August 08, 2022
Real Estate News
RYPM
'The only people refinancing today are the people who
really need to'
Canada’s housing market has been on a roll for years, but
the Bank of Canada’s aggressive path of interest rate hikes and the possibility
of a recession is ushering in a new economic reality that is beginning to
weigh on mortgage demand, and industry watchers say.
David Larock, a mortgage broker and president of
Toronto-based Integrated Mortgage Planners Inc., said he is definitely seeing a
drop-off in business in light of the new conditions, but said he’s seeing
different effects when it comes to refinances versus new purchases.
“Typically, up until very recently, about half of the
business I was getting was refinanced and a half was purchases — and of course,
both have been impacted by higher rates,” Larock said. “But… I would say the
most significant impact thus far I’ve seen has been on refinances.”
Larock said this is because, for a while, clients looking to
refinance were breaking a mortgage with a higher rate than the refinance rate,
offering a tailwind — particularly as the pandemic brought ultra-low rates to
the market. This business, he said, has been hit hard now that rates are rising
aggressively.
“The only people refinancing today are the people who really
need to,” Larock said. “I would say the refinance business over the near-term
has effectively dried up … a little bit, but not much.”
On the purchase side, Larock noted it was a challenge to
determine whether the slowdown in new residential mortgage originations stems
from a typical summer season lull, or if more clients are in wait-and-see mode
to see if prices could go lower.
Leah Zlatkin, LowestRates.ca expert and licensed mortgage
broker, said she is seeing a shake-up in the types of clients she sees.
Clients seeking new mortgage originations have tended to be
less conventional and require more flexibility. One example: the number of
mortgage-seekers in the gig economy who are moving towards private financing.
“I think that what that sort of lends itself to is that
we’ve experienced a giant wave,” Zlatkin said. “The last year has been a huge
wave — a tsunami even — of mortgages and files coming through our desks, and
right now we’re sort of at the place in the wave where the big wave has hit and
we’re sort of in the foam. So, the foamy deals are always a little bit more
choppy, a little bit more unconventional.”
For more conventional clients who have been on the
sidelines, Zlatkin believes it has been a question of where prices head over
the next few months and whether or not fears of a sustained recession are
realized.
“A lot of people are just sort of waiting it out; want to
see what’s going to happen with the next rate hike before they jump in,”
Zlatkin said. “The question is: how long do you wait? How do you know when
we’re at the bottom? And what is the best opportunity for you? And can you accommodate
some risk? That’s sort of where our clients are sitting right now and what
they’re considering.”
The Bank of Canada has already raised its policy rate four
times this year, shifting the overnight rate from a half of a per cent to 2.5
per cent.
The downturn in the mortgage market is also leaving a mark
on the businesses that provide them, be they mortgage brokers or banks, which
quickly hiked their prime rates to follow the central banks’ lead.
A National Bank of Canada note on July 26 characterized the
mortgage finance industry as a “no man’s land” with mortgage lenders stocks
also being hit by policy uncertainty stemming from the Office of the
Superintendent of Financial Institutions efforts to derisk the mortgage market.
“Overall, we believe Mortgage Land’s relative
underperformance will persist in the near term, at least until the uncertainty
surrounding these risks diminish,” wrote National Bank analyst and author of
the report Jaeme Gloyn. “As a result, we lower our target multiples across the
board.”
Companies such Equitable Bank Inc. (with its price target
shifting from $86 to $75), First National Financial Corp. ($36 to $35), and
Home Capital Group ($38 to $35) were among those caught up in the mix.
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