(August 28, 2023)

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The following is a podcast transcript, Click Here to be redirected to the podcast episode.

So anyway, here’s what’s on my mind this week…and I’ll kinda phrase it to more like heres-what’s-coming-across-my-desk these days...there’s quite a bit of activity. But here’s the takeaway, there’s absolutely no pattern or profile when it comes to describing the current transactions- the deal types are of all varieties. There’s first time homebuyers, there’s homeowners that are upgrading to larger homes, there’s people refinancing their existing mortgages, renewals, and so on…it’s not one big transaction driving the market, it’s pretty much every deal type, and it’s coming from different directions and angles…like I swear, it seems every application I’m working on is complicated, its crazy.

OK, so here’s a sampling of what’s coming across my desk these days

-> quite a few new construction condo completions. So these are people who have purchased 1, 2, or even 3 years ago and now their condo is coming up for completion. For the most part, these are proceeding smoothly and people are continuing to qualify despite the significant higher interest rate environment, but I’m still managing to qualify most applicants simply by stretching the amortizations out to 30 years…but there are a few files were I am going to have to explore alternative lending sources (and by that I mean higher priced interest rate lenders in exchange for easier qualification guidelines). So, so far, all of the deals that I’ve worked on have proceeded or are on the path to close out without any significant hurdles. But where I am anticipating some issues is with investor applications – where people have purchased a condo a few years ago and have used their HELOC for the down payment…I’m anticipating that a few of these files will reach the critical stage (like the outcome will not be like what the buyer expected, might get a bit stressful…totally doable at the end, but again…not what the applicant expected). The owner-occupied-principal-residence type of transactions are (for the most part) pretty safe (other than the current interest rate environment of course), but almost all of the applicants have successfully trended to higher income and credit score levels since they signed off on the purchase a few years back (and this is pretty much the standard…in the younger years of one’s life, you pretty much expect growth and improvement in income, its the most ambitious phase of life-stage…these new construction completion applicants pretty much grow into a comfort level with their mortgage from the day they signed the purchase contract a couple of years ago to the day they finally close a few years later). So, lotsa new construction closes going on right now.

-> the other transaction type I’m seeing lots of these days (and for the past year or so) is inter-provincial migration, and of course I mean the migration of people to Alberta from other provinces, mainly BC ad Ontario (and prior to last year, I’ve been doing tonnes of New to Canada transactions, but with all the anti-foreign buyer rules and taxes that rolled out in the past couple of years, things kinda dried up on that front). So this (the interprovincial movement to Alberta) is by far, my biggest deal-type these days. It’s insane actually…the inquiries I get for this are through the roof. And really, it’s probably the most gratifying (and/or) satisfying type of deal that I do…and its become more and more evident with New Housing activity on the rise in Alberta…and it really shouldn’t be a big surprise. And to add to it, expectations are that this population driven demand (for Alberta) will continue for the rest of the year and into next year (even despite labour shortages and high interest rates). It’s clearly no secret anymore, no more come-to-Alberta campaigns are required…Calgary and Edmonton are the go-to destinations for Canadians who aspire to own a home. It’s way cheaper than Vancouver and Toronto and you don’t significantly compromise your life-style. You still get to live in a large urban city with all the big-city amenities…not quite the Toronto or Vancouver offering, but still a large city setting and feel. Right now I’m doing several relocations of Canadians from BC and Ontario who are in the process of closing (or have recently) closed on their purchases in either Calgary or Edmonton and I have witnessed (first hand) their euphoria. It’s incredible…the transition for these people…is truly amazing. They go from barely being able to purchase an outdated, undersized and overpriced property in either (greater) Vancouver or Toronto, to purchasing a newer, larger and much cheaper property in Alberta. The property discount is so significant that they don’t even blink at today’s interest rates. This pattern, this movement, is in progress and is expected to continue for (I believe) several years more. Here’s one I’m wrapping up right now- young couple from Vancouver, they accepted that they will never own a home in Vancouver. (think about that, they actually accepted that they will never be home owners in Vancouver)..together, they earn about $160,000 a year, but they just don’t have enough for a down payment for what they want (they would at least like a townhome)…they contacted me, got them preQualified and within a few weeks they got their offer accepted for a townhome in Calgary for $435,000, 1300 sq ft, single attached garage in a desirable part of Calgary. And all this with a down payment of only $50,000. This same profile ($160,000 income and $50,000 down payment) will maybe get you one of those ridiculous 300 sq ft micro-units, but it definitely won’t get them that townhome they desire (because you’re basically looking at a price tag of at least over $1M, which then means your minimum down payment increases to $200,000…and then boom/bang, that’s the end of the dream). Nevermind the euphoria of acquiring a home, this young couple has enough home to now to start planning a family…I’m telling you, these outcomes are incredible. No one is writing about how the affordability crisis is affecting the birth rate in Canada. But don’t lose hope people, there is a solution (or option)…like seriously, some couples are getting their dreams crushed of becoming homeowners…that’s one thing, but how about that same couple now abolishing or surrendering the thought of starting a family? That’s insane and messed up that we arrived to this…not being able to own a home is one thing, but the very sad carry over effect of that is compromising your desire of even starting a family. And that’s the case with some of the files I’m working on right now…its young people who are choosing to pack up and relocate and move to a place where they can basically start dreaming again. So when I say euphoria, that’s what I mean…you can now end up in a pretty darn cool place (like Calgary) and you can buy a home (not a condo)…like a full-on home with multiple bedrooms, and even a basement and a garage…and of course, a yard too…and all for a fraction of the price you would pay in Vancouver or Toronto. If you’re thinking about it, especially if your young…give it some serious thought. I have been there and witnessed it with many of my clients…and the outcome is truly wholesome, genuine happiness. Lots of these on my desk right now.

-> and finally, the last type of deal transaction which I’m seeing tonnes of…renewals and refinances. This is naturally a massive part of the mortgage volume, but especially these days. Depending on which day or which lender you are dealing with, this has become one of the most disappointing service experiences in our industry right now. And the reason why is because lenders simply do not have enough (qualified) manpower to handle the complicated requests of its existing mortgage holders. Right now, lenders are all banking on their customers not asking any questions at renewal time…like never before, they sooo want you to take the path of least resistance and simply sign on the dotted line for their renewal offer. And in the past, many customers did so because it was all about the rate. But now, it’s different. It’s not just about the interest rate, it’s about so many other things right now: like helping people manage their monthly cash flow (where in order to do so, you have to make actual structural changes to the mortgage to get your monthly payment to a more manageable figure), or consolidating some of your high interest and payment debt into your renewed mortgage…formulating these solutions takes time, experience, and resources…and many banks simply cannot handle the load right now (to do these types of transactions may seem simple in theory, but the amount of work required is quite significant…you need to re-adjudicate, often time appraise the property, then prepare legal documents, then re-register with the land title department…there’s so much more to the process than just signing a couple of documents). And here’s the scarrier part, some banks have even hinted that they are looking to make some employment cuts in the coming months. So, if you’re in this bracket (your mortgage is up for renewal and you need some changes to it), you need to align with someone who knows what they’re doing. If you’re not getting a quality response from your lender, find someone else and move on…there’s too much at stake. And once you are aligned with someone good, be patient with them…respond to their questions and document requests…this is simply the process of underwriting, and if you are requiring alterations to your mortgage at renewal time, underwriting is required. This does not deviate from lender to lender, they all must re-qualify (re-underwrite) your application…it’s simply regulation within the Canadian mortgage industry, it needs to be done- it’s the law, you need to see it through.

And lastly, what you’ve all been waiting to hear about- interest rates…it’s been on my mind, of course it’s been on my mind. The interest rate environment has been extremely volatile and generally fast-moving. So the best way I can sum things up about interest rates is to offer simple perspective on it. Yes, rates have increased, and they have increased significantly. Here’s my advice on how to handle things these days…

#1, don’t be so resolute and conclusive about things. Gauge your comfort level by the amount of the payment rather than the actual interest rate. I’m not saying to simply ignore the interest rate, but don’t let it be the be all, end all. For example, $2,000 per month could be any one of the following scenarios: (i) it could be the cost to service $200,000 of new mortgage that you will easily qualify for because the interest rate is 12%, but what it allowed you to do was pay off some critical debt and bought you some valuable time to plan your next move, (ii) it could be the cost of a $325,000 mortgage (at 5.64%, and amortized over 25 years) on a property that you just purchased with the intent of residing in the property as your principal residence, or it could be the net cost of a $420,000 investment property after the offsetting rental income is factored in. …just these three examples alone cost $2,000 / month and I can go on, there’s countless other solutions you can purchase for $2,000/month. But that’s my point, take the sticker shock emotion out of it and focus in on the cashflow, or the why…this alone will shift your focus from a panic and stress to more of a take-action-I found-a solution type of perspective, in a way, more of a winning mindset
my #2 point on interest rates, whatever you do, remember that it won’t be forever! Don’t fret over the fact that you reset your amortization to 25 or 30 years…like seriously, people need to relax about this one. Right now, if you need relief, don’t hesitate if it means increasing your amortization to its maximum. You can easily revert back to your intended amortization at any time in the future by simply increasing your payment. Don’t be hard on yourself, stretch your mortgage out to its max so you can survive and when you’re back on your feet you can pull it back in….remember, today’s interest rate is not forever! But what is kinda forever is the life of your mortgage…you have the next 10, 15, 20, 25, 30 years to increase your income, capture a better interest rate environment, or wait for the market appreciation to work in your favour…whatever the case may be, do what you have to do now to give yourself relief…at the very worst case, you can buy yourself more time to plan or strategize your next move.

Want to discuss your mortgage needs? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko.

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(October 25, 2022)

From a First Time Home Buyer’s perspective

Probably one of the most opportunistic places in Canada where a young adult can seek employment, start a family, and purchase a single family dwelling home all at the same time. Calgary is not a Vancouver/Toronto sized city (in terms of population and big-city amenities), but it’s not a sleepy small town either. The city is large and efficiently spread out into geometric quadrants, the downtown is situated right in the middle of the city with all roads leading to it, it’s clean, organized, increasingly diverse, sunny all the time (even when it’s -30 degrees!)…the list goes on. Don’t move to Calgary and expect Toronto or Vancouver – it just isn’t. Manage your expectation and you will love this city because it offers all that it possibly can and constantly progresses, always punching above its weight class. Unlike Vancouver and Toronto, in Calgary you can live in a neighbourhood with $2M homes, then drive 10 minutes and enter a zone of $600,000 homes. Drive another 10 minutes and you’ll find homes for $400,000. Truly, one of the only places in Canada where you can still sell high, and buy low. Calgary…a city for everyone.

The table below illustrates Calgary’s property ladder and the corresponding mortgage qualification criteria:

**the scenarios above are based on median price statistics for October 2022 as reported by The Calgary Real Estate Board. A mortgage qualification rate of 7.50% is used which is a 5.50% contract rate with the 2% stress test applied (as of Oct 24, 2022). Inquire directly to Marko Gelo for current contract and qualification rates.

As you can see from above, the affordability of purchasing a property in Calgary is far more attainable than in other major cities in Canada. Not only is the price of real estate substantially lower, but so are the minimum down payment requirements to qualify for the mortgage. For properties under $1M, the minimum down payment requirement for a mortgage is 5% for the first $500,000, then 10% on the balance thereafter up to $1M at which point the minimum down payment increases to a whopping 20%. So if you’re looking to purchase a single family home in Vancouver, you require upwards of (at least) $200,000, but in Calgary you only need $33,500!

From a Temporary Resident Perspective (work permit holders, not yet attained Permanent Residence status or Canadian citizenship):

All the same income and down payment thresholds apply for temporary residents just as they do for standard Canadians or Permanent Residents. The only difference is that temporary residents are able to provide alternate sources of credit verification if they haven’t yet been able to establish a standard 2 year credit history. For example, if a Temporary Resident is not able to provide a 2 year history of credit usage in Canada, they can alternatively provide a letter of good standing from their bank from where they departed. This is just one example, there are many other forms of alternative credit verification sources (call Marko right now and ask him!)
Temporary Residents can purchase a property with as little as 5% down payment
But here’s the big draw for Newcomers to Canada when looking at Calgary (or any other city in Alberta) as their destination – there’s NO LAND TRANSFER TAX, and more importantly, there is NO FOREIGN BUYER TAX! Ok, there is one little fee and it ties in with the Land Transfer, but it’s nowhere near the 20% tax you would pay in BC or Ontario. Here are the fees you can expect when purchasing a property in the province of Alberta:
- Land Transfer Registration Fee: $50 base fee PLUS $2 for every $5,000 in property value
- Mortgage Registration Fee: $50 base fee PLUS $1.50 for every $5,000 of mortgage
- For a $600,000 Purchase with a $300,000 mortgage, you would have to pay a total of $490 in registration fees. For the same $600,000 home in BC and Ontario, a work permit holder would have to pay $120,000 is Foreign Buyer Tax in addition to the respective provincial Land Transfer Tax ($10,000 in BC, $16,950 in Ontario).

From an Investor’s Perspective

With Calgary’s recent draw of interprovincial and international newcomers, the rental property market is also an appealing proposition. Here are some key points that attribute to a strong rental market (from an investors perspective):

Calgary has historically led the country with inflows of interprovincial migrants, but more recently the gates have opened wider as the provincial government has embarked on a nationwide campaign to promote the affordability and employment prospects of Alberta. People from across the country (and abroad) have responded and are on their way to Alberta many of whom will be seeking short to medium term rental accommodation before considering the prospects of home ownership.
Calgary has always been labelled as the oil and gas capital of Canada, but in the past decade more emphasis and commitment has been directed towards the diversification of the economy. Calgary is making substantial strides in other economic sectors such as Aerospace, Agribusiness, Environmental Technology, Digital Media, Life Sciences, Transformative Technologies, and Transportation/Logistics.
to further support the growing demand for rental accommodation, Calgarians have consistently ranked at the top when it comes to employment earnings with an average annual income of ~$65,000

Key mortgage qualification guidelines to be aware of when purchasing a rental property in Calgary:

As long as you reside in one of the units, you can purchase a property that contains a rental suite within it with as little as 5% down (i.e. a half duplex property with a self-contained rental suite, or a full side by side duplex).
As long as you reside in one of the units, you can purchase a 4-plex with as little as 10% down
if you plan on purchasing a rental property where you will not be residing in the property yourself, the minimum down payment increases to 20%
Rental income that is generated from the property can be used to further boost your mortgage qualification. The allowable income threshold for mortgage qualification purposes varies from lender to lender with some lenders allowing as high as 100% of the rental income as eligible qualification income.
mortgages for rental properties can be amortized as high as 30 years
Calgary’s affordable rental market makes it one of the few cities in Canada where an investor can yield a positive cash flow (when your monthly rental income is greater than your monthly mortgage payment)

Wondering if a move to Calgary makes sense for you? Call Marko Gelo right now at 604-800-9593, or Click Here to schedule a call that is convenient for you.