(Unfortunately the Pun was intentional)

Recently watched an Expert Panel on YouTube (link at bottom) which more or less went over four things:

• The difference in housing affordability and changing market dynamics
• Impact of Policy & Regulation on Housing Market
• The challenges on Development & Supply Issues
• Their outlook & recommendations on how to alleviate challenges

My summary is below but if you’d like to watch it yourself then click here

(The panel featured Ron Butler, Daniel Foch, and Jordan Scrinko)

Affordability & Policy Summary

– Largely a conversation around the Stress Test which has borrowers qualify at 2% ABOVE the rates that lenders are offering. Today that means qualifying somewhere between 7.74% and 9.15% (huge range but covers off fixed vs. variable vs. adjustable).

– Conservatives have discussed scrapping the Stress Test but even if this happens that would be 20+ months away which means lots of people will be subject

Long-story short – there is still demand for activity but until rates drop materially (they talked around 3%) and/or incomes increase and/or prices drop … activity(meaning sales) will be more based on those who can afford to transact or are transacting tied to market events

Development & Supply Issues

– Housing starts aren’t happening because there aren’t sales (more of a conversation around pre-sale). This did lead to a brief commentary around assignment of pre-cons which has created some distressed sales (10% in one project) because people speculating and never intended to close

– Appraisals are coming short in Condos in GTA (highlighted in last week’s newsletter but more locally)

This talk was mostly focused on GTA but they highlighted that the pre-con/condo market in late 2024 and into 2025 looks bleak based on the lack of housing starts.

Recommendations – Predictions & Propositions:

– Lenders will continue to lend for the most part, they may just tighten up restrictions. Will some smaller MIC (mortgage investment corps) stop lending? Yes but its likely because they didn’t know what they were doing in the first place (Ron’s words … not mine)

– The only supply-side solution proposed was basically cutting development charges in half to minimize building costs and speed of building. There was also some speculation from Dan that CMHC will lend on these builds (as in loans to developers) but that they would be built as purpose built rentals (aka large commercial financing) as opposed to condos for resale.

There was this absolutely great point that Ron, who owns Butler Mortgage, shared that I admittedly hadn’t seen let alone reflected on:

People are concerned about all these people who got super low rates in 2019-2021 and have upcoming renewals and act like nobody is ready for it. But here is the thing, we have seen it because a lot of those borrowers have adjustable rate mortgages meaning that as their payments went from 1.94% to 6..94% they were seeing their payments increase which translates to thousands (even tens of thousands of dollars per year). Did some sell? Yes … but others renovated their basements and rented that out. Scotiabank is the biggest player in the adjustable rate market and their default rate on their portfolio is 0.16%.

TD variable mortgage is different than Scotia’s (Variable vs. Adjustable) and their default rate is also 0.16%

His end point was this … yes some people will sell but more people have shown that they will do whatever it takes and be resilient which is evidenced in Scotia’s default rate. People will just spend less.

They will spend less … which is why inflation is coming down.