Poloz in, Carney out as Bank of Canada Governor…3 major changes in less than a year!! Anyone else find this strange??!.

Stephen Poloz was announced as Mark Carney’s replacement as the new Bank of Canada Governor.  The announcement was a surprise for many… Most thought the Deputy Governor, Tiff Macklem, would have been a more likely candidate.  But Jim Flaherty, Minister of Finance, chose Poloz…. probably because he shares the same vision as Flaherty…  tighter lending rules, higher rates.. etc..

But this article isn’t about why Poloz is in, and Macklem is out.   I want to bring something else to your attention.   Did you know that we have had 3 major changes in less than 6 months?   Mark Carney is leaving Canada to head the Bank of England.   Then, within 6 months, the head of OSFI, Julie Dickson, announced she will be leaving in 2014.   And now Karen Kinsley, CEO of CMHC, has announced she is stepping down.  I’ll add in a fourth.. Robert P. Kelly has come in as Chairperson of CMHC… You’ll need to read this to understand why this is relevant.

These are major changes folks.  OSFI, CMHC and the Bank of Canada Governor.   3 major players that run and regulate Canada’s Financial and Banking sectors.  Has anyone asked why  they are all leaving now?

I haven’t seen anyone in the media notice or question this!!…  Not sure I have the answers… but one thing is for sure… That’s too much change in such a short period of time to be a coincidence.  I don’t believe in coincidences.    With the Finance Minister pushing for higher rates, tighter lending rules and lower house prices, we can only assume his wish may finally be turning to reality .

For the past 3 years, all we kept hearing is how Canada’s personal debt load has increased, interest rates are too low, house prices are too high, mortgage lending has to become tighter…   Your govt wants to make it more expensive to borrow money… they don’t want everyone to own a house… they definitely don’t want you to invest in real estate as they’ve eliminated rental property mortgages unless you have at least 20% to 25% down (most lenders now want 25% down).    And the latest rumors have Mr. Flaherty wanting to dismantle CMHC and take it private…  a national housing program that has been around since 1946 and have made $$billion in profit…in fact, CMHC has put $17 billion into the federal coffers over the last 10 yrs…

EARTH SHATTERING LENDING CHANGES

The most recent lending rule changes, Bill B-20, was an earth shattering set of regulations that have only started to come into force recently.   Where at one time, a family earning $120k in annual income could afford a home in the $700k range (based on today’s record low fixed rates), today, their max is $500k…  If we crank up that mortgage rate by 1.00%, to 3.99%, we are now down to a maximum house price of $450k…

How about buying an investment property…..  so many of us want to get off the stock market roller coaster and just earn a steady, proven return that is indexed with inflation and maybe see some appreciation in the house after 10 yrs.. yes, real estate and market rents…  but buying an investment property has become so much harder… Not just because house prices are up, but because qualifying has become so much tougher.   New rules require 20% to 25% down, but your rental income must be 150% of the mortgage payment.. sometimes higher!!!     (hey, there are still a few options to overcome this requirement.. see me for details)

SELF EMPLOYED ARE REALLY HURTING.

And if you are self-employed, look out… the govt acknowledged contract workers and self-employed individuals make up a large and growing % of Canada’s workforce.   And being self-employed means you don’t get the perks of benefits, pensions and job security… so claiming more legitimate tax write offs allows you to pocket more income…  One of the few perks…  But try getting a mortgage today if you are self-employed… The business for self lending programs have either disappeared or have been modified to discourage this segment from buying a house.  We’ve gone backwards with our credit policies by at least 20 years!

RETIRED WITH LOTS OF EQUITY?   TOO BAD, YOU CAN’T ACCESS THAT EQUITY.

Do you have a mother and father in their ’60s that own their home but don’t earn quite enough through their pension.. you know, house rich but cash poor?   The cheapest solution was to scale down to a smaller property and borrow on a secured line of credit to make their retirement years the happy years..  Lenders were safe because they would traditionally lend them up to 65% of the value of the home…  but today, that same retired couple are out of luck.. They are forcing them to sell or go with a Reverse Mortgage product.. I don’t like these products at all.. you should stay away from these higher rate products..

There are even more changes that make it tougher to borrow today… too many to list here.. but you get the picture..

CANADIANS ARE PAYING THEIR DEBTS FASTER AND BETTER THAN EVER BEFORE

You don’t hear that too often… of course not.. it’s good news.  Good news doesn’t sell, bad news does.  But it’s true.. defaults are lower than they’ve ever been… mortgages are being paid off faster now than they were just 5 years ago..   this is reality..  And yet, the govt still feels they need to tighten the credit policies??  This makes no sense to me or to several other financial experts.

BOTTOM LINE

Hey, I’m still optimistic about owning real estate.. It’s proven to be the safest investment over the long term…  you can see it, touch it, enjoy it, finance it, live in it, rent it and sell it…  Oh, by the way,  we are still enjoying historical low interest rates! (wouldn’t you rather borrow when rates are low?)… These are emergency interest rates to stimulate the economy..  It’s okay to take advantage of them.. really, it is!

But we need to speak up and challenge our govt’s actions.   Putting the brakes on credit policies this quickly could derail the economic train that we have enjoyed for over 10 years…  Stop making radical changes..!!   Let your current changes have time to take effect… and be ready to stimulate the market if and when it goes south…  Let’s hope the govt will be big enough to reverse their radical changes as quickly as they brought them into law!

Your best interest is my only interest.

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca