拿到Commitment Letter就等于贷款批下来了吗? No!

General Joanna Yang 29 Apr

很多人认为按揭贷款拿到了Commitment letter 就大功告成了, 其实只不过是刚刚走过了整个流程的50%而已。 接下来银行风控要审阅所有收入、信用相关的文件和房子的正式评估报告等文件, 过了文件审阅和房屋评估这两关,才算是贷款正式被批了。

对于首付低于20%的按揭贷款,都需要购买房贷保险。要注意的是,按揭审批流程需要要走两遍 — 银行走一遍, CMHC等保险公司也要走一遍独立的批准流程,以确保每一笔首付低于20%的按揭贷款符合保险公司的获保条件。

警报!如果你的房子存在以下的情况, 很可能在最后一分钟被告知无法获得贷款的批准 –

  1. 因太多的人哄抢offer, 造成房屋的成交价格过高, 脱离市场实际价值;
  2. 房屋内部实际情况糟糕, 特别是在MLS listing上出售时出现 “as-is” 或者“handyman special?” 等字眼, 都是银行风控高度关注的敏感词语;
  3. 如果所买的自住房和申请人工作地点离的非常远, 银行会觉得不符合实际生活常理,会假设申请人会有花费在第二个住处上, 而强制要求在计算申请人的“负债收入比(TDSR)”时加上“Shelter Cost”作为负债项。 各个银行对Shelter Cost要求不同,有的要求$400, 有的要求$600等等。 这个Shelter Cost一旦被要求加上,经常会让申请人的TDSR一下子爆掉。所以在买自住房申请贷款时,申请人一定要注意和自己工作地点必须有一个合理的距离。
  4. 买Condo的时候, 要注意如果Condo的管理费出奇的高,或有些特殊的情况如水管是Kitec Plumbing, 银行都会拒绝贷款。 另外要注意Condo的面积, 很多银行要求Condo的面积不能小于500平尺,过小的Condo银行会拒贷。

A Pre-Approval Does Not Guarantee a Mortgage Approval

General Joanna Yang 28 Apr

A Pre-Approval Does Not Guarantee a Mortgage Approval

by Ross Taylor

Many Canadians are under the assumption their mortgage is as good as done once they have a mortgage pre-approval.

But the truth is a buyer cannot expect a mortgage pre-approval will automatically translate into a mortgage. The lender now needs to consider the property itself, approve all the terms and review the documentation before you transition from pre-approved to approved.

Buyers often do not appreciate there is still some uncertainty when it comes to their mortgage. Unfortunately, once in a while this uncertainty bites back – with calamitous consequences.

Going in Without Conditions in a Hot Market

Not that long ago, when housing supply equalled or exceeded demand, the buyer would insert a clause requesting five business days (usually) to arrange mortgage financing – this is called a “condition of financing.” Even one or two days can make a world of difference.

These days across much of Canada, residential real estate is such a hot commodity it’s more likely offers to purchase will be firm and without a condition of financing.

The process is very skewed in favour of sellers at the moment, and it’s really not a comfortable or fair situation for the buyer. The fact of the matter is homebuyers, especially first-time buyers, are taking this risk every day. In many markets, it’s the only way you will win in a multiple-offer situation.

It is clearly in the buyers’ best interests to know in advance how much mortgage they might qualify for. This is achieved by providing complete information and documents to your bank or mortgage broker and allowing them a deep-dive into your personal finances and credit. They can then underwrite your application upfront.

Even when a thorough review has been conducted, and you are clutching a pre-approval certificate, there are many things that could happen to compromise your home purchase.

Insured Mortgage Approval

Suppose you are in line for an insured mortgage, which is always the case with less than a 20% down payment. Your mortgage approval is technically approved twice – first by the lender and then by the insurer. And please understand that no mortgage insurer has seen your pre-approval request.

The pre-approval considers your personal creditworthiness and borrowing capacity. The actual amount you qualify for also depends on the property itself: that plus the lender and insurer’s assessment of your application. Please remember, pre-approvals do not consider the specific properties.

