The Good News

I’m a bit of a  hypocrite.  Whenever I go for a haircut, the gym or even to visit my dentist there’s a tv and it’s usually tuned in to a news channel.  For the record, I don’t watch the news. I’m the guy that asks them to change the channel. I’m not interested in constantly hearing about how terrible the world supposedly is.

My take… if you want to be depressed, watch the news. If you want to be aware and alert, choose where you get your information.

Back to being a bit of a hypocrite…. So, I saw this headline pop up on my screen. “CMHC says house prices could fall by 47%”.  I thought to myself, oh?  I haven’t heard that before…  what am I missing..  I had to click on the link to check it out. 

Sure enough, it was more sensationalist reporting. Spoiler alert… we can all relax.  The sky isn’t falling. And no, house prices are NOT going to fall by 47%.  

The article is almost laughable. In fact, they’ve gone up significantly in 2020 and 2021 has been extremely busy since Jan 4th.  

We are seeing reports of homes with 68 offers. Home listing for $800k selling for $900k. The condo market is officially back. Remember last year’s reports of the imminent condo bubble bursting?  Not anymore, at least not for now. I am seeing multiple offers on condos as well.  

Real estate is red hot.  It is a sellers market. Look, I don’t want to be too harsh on the reporters at Yahoo Finance Canada. After all, they are reporting on what the President of CMHC, Evan Siddall, is saying. The reality is Mr. Siddall has made some very controversial statements and decisions in the last 12 months. He’s gone on record forecasting real estate value would fall early this year by 9% to 18%. 

While on one point, we can all agree that we want to see housing affordable for all Canadians. Mr. Siddall’s actions don’t seem to support his statement. He tightened the debt servicing ratios last year by reducing the debt servicing maximum to 35% of gross income, and on the CMHC website, it clearly says, “shelter costs to be less than 30% of before tax household income.”   

My advice on how to make housing more affordable… Instead of trying to manipulate home prices, why not actually provide tools to make housing more affordable?  Do you remember when maximum amortizations were higher than 25 years?  We still have 30 year amortizations on purchases with more than 20% down, but we used to have this on home purchases with less than 20% down. In  fact, we used to have 35 and 40 year amortizations as recent as 2006.  

Why not bring back those longer amortization periods to allow young Canadians to buy a home?  It’s really not that complicated.  We earn more income in our 30s than we do in our 20s., more in our 40s than we do in our 30s, and more in our 50s than we do in our 40s. Why is that so hard to understand?  

The infamous ‘stress test’ brought out in 2016 made homebuyers qualify at an inflated  interest rate that is now 3% greater than the actual interest rate. Think about it… you must qualify at a rate that is 3% higher with an amortization of 25 years.  

Here’s the official mandate of CMHC, “By 2030, everyone in Canada has a home that they can afford and that meets their needs.”  If CMHC and Mr. Siddall want to follow their own mandate, perhaps loosening the qualifying rules a little would help?

A $400,000 mortgage payment looks something like this @ 1.80% (today’s medium interest rate).

• 25 year amortization $1656/month
• 30 year amortization $1438/month
• 35 year amortization $1284/month
• 40 year amortization $1169/month

Yet today’s payment is a staggering $2279/month when using the qualifying rate is 4.79% and the 25 year amortization. This is being far too conservative. 

Anybody else getting this?

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca