Chad Moore Calgary Mortgage Broker

The Bank of Canada Released Their “Financial System Review”. Let’s Focus On Data Related To Home Buyer Demand In Our Economy With COVID.

For the past 5+ year’s I’ve been reporting Calgary Real Estate Board (CREB) data related to housing supply. Housing supply, combined with demand, help me make sense of the market.

Home buyer demand can be characterized in a couple large buckets:

1. Income. Income growth, security, stability etc.
2. Net migration. More people = more demand for housing.
3. Policy. Access to credit creates demand for housing.
4. Belief. The heard mentality and social stigmatism of Real Estate.

Think about past run-ups in Alberta housing values …people were moving to Alberta for work, hiring and increasing incomes in the Oil & Gas sector, and there was a general narrative that housing is a “good” investment.

Back in the mid-200’s we also had the benefit of relaxing Mortgage qualifying policy (40 year amortizations and reduced down payment etc). All of which increased housing demand.

In today’s Alberta, we are seeing much of the opposite.

How is the Bank of Canada assessing our financial risks?

COVID-19 & Financial Vulnerabilites:

Household employment incomes have been hit hard, and many Canadians face financial difficulty, especially those that are already highly indebted. Flexible income replacement policies play a central role in mitigating the impact on households.

Bank of Canada Financial Systems Review 2020

No surprise here. This statement is speaking to Canada through the COVID lense, nevermind Alberta’s economy due to the oil shock.

Banks have allowed about 700,000 borrowers to defer their Mortgage and have relaxed some other debt payments to help family budgets.

A looming and unknown vulnerability is when the deferral period ends requiring active debt repayment again.

This chart shows about 20% of Canadian households have 2 months or less liquid assets to cover Mortgage payments.

Canadian incomes may not return as rapidly due to prolonged uncertainty due to the virus. People may return to work, in a different field or simply with reduced hours.

Not really news, but reduced, lower and more uncertain income will weigh on housing demand. Pre-COVID debt repayment arrears were rising relative to the rest of Canada. Let’s keep an eye on the development of Mortgage arrears leading to Mortgage default.

The Opportunity!

Honestly, the data is not very positive. And I prefer to focus on the opportuntiy instead of the problem.

Here are some opportunities I am seeing:

• First time buyers. I think there is relatively strong demand for entry level housing in Alberta. A gross family income of $80,000 and 5% down payment can purchase a home of $350,000.
  
• Refinancing. Indeed we are in the midst of tough economic times. Got it. However, Alberta has been bouncing along the bottom for the better part of 5 years now. Our asset values have not seen a run up so I think our exposure to the downside is less.
  
  The future is uncertain. Got it. Isn’t that always the case though? Anyway, Mortgage rates have cratered with our pandemic and property values have held relatively stable (for now?).
  
• Lowering Mortgage rates. If a refinance is not available to you, you can still switch/transfer your Mortgage. This involves a careful calculation to determine the viability of your savings. That said, to give a little money, and save long-term, is very helpful for people right now (especially with no out of pocket cost).

Conclusion

I’m sure I’ve written about this before …I should dig it up! This one of my favourite quotes from Jim Rohn:

Our economy is opportunity mixed with difficulty. Always has, always will be.

Jim Rohn

I’ve seen my Mortgage business shrink (for above reasons). I’m still profitable – so no worries there people :-). BUT I like to find the opportunity!!

I’ve been sharpening my Digital Marketing sword. I’ve studied Google Adwords and Facebook Business Manager – and how to link the two.

I’ve stepped out and have been launching advertising into the marketplace. I’ve very bullish on adding this mix to my overall advertising plan (duh, right).

I had the benefit of more time, due to the slow down, and that’s where I found the opportunity.

Enough about me, what about you? Do you see any opportunities in our economy? Housing market?

Talk soon,
Chad Moore