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All Points is starting to see signs of lenders tightening up their guidelines when assessing new mortgage applicants. This is affecting both those sellers (either through a Guarantee or directly to a buyer) and buyers.
We have spoken to our mortgage broker partners and there have been two main changes that would affect transferees.
Before COVID, lenders would request of a buyer, a pay stub to prove one’s income. Often this pay stub would be from the last 60-90 days. Now, these lenders are looking for pay stubs from the last 14-days. The idea is to ensure that the buyer has not been affected by a layoff due to COVID-19. And, if you were wondering, the mortgage lenders will not include any CERB payments as acceptable forms of income statements. This new rule could be affecting some relocating home sellers and pulling any potential buyers off the market.
It is mainly about the appraisal
However, a more direct affect on relocating homeowners would be the fact that mortgage appraisers are giving a lower valuation on properties as a result of COVID-19. Why is this? Fewer homeowners have decided to put their homes on the market during the pandemic, and this has resulted in fewer recent comparables being available for an appraiser to work with. These appraisers don’t trust the old (pre-mid-March figures) to be reflective of the new marketplace, and they are making negative adjustments based on sentiment in the marketplace. In short, they are making forecasting adjustments, but what are they basing those forecasting adjustments on is the million-dollar question.
The evidence is not necessarily there… currently.
All Points is seeing mixed signals from the marketplace. To be honest, we are selling lots of properties, both in the east and in the west. Why? The buyers are out and there are not many homes on the market. Buyers can’t be as choosey as they once were, because there is little product. On the other hand, when running Guarantee valuations we are seeing negative forecasting adjustments which are clearly disappointing transferees who are trying to sell their home and relocate.
So we are actually seeing, in a number of spots across the country, seller’s markets, where properties are being sold in a matter of days, but not all of those buyers are getting approved for mortgages. The two don’t jibe. Do we have enough data to tell what is going on? Well yes, a recent article by MacLean’s Magazine indicates that housing prices didn’t plummet in April (even though sales volumes dropped), because sellers essentially took their homes off the market (I don’t want to lose value. I don’t feel it is safe for strangers to walk through my home.) Buying appetite may not be high, but listing appetite is lower.
The article went on to note that “Evan Siddall, CEO of the Canada Mortgage and Housing Corporation, told the House of Commons’ finance committee that prices could fall by between nine per cent and 18 per cent from their pre-COVID-19 levels over the next 12 months.” But this is a large country. Where are those declines expected? And why would they come about, if they haven’t so far in the middle of the crisis. First, the declines should be expected in the west and possibly in cities that got a little frothy like Toronto. In addition, not everyone can put off selling their home indefinitely. And when those homes come on the market, this will turn into a buyer’s market and prices will fall (or so goes the theory). How much? Who knows? Have the appraisers overreacted in their forecasting? Not necessarily if you listen to Evan Siddall, noted above. How long would price levels be low? Scotiabank is forecasting a return of prices by mid 2021 and thinks any suggestion of a serious fall in prices in 2020 is overblown.
Relocation is the solution!
One reason that we saw a rise in housing prices in the first place was immigration! “In 2019, a record-setting 341,000 newcomers came to Canada, adding to the more than 300,000 people who came to the country in 2018.” So, governments need to understand what good quality immigration has meant to our economy (not just the housing market) and figure out how to open up these borders as soon as possible while keeping our populations safe. Assignees and permanent transfers on work permits that have a 14-day isolation plan (ask us for our Bulletproof Isolation Plan Template) are not threats to our public health, but their absence is a threat to our economy and our housing prices. Governments need to put a plan in place now. They also need to (I don’t know, uhm) announce it! Businesses need clarity. Announcing a clear and responsible way to open-up our borders is necessary for businesses to plan and get the right people in the right jobs, which keeps this economy going. Hopefully, the political pressure to keep the border closed, won’t be stronger than the importance of getting it open (responsibly). We shall see very shortly.