Varshan Investor Newsletter (copy 01)

Hi ,

I hope you're having a great weekend. Thank you for choosing to partner with me and my team at Banyan Mortgage Group to assist your clients. Your support & referrals are always appreciated. This is the first of a monthly mortgage/real estate newsletter. I truly hope you find value in this.

Your feedback on the information shared and topics you would like me to cover in future communications is welcomed.

Rate Watch

Next Bank of Canada Meeting: June 1Expected Rate Change : +50 BPS (0.50%)Current Fixed-Variable Spread: 1.75% - This will shrink throughout the next 12 months at which fixed rates will start to look attractive.Based on the trends we're seeing with Canadian Bond yields, I believe fixed mortgage rates will start to fall after Q2 of this year.

My recommended Rate Product Today: 1-2 yr fixed or 5 yr variable 

HELOC Changes coming down the pipeline

If you need a HELOC, especially on your rental property, you should apply for one soon! OFSI recently announced that they will be making a change to readvanceable mortgages/HELOC this spring. 

After years of speculation, new HELOC rules are to be announced in the next week or so by OFSI. OFSI believes tightening of credit is required given household risk has elevated and HELOCs “lead to greater and more persistent outstanding principal balances, increasing risk of loss to lenders,” it says. The regulator worries that serial readvancing may lead to bank losses in a downturn.

Possible Changes to HELOCs we may see:

• Higher HELOC rates, lower LTVs and potentially more HELOC fees.

• There’s a chance OSFI could force banks to convert HELOCs from interest-only to amortizing loans after a certain time period. 

• Lenders might have to do more periodic market value and credit utilization checks 

• Periodic re-qualification and/or employment verifications

• Compel all federally-regulated lenders to factor in higher payments on applications, where the borrower who has other HELOCs — that payment will be based on the HELOC credit limit and not the balance (Most Banks already implement this but Scotiabank does not, but this could change)

• Limiting down payments sourced from HELOCs on investment properties.

We’ll know soon enough what OSFI announces and I will advise once we get more information.

Appraisal Concerns

I’ve heard many stories of other home owner’s appraisals falling short of $150-$250k in areas such as Brampton, Ajax & Whitby this past month. Fortunately, My team and I haven’t had to deal with any appraisal issues with purchases. We have been able to mitigate this by ordering an appraisal the moment the purchase is accepted & in some cases advising our client to add an appraisal condition in the offer. We are seeing many more conditional offers in today's market.

Interesting Market Trends

Interest Rates have been the biggest driver of lower real estate prices. An $800 increase in mortgage payments in 6 months to the average mortgage will certainly force prices down! With a further 100 bps increase to the current prime rate, it's safe to assume that prices are expected to fall further.

We're starting to see some uptick in active listings after booming 4 months ago and the steepest increase in inventory since 2010.For the first time, we've seen a decline in prices with months of inventory so low in Toronto. Typically, we would need to see 5 months of inventory for house prices to fall but in April 2022, prices dropped with just over 2 months of inventory. This is why you don't hear the "it's a supply issue" narrative anymore.  

Other Key Takeaways

• Pre-Construction Delays - New construction properties are taking longer to complete due to labour shortages and a recent strike that affected many GTA projects. This has forced many to lose a great rate that they were previously locked into. Ensure, you get your rate holds renewed every time you are aware of a delay. 

• Calgary oversupplied? - Calgary is on pace to be the most aggressively supplied housing market according to CMHC's latest report -  62.6% increase in supply vs. 8.6% in Toronto since 2020 - Report Link HERE

• CRA crackdown - There have been insider reports that the CRA has been looking closely at who claims Principal residences exception, particularly those claiming it in back-to-back years and on previously claimed rental property. Reach out to your accountant to strategically plan out any potential disposal of current properties.

As always, if you know of anyone else that could use this same type of ongoing advice and support, your referral will mean a lot as I would love to help them. If you have any questions or looking for guidance, feel free to reply to this email or reach out to me directly. Best regards, 

Varshan ThavarajahMortgage Broker & Partner | MBL # M1600275Banyan Mortgage Group | FSRA #10680647-404-8812[email protected]Top 1% of Mortgage Brokers in Canada