 70’s who found the perfect home to downsize into, listed at $600,000. Although they weren’t ready to sell their $1.3M home, they wanted to purchase the home for a slow transition.

On their modest pensions, qualifying for a $600,000 mortgage was impossible. I suggested the new CHIP Open to make it work and we registered a $600,000 open mortgage over both properties. This allowed them to purchase the home they wanted without having to perfectly time a purchase and a sale. This couple now has all the time they wish to prepare their current home for sale with no rush, as they aren’t making mortgage payments.

CHIP Open is Prime +4% with a $2,995 set-up fee, which includes the conveyance. My clients got ILA and there are no penalties for when they pay off their mortgage – it is fully open. They feel these closing costs will be more than compensated by allowing them the time to prepare their home for the market.

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Should you want to hear from Rebecca and learn more she can be contacted at 604-614-2382 or rebeccaawram@gmail.com

As you know through your individual growth plans, it is important to keep up with your industry connections. Connecting with mortgage brokers is important to keep a pulse on the market as a whole. We suggest selecting 1-3 mortgage brokers and signing up for their newsletters to stay up-to-date with the mortgage and finance world from a variety of sources and opinions.