Reasons Why the Property Can Hurt Your Mortgage Approval

To secure a mortgage, the borrowers and the property have to pass muster. No one knows the exact property you are going to buy when you are pre-approved. When it comes time for the lender to approve your mortgage, there are many ways the specific property can impede the approval.

There are several reasons why a specific property can cause concern. For more information, we defer to Dustan Woodhouse, whose passionate concern for this topic inspired this article and who lists many more here.

  1. Value of The Home: When multiple buyers are competing on the offer presentation day, there can only be one winner. In this market, the winner often has to bid much more than the market value. When this happens, the appraisal may come back with a value less than you paid. That will not necessarily kill your mortgage approval, as long as you have additional financial resources to cover the shortfall, if necessary. Note: This market does not favour buyers who go in subject-free (firm) with no wiggle room. If you are using all your financial resources to come up with the down payment and closing costs, what can you do if the value comes back lower?
  2. Property Condition: Have you ever seen an MLS listing that says “as-is” or “handyman special?” Those are red flags to a lender, and a mortgage may not be forthcoming at all. The appraisal may further report poor conditions, mold or even structural issues.
  3. Property Specifics: There are many reasons a property may prove challenging. Here are some examples of property types that will seem problematic to a lender:
    • Log homes
    • Homes on leased land, First Nations, government or private
    • Rural properties with a hint of hobby farming
    • Properties containing asbestos, underground oil tanks, aluminum wiring
    • The remaining economic life of the property
    • Suppose the property was a one-time grow-op or drug lab. Good luck with that – no matter the price you pay, even if the property has been remediated.
    • One property earlier this year had an MLS listing that proudly mentioned a 15-foot fish pond in the backyard – with a fish farm permit. That mortgage was VERY hard to place.
  1. Location: If a lender feels the property you picked is simply too far from your workplace, they may assume you need to keep a second home or place to stay, and in such cases they impute a “shelter cost” for you. This might also skewer your approval.
  2. Condos: Mortgage insurers keep lists of condo buildings they do not want to lend against. Maybe the maintenance fees seem extraordinarily high or the condo status certificate reveals significant assessments; for example, something like Kitec Plumbing.

    The smaller the condo is means fewer interested lenders
    . Many lenders simply do not like to lend against micro-condos. Condos under 500 square feet are often a cut-off, but in recent years that number has shrunk to 400 SF or less with some lenders. It might depend if the unit has a separate bedroom. In some of these suites, the bedroom is a wall bed/Murphy bed.

home appraisal

Reasons Why You Might Hurt Your Own Mortgage Approval

Your mortgage may not be approved because of something to do with you, the borrower. Either something material has changed in your circumstances or new information has come to light, which changes the lender’s view of you.

The golden rule is to be very wary of change during the home-purchasing process. A shiny new car in the driveway or a new job might completely cast things in a different light.

Earlier this year, one of our clients quit his job and became a freelance contractor after their firm offer was accepted. This was a problem because now he is considered self-employed. Such income is assessed differently during the mortgage underwriting process. Typically, you will need to show two years of operating success to qualify for your mortgage.

We managed to save the mortgage, but only because the employed partner’s income was so high. This change from salaried employee to self-employed could have been disastrous for this couple.

You want to be sure your personal taxes are up to date and in good standing with CRA. You must also pay all of your credit card bills on time and ensure you do not miss any payments.

It is definitely not a good time to defer loan payments of any kind. Even though mutually agreed payment deferrals do not adversely affect your credit score, mortgage lenders might think twice about lending a considerable amount to someone who needs relief from their financial obligations.

The Takeaway

When you and your real estate agent are honing in on a specific property, make sure to first circle back to your mortgage broker and ask them to input the property’s specs into your application.

Clarify and understand the strength of your mortgage pre-approval. What factors might result in a mortgage offer for a reduced loan amount, or worse, not being extended an offer at all?

Take stock of your personal finances. Understand from your mortgage broker where your debt service ratios are at, and if your credit history and employment situation are still acceptable. Ensure your income is well understood – especially if you earn overtime, bonuses, commissions or have irregular hours.

If you are buying a condo, ask your real estate lawyer to carefully review the condo status certificate in advance and report any and all items of interest to you.

If you are buying a rural property, make sure your Offer to Purchase addresses the septic system and water potability. And check the zoning!

Insist your realtor provide you with an up-to-date market analysis of the property’s value and assess your ability to weather a lower-than-expected appraisal value.

An experienced mortgage broker can often tell whether or not your mortgage approval would be at risk and can help you assess when it is a risk worth taking. They can tell you the potential concerns so you can make an educated, informed decision to proceed with your offer to purchase.

At the end of the day, this decision is all on you, the buyer. You need to make a fully informed decision if you choose to go firm with your offer.

Canadian rents came down, but that’s about to change

General Joanna Yang 22 Apr

A funny thing happened during the housing boom – thousands of tenants decided this was the time to stop paying rent and start paying a mortgage.

With interest rates low and house prices skyrocketing with each monthly update, there’s been a steady stream of moving trucks from densely-packed apartment towers to the relatively leafy, spacious suburbs. And the renters who would usually replace the vacating tenants aren’t standing by ready to move – they are staying put until things settle.

This has been good news for real estate agents who love to sell to first-time buyers. It’s been good news for anyone able to afford a house. And it’s been good news to anyone moving into a new rental because rents dropped across the country last year with tenants leaving their units to move to their new owned-homes.

It hasn’t been so great for landlords, of course, but a recent report suggests the bottom may have been reached, and rents will start climbing again for the rest of the year.

Here are five things about Canada’s rental market.

1 – Back to the city

When the pandemic really started to make itself known, columnists wrote thousands of words about the demise of downtown living. Things got so out of hand that Jerry Seinfeld wrote a scathing rebuttal in the New York Times, telling anyone who thinks leaving the city will make their lives better should hurry up and go (and never come back).

“You say New York will not bounce back this time,” he wrote. “You will not bounce back. In your enervated, pastel-filled new life in Florida. I hope you have a long, healthy run down there. I can’t think of a more fitting retribution for your article. This stupid virus will give up eventually. The same way you have. We’re going to keep going with New York City if that’s alright with you.”

A report from Bullpen Research and Consulting would suggest Jerry was on to something. Analyst Ben Myers said people seem to be reconsidering their previous thoughts on the joys of country living.

“Anecdotal evidence from leasing agents suggests that rental demand is increasing in the downtown areas of Canada’s major cities as tenants look to get in at the bottom before rents rise in conjunction with the rise in vaccine distribution.”

2 – Regional differences are important, but…

Canada is a huge country with many regional differences, so it’s kind of silly to talk about the “Canadian Rental Market,” but you do get a sense of what’s happening by taking the big picture view sometimes.

Rents decreased by 8.5 per cent in March compared to the previous March, to an average of $1,685 (that’s $157 lower). While the prices are different in every market, the trends that drove down demand were consistent.

“The pandemic has been with us for more than a year now and has had a dramatic impact on the rental market in Canada,” the report from Bullpen Research and Consulting found. “With few immigrants, few students moving close to school, and few recent graduates moving closer to their first jobs, demand has fallen dramatically.”

3 – 2020 was tough all around

A CMHC report that looked back on 2020 says Canadians found it challenging to pay the rent through the last year. Apartment-building owners reported a 58 per cent increase in arrears from the year before – with total unpaid rent estimated at $150-million.

Things were especially tough for families earning less money – the most affordable units also had the lowest vacancy rates. Less than 1 per cent of rental units in Vancouver and Toronto would be considered affordable to low-income renters.

“The results show that vacancy rates are generally lower for the most affordable units (due to higher competition),” CMHC said. “These units tend to be smaller (predominantly bachelor or 1-bedroom units). Both of these realities raise additional challenges for lower income households, particularly for families requiring more space.”

