Varshan Investor Newsletter (Issue 02) (copy 01)

Hi ,

I hope you're having a great week. Welcome to the second edition of my mortgage & real estate market newsletter. I truly hope you find value in this. I will be doing this on a monthly going forward, so stay tuned.

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

Rate WatchNext Bank of Canada Meeting: Dec 7Expected Rate Change: +50 BPS (0.50%)Current Fixed-Variable Spread: -0.08% - The variable rate is now higher than the comparable 5 yr fixed rate. Typically when this happens, the fixed rate does fall by several points within the next 12 months. Prime Rate Forecast: 50 BPS rate hike on Dec 7 and then an additional 25 BPS hike in Jan 2023. Rates will then stay at this level (6.70% Prime Rate) for at least 12-18 months before we see a rate cut.

My recommended Rate Product Today: 1-3 yr fixed or 5 yr static variable

Why purchasing at 5.50% mortgage rates still makes sense

Bull case to purchase single-family homes in 2022 and beyond

It’s always darkest before dawn and in real estate, it’s getting pretty dark. They’re not creating many new single-family home lots in the GTA anymore compared to condos. Yet, the government has an immigration target of 500,000 per year. Where do these new Canadians go? Most immigrants settle in major metropolitans like the GTA. Scarcity means that buying almost anything zoned residential—assuming it's in livable condition—should result in capital gains well above inflation over a 10-year holding timeframe. It doesn’t have to be an A+ graded location but as long as it has basic appeal (e.g., near a transportation artery, a view, walkability, school accessibility etc.). This fool-proof formula has been making accidental millionaires in Toronto since 2002. I personally use this exact strategy and convert single-family homes (ideally bungalows) into duplexes or triplexes to maximize cash flow and value. Multi-unit incomes also help offset the increased interest rates in a rising rate environment.Buy where there’s net migration, employment growth and transportation access

Mortgage RenewalsPeople who bought properties 5 years ago with fixed mortgages and facing their first renewal should currently expect about a $560/month mortgage payment increase. With a +0.75% higher mortgage rate, the payment would increase by about $770/month.

If you've got a mortgage renewal in the next 13 months, we have a strategy that can help get you a lower rate today. REPLY 'renewal' to this email if interested. Interesting Market Trends

Affordability remains the key issue facing this market. My estimate of the monthly mortgage payment required to purchase a “typical” home is 52% higher than one year ago. Affordability has to improve dramatically before we can return to anything resembling a “normal” market.Assignment sales are something to look out for as we're starting to see some speculative buyers sell under their original purchase price to cut their losses.Interesting breakdown of GTA Detached home prices compared to the Peak & MoM. This may give you a good idea of which markets may look attractive as they may be near their bottom. Other Key Takeaways

• Has Pre-con demand gone cold? - GTA Condo sales slumped 88% y/y in September 2022 while single-family sales fell a stunning 96%. In a metro region of 6 MILLION people, only 45 new single-family homes were sold last month. *yikes*. 

• 2021: The year of the Real Estate Investor - Real estate investors were the single largest buyer cohort in Ontario as of 2021, accounting for just under 100,000 sales.

• MAJOR changes to be implemented by OSFI affecting Investors: Basel III reforms set to take effect in March 2023 which will result in possibly larger down payments or higher rates on investment properties and reduced rental income allowance on an application. Essentially, as of March 2023, it's going to be much harder to qualify to purchase investment properties. I'll keep you posted as I hear more about this.

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 grow their wealth. 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