4 – Rents on the rise?

While rents declined significantly over the last year, researcher Ben Myers said there were signs things were looking better (from a landlord perspective) for the first time in a year.

“There were some signs that the rental market might have bottomed out, as the average rent in Vancouver, Toronto, and Montreal increased in March over February this year,” he said.

As lockdown drags on and schools remain closed, some tenants are moving to larger units. They wouldn’t have been able to afford this last year when rents were higher.

Vancouver is the priciest rental market in Canada, with prices up 2 per cent year-over-year to $2,598 for a two-bedroom rental. Toronto was next with a 0.5 per cent decline at $2,370, while Montreal saw a 3.9 increase to $1,947.

Anyone looking for a deal could take a peek at Saskatoon, which sits at the bottom of the 35 city rankings at $1,021.

5 – But what about house prices?

Anyone who held their breath waiting for the country’s housing bubble to burst would be long dead, but the government is once again trying to cool things down. This time it’s through a foreign buyers tax intended to keep speculators from sitting on empty properties.

But anyone engaged in a bidding war over the last couple of months was likely bidding against their neighbours and friends, not a ghostly spectre from another country nefariously bidding high and then disappearing to their homelands.

UBC professor Paul Kershaw said the measures don’t do enough and do nothing to address more significant, homegrown problems in the market that keeps prices moving higher.

“The [federal] budget does relatively little to reduce wealth inequalities that are emerging between older and younger generations as a result of the ongoing rise in home prices, which have skyrocketed once again during the pandemic,” said Kershaw.

The Canadian Real Estate Association said a lack of listings was behind last year’s increases. Still, the spring has seen more houses hit the market. March set a new record for the number of homes sold at 76,259. The average price was $716,828 – up 31.6 per cent from the same month last year.

It’s almost enough to make you want to rent a cabin in the woods to get away from it all, if they weren’t so expensive too.

Bank of Canada Scales Back Bond Buying

General Joanna Yang 21 Apr

Bank of Canada Scales Back Bond Buying
Today, the Bank of Canada held its target for the overnight rate at the effective lower bound of ¼ percent. The Bank is also adjusting its bond-buying program from weekly net purchases of Government of Canada (GoC) bonds of $4 billion to $3 billion. This adjustment to the amount of incremental stimulus being added each week reflects the progress made in the economic recovery.

Finally, the Bank now suggests that the remaining slack in the economy could be fully absorbed by the second have of 2022–rather than 2023, suggesting that they may begin raising overnight interest rates before the end of next year. The Bank went on to aver that this timing is more uncertain than usual, however, given the uncertainty around potential output and the highly uneven impacts of the pandemic.

The Bank of Canada now believes that first-quarter growth in Canada is considerably stronger than they were expecting back in the January Monetary Policy Report (MPR). This partly reflects a better global backdrop, particularly in the United States. The US recovery is supported by a rapid rollout of vaccines and substantial fiscal stimulus, bringing spillover benefits to Canada through higher demand for exports and stronger commodity prices.

“But the most important factor in the unexpected economic strength has been the resilience and adaptability of Canadian households and businesses. Lockdowns through the second wave had much less economic impact than they did through the first wave. The economy bounced back quickly with the eased restrictions posting substantial job gains in February and March. The third wave is a new setback, and we can expect some of these job gains to be reversed. But the performance of the economy in recent months has increased our confidence in the underlying strength in the recovery.”

The Bank went on to say, “With the vaccine rollout progressing, we are expecting strong consumption-led growth in the second half of this year. Fiscal stimulus from the federal and provincial governments will also make an important contribution to growth. Strong growth in foreign demand and higher commodity prices are expected to drive a solid rebound in exports and business investment, leading to a more broad-based recovery. Overall, we now project that the economy will expand by around 6½ percent this year, slowing to about 3¾ percent in 2022 and 3¼ percent in 2023.

Over the next few months, inflation is expected to rise temporarily to around the top of the 1-3 percent inflation-control range. This is largely the result of base-year effects—year-over-year CPI inflation is higher because prices of some goods and services fell sharply at the start of the pandemic. Also, the increase in oil prices since December has driven gasoline prices above their pre-pandemic levels. The Bank expects CPI inflation to ease back toward 2 percent over the second half of 2021 as these base-year effects diminish, and inflation is expected to ease further because of the ongoing drag from excess capacity. As slack is absorbed, inflation should return to 2 percent on a sustained basis sometime in the second half of 2022.

Bank of Canada “Forced” To Taper

When the pandemic first hit, the BoC bought government securities, providing liquidity to assure the full functioning of the market. As liquidity conditions in the  Government of Canada (GoC) bond market improved, the primary objective of central bank bond purchases shifted toward a focus on monetary stimulus. The quantitative easing (QE) purchases of bonds continue to put downward pressure on borrowing rates, supporting economic activity. QE also reinforces monetary stimulus provided by the Bank’s forward guidance. This guidance has committed to holding the policy interest rate (the overnight rate) at its effective lower bound until economic slack is absorbed, so the inflation target is sustainably achieved.

The Bank’s total ownership of GoC bonds outstanding has increased to about 42 percent. Since March 2020, the Bank has purchased more than 35 percent of total sovereign bonds outstanding, a higher percentage than other central banks (see chart below). Considering the size of Canada’s bond market and its economy, this means that the Bank has provided an extraordinary amount of stimulus. The Bank must continue to taper its purchases to ensure sufficient tradeable GoCs are available for longer-term institutional investors–such as insurance companies and pension funds–that must hold triple-A debt to offset their long-term liabilities.

Bank of Canada Assessment of the Housing Market

In today’s MPR, the Bank of Canada included an assessment of the drivers of the strength in Canadian housing:

  • Demand has been supported by relatively high disposable incomes and low mortgage rates.
  • While job losses have risen during the pandemic, they have been concentrated among low-wage earners who tend to rent their homes rather than buy them.
  • Remote work and more time spent at home have led to stronger demand for larger, single-family homes and housing in suburban and rural areas.
  • One implication of this shift in demand is a pickup in new housing construction in regions with fewer supply constraints, such as limited availability of land.
  • Over the past year, the pace of construction has been hampered by containment measures and shortages of materials and skilled workers. These factors are also putting upward pressure on construction costs.
  • Some potential sellers have been reluctant to show their homes during the pandemic.
  • Over time, supply is expected to adjust. A large number of building permits have been issued, with a growing share for single-family homes. Housing starts have also risen significantly in recent months, most notably in rural areas.

The Bank remains concerned about extrapolative expectations leading to overheated price increases and speculative activity (see chart below). They welcome the proposed changes to the Guideline B-20 by the Office of the Superintendent of Financial Institutions to help reduce these risks.

Bottom Line

This was a significant BoC announcement, suggesting a turning point in their thinking. The worst of the pandemic is over, the economy has been remarkably resilient, and the Bank can now see the light at the end of the tunnel. That light is now expected in the second half of 2022, rather than 2023. Although the policy rate will remain at its effective lower bound until then, the central bank has already begun to pare back its GoC bond buying.

Some of the Bank’s optimism reflects the comparative strength of the US economy, which is way ahead of Canada’s vaccine distribution.* The spillover effects of that are meaningful in terms of Canadian exports. The fiscal stimulus evident in this week’s federal budget also provides a ballast for the economy. Although an estimated 425,000 people are still insufficiently employed and the third wave containment measures and vaccine rollout are unpredictable, the Bank is more confident now than any time in the past thirteen months that we will attain full-employment by late next year.

*As of April 20, nearly 25% of the US population has been fully vaccinated and 39% have received at least one vaccine. In comparison, as of April 20, only 2.5% of the Canadian population has been fully vaccinated and 25.4% have had one vaccine. 

This script is also available in Autopilot.

French translation of this email will be available by 5pm ET April 26.
La traduction de ce courriel sera disponible d’ici 17 heures, le 26 avril.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca

Blowout Canadian Job Growth Continued In March

General Joanna Yang 9 Apr

This morning, Statistics Canada released the March 2021 Labour Force Survey showing much stronger-than-expected job growth for the second month in a row, pointing towards a Q1 growth rate of more than 5.5%. This survey reflected labour market conditions during the week of March 14 to 20, when public health restrictions were less restrictive in several provinces than during the prior month.

Employment surged by a whopping 303,100 in March after a gain of 259,200 in February. The jobless rate fell to 7.5%, the lowest since before the pandemic. However, there remain many discouraged workers who are no longer actively looking for jobs but would prefer to be gainfully employed. Many of them might well be mothers who could not afford or find quality daycare or needed to help children with remote learning.

The employment rate–the percentage of the population aged 15 and older that is employed—increased 0.9 percentage points to 60.3%, which was still 1.5 percentage points below the rate seen in February 2020.

Employment gains in March were spread across most provinces, with the largest increases in Ontario, Alberta, British Columbia and Quebec. Much of the employment increase reflected a continued recovery in industries—including retail trade and accommodation and food services—where employment had fallen in January in response to public health restrictions. Growth in health care and social assistance, educational services, and construction also contributed to the national increase in March.

The COVID-19 pandemic continues to impact the labour market. Compared with February 2020, there were 296,000 (-1.5%) fewer people employed in March 2021 and 247,000 (+30.4%) more people working less than half of their usual hours. The number of workers affected by the COVID-19 economic shutdown peaked at 5.5 million in April 2020, including a drop in employment of 3.0 million and an increase in COVID-related absences from work of 2.5 million.

Among workers who worked at least half their usual hours in March, the number working at locations other than home increased by about 600,000 for the second consecutive month as public health restrictions eased across the country.While the number of Canadians working from home declined by 200,000 in March, working from home remains an important adaptation to the COVID-19 pandemic. Of the 5.0 million Canadians working from home in March, more than half (2.9 million) were doing so temporarily in response to COVID-19.

Total hours worked rose 2.0% in March, driven by gains in several industries, including educational services, retail trade, and construction. Building on a steady upward trend since April 2020, this brought total hours to within 1.2% of February 2020 levels. Hours worked among the self-employed continued to be much further behind (-7.7%) February 2020 levels, while hours among employees returned to pre-pandemic levels.

The unemployment rate falls to the lowest level since the start of the pandemic

The unemployment rate declined for the second consecutive month, falling 0.7 percentage points to 7.5% in March, the lowest since February 2020. This reflected strong employment growth that exceeded the number of people entering the labour market.

The number of people unemployed fell 148,000 (-8.9%) in March, with the majority (59.0%) of people leaving unemployment becoming employed. Despite sharp reductions in both February and March, the number of people unemployed stood at 1.5 million, up 371,000 (+32.4%) compared with February 2020.

The number of long-term unemployed—people who had been looking for work or on temporary layoff for 27 weeks or more—held steady in March. There were 286,000 (+159.5%) more people in long-term unemployment compared with February 2020. These are the folks that could be permanently scarred by the pandemic and for whom job training may well be helpful.

Bottom Line 

While Friday’s jobs report surprised on the upside, there are still concerns around an uneven recovery and the impact of the third-wave shutdown in the economy. As the virus becomes more contagious and lethal, the economic recovery remains at risk, heightened by the vaccine’s very slow rollout. The reduces the importance of this employment report for the Bank of Canada even though it is the last report before the central bank’s April policy decision. No doubt the Bank of Canada will highlight the rising risk of contagion on the economic recovery.

Prime Minister Justin Trudeau’s government will release its 2021 budget on April 19 and has already promised an additional spending dose. The Bank of Canada’s next policy decision is on April 21. The Bank will thus maintain the overnight rate at 25 basis points and refrain from tapering quantitative easing.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca