Richard Greaves: Hi It’s Richard Greaves Alpine Realty and today I'm here with Greg Foss who is a mortgage broker and partner with a mortgage connection.
Richard Greaves: So tell us about Mortgage Connection before we get started, and I know you are the face of Canmore - so how big is the company and what have they got planned for 2022?
Greg Foss: Yeah, very busy year so I've been in Canmore for 6 years now and with Mortgage Connection now for 3. Mortgage Connection we're one of the largest brokerages in Canada, so what that means to you and to the clients is that we're able to get certain products that other banks or the other mortgage brokers can't get which usually means better interest rates.
Richard Greaves: Okay Great - So today you are here to help me talk about the five I’s that we've come up with that are going to influence the real estate market in 2022 - they are interest rates, inventory, internet, inflation and the last one immigration we will have a little bit of a Twist on so if you stay tuned we’ll get to that at the last point of our discussion today.
INTEREST RATES
Richard Greaves: Okay so first point - interest rates, Greg tell us what is going on with interest rates in the market right now, and how it affects you?
Greg Foss: Yeah absolutely there's a lot going on and 2022 is going to be a very interesting year for interest rates so what we've been seeing in the news that is coming out is that the Bank of Canada is going to want to start raising interest rates. The big part of that which will touch on later is because of inflation - and so their plan is to see that they would like to see interest rates start to rise in the summer of this year and so there's two things that we need to keep in mind when we talk about interest rates. We have variable interest rates and fixed interest rates.
Variable interest rates are determined by the bank of Canada - so when they make a decision that will affect a variable rate mortgage the fixed rates are determined by the market, let's say the stock market and so when the economy is doing well or not well and there are certain determining factors that will go up and down.
So what we're seeing now is the recovery is economic recovery is full steam ahead and what that means is bad news for interest rates so that would be an increase in fixed rate because the market our economy is doing well we start to see fixed rates rise and in the Bank of Canada's looks at everything and they said well you know things are moving along very well let start to raise interest rates as well and then you'll start it all start to come up together.
But what’s also fascinating about it is nothing's simple anymore so what we've noticed is The Bank of Canada has also snuck in a couple of new determining factors in December at the end of the 2021 is that they are now looking at some other options, things like employment rate in the determination of interest rates.
So what that could mean is that nobody want the market to do poorly on their dime which would be the leadership of Canada, so what that could mean for us is it is they don't want rates to go up too much they can then squeeze in these little things like “oh maybe employment is not as good as we thought” let's keep it suppressed, let's keep it a little lower, so that's a very interesting to see it coming into the summer if they're going to be doing that and then we'll start to kind of feel that the interest rate rise if it goes according to plan.
Richard Greaves: Right, and so Canada might be able to (tell me if I’m wrong), maybe a little bit cushioned from; I’m hearing in the states that interest rates are starting to rise, and people are getting worried interest rates are getting higher and they can’t afford what they could afford maybe 3 months ago - but in Canada we’ve had this sort of leveled qualifying rate set for a while, where people have qualified so maybe that's a little bit of a cushion for buyers moving into the market right now - would that be right?
Greg Foss: That's correct, yes - so the blessing and a curse is the qualification rate, is that we have to qualify all mortgages at 5 ¼ so 5.25 percent is the interest rate we qualify you at, and then you actual real interest rate is far below that and so that's been a bone contention for the numerous years is that it’s way too high. But then you see now that we may potentially be getting closer to that mark, so that something that will be a dramatic factor in Canada.
Richard Greaves: Where are we at today with interest rates? What is the spread between variable and fixed? And where do you think or where are people projecting this is going to become summer or the fall?
Greg Foss: Yeah that's a good point, so what we’re seeing now is variable rates are very low - very very low like they're certain certain lenders are giving almost 1% variable interest rate. Incredibly cheap. So depending on the product your buying, is it a rental is it your home is it a second home that determines your interest rate but yeah there's as little as 1% for variable and so that’s Rock Bottom obviously you know fix return to see that diverge and we're starting to see interest rates anywhere from Two and a half percent up to 3% again depending on what your buying so we're seeing potentially a while at least a 1 and a half percent interest rate difference and so let's say we look back at the bank Canada what their announcements are, and if they’re not going to raise rates for another six months we're only going to see the more of a diversion in theory if things keep going the way they’re going.
Richard Greaves: So let's go into our next I, the second I which is inflation.
INFLATION
Richard Greaves: Okay so we're getting into inflation now Greg, please explain inflation to me how does that work? What do you see for inflation in 2022?
Greg Foss: Sure - so inflation is more of my business in the way it did we'd that's what contributes a big factor into interest rates, so the Bank of Canada is watching inflation and inflation is a basket of goods - they are looking at things like housing, cost of gasoline, food there's multiple factors that go into that and so when we start to look at what's happening now is that we saw this such a drop in demand in this absolutely gigantic leap in demand for everything - that is really pushing up inflation.
So how the Bank of Canada determines our interest rate is they want to keep around 2%, that's their ideal number. Right now we're pushing 5%. And how they calculate it (right or wrong), not to get into the weeds of it is they keep a lot of factors out of it, that could make it a big higher.
So how they did calculate housing costs and things like that are usually suppressed so they can look better and so we may be in closer to double-digits right now. That will start to push the Bank of Canada into wanting to raise rates and when they raise their rates, the cost of everything will start to go up, borrowing costs, housing, goods, loans, ideally what they want to do is suppress inflation and keep it down, keep it at that rate of 2% that they like to see.
Richard Greaves: So how's that going to affect us in the market from a housing perspective? Is that purely on interest rates?
Greg Foss: That’s correct.
Richard Greaves: So they raise interest rates to keep inflation in check?
Greg Foss: So inflation would mean the market is doing well, there's good news in the economy - that starts to push up the fixed rate which is tied to that part of the market. Then the variable rate will then be affected by the Bank Of Canada thinking inflation is too high, so they’ll start to raise their rates in hopes to keep things down. So that's why we'll start to see higher interest rates on mortgages.
Richard Greaves: So that could tamper demand? could it increase demand? We’re not really sure yet?
Greg Foss: It’s true - yeah, what we’ve noticed in our industry is that there ideas or thoughts of going into a higher rate environment that pushes people out to buy, which increases more demand. The news comes out that rates are increasing - I see more pre-approvals on my end, and on your end I'm sure you see more buyers.
INTERNET
Richard Greaves: So let's talk about our next I, which speaks into demand - that is the internet.
Richard Greaves: I got some stats from 2016, 4% of people were working from home. April 2020 - this is from stats Canada, that spiked up to 40% of people working from home. In August of 2021 23% of people were working from home. So the internet… and we’re seeing this in Canmore has been a huge driver of demand for properties in Canmore, people can now work from home - they don’t need to go into the office as much, we saw people coming from Ottawa to work in Canmore over the summer of 2020, we’re still seeing alot of people purchasing in Canmore because they can now work from home if they don’t have to live in the city.
So what are you seeing on your side of the mortgage business and how that is affecting people's qualifications to get mortgages?
Greg Foss: Yeah I've seen that as well, and it's been a huge factor in how some people are qualifying for mortgages. So in most cases it's usually the same, if you’re working for a large multinational company, in most cases they keep everything the same. What we are seeing though is a transition of people that are working for a company that may go into contract work so there may be a whole new employment structure there, and how the banks view that is very different from each other. So some banks may have a policy that is one way, and one may have a policy that is far more flexible, so that's why it's very important to take into consideration if your employment situation has changed.
Richard Greaves: So if you’ve gone from a full-time employee to say contract work?
Greg Foss: Yes, so the banks loved it when you were employed because they took care of the taxes, when you’re a contractor then you’re in charge of the taxes, and unfortunately some people don’t manage that properly and the banks can consider it more of a risk because they may owe CRA money. But in most cases we have people coming from America and all across the world wanting to qualify for a mortgage because now they can work for a multinational company and they’re able to work in Canada.
INVENTORY
Richard Greaves: So let's talk about inventory and how the internet has had a real effect on inventory the past two years.
Richard Greaves: We have seen a real run on housing in Canada in general, there's a housing crisis in Canada as I would see it, from an inventory stand point from everywhere from Vancouver, to Toronto to Montreal, and Canmore is no different. A balanced market for us as I tell my clients all the time is around 250-280 listings. We came into last year with about 100 listings going into the spring, which was super low. We had a record sales year last year of 964 properties sold in Canmore in 2021. To give you an idea of how much of a record that was - 2019 was our previous record of just over 500 sales. So we almost doubled our busiest record year from a sales point. So what that's left us with is critically low inventory coming into 2022. We’ve currently got about just under 50 listings on the market. If we think of inventory as a balanced market being 250 listings, we’ve got 4-5x inventory in the next few months to cope with potential demand in the spring. We just don’t see where that is going to come from in the real estate market in Canmore. So it’s going to continue to be a sellers market and interest rates remain low so there is still a lot of demand.
So how from your world how are you helping buyers in this environment be ready to purchase at a minute's notice?
Greg Foss: 2020 was busy, and then 2021 was absolutely bananas, and so what we got into this really strong habit of of building strong relationships with banks at Mortgage Connection, we are very strict on getting as much documentation up front, right from the beginning so in that event you go into multiple offer situations - you as a realtor, and you as the borrower know you should be 98% confident that you’re getting this mortgage. There should be no hiccups at that time, so we want to make sure that your income, down payment, and your credit is checked and it's ready to go, so if you pull the trigger and you want to go - we can make that happen. Richard Greaves: And so what we want to talk about next - we are a big second home market, we have a lot of second home buyers from the Calgary, from Edmonton and starting to see people from Toronto, from Vancouver but we also have a big second home population from the US, globally Europe, Australia, and so the 5th I we want to talk about is Imigration - we are going to put a twist onto that.
IMMIGRATION
Richard Greaves: Okay, so let's talk about immigration and second home owners. We’re seeing in Canada, Canada welcomed just over 400,000 new permanent residents in 2021. They are forecasting that they want to welcome 420,000ish in 2022 and 2023 each year. Now immigration for us in Canmore, we don’t really see much from people selling in Canmore but what we do see are second home owners or second home purchasers wanting to purchase a property in Canmore from the US, or from further afield. So I know that there are certain things people need to do in order to be prepared to purchase if they are from the US.
Anybody can purchase in Canmore, there's no restrictions on who can or where you are from, but give us an idea on what it takes from your side of somebody who needs to be prepared and ready to purchase a property?
Greg Foss: Yeah and that's probably the biggest misconception we were talking about earlier, anyone from around the world can get a mortgage in Canada, and so each lender will have certain criteria in what they want to see, and what they allow, and so that is absolutely crucial is to get this step on my end prepared up front. It depends on what you do for a living, where you live within the world, where is your down payment coming from, and so that's really the biggest concern for the bank is that they qualify people from all around the world the same way as a Canadian, but really what they want to make sure of is that the Government of Canada set money laundering rules and so the banks have to adhere to that, we want to make sure that we have a trace of where that down payment came from, and usually that's a 90 day bank history from that country. They also want to see the money has landed in Canada, that is also really crucial that the timing is set up - so that's a conversation that you and I have along with the borrower or the client- is to make sure that we’re not stranded. Some banks have different rules, they want to see the money sitting in the bank for at least 30 days, other banks don’t care. There's all these different rules that we want to make sure that we all have it combined together and it's usually the response I get is far easier than what I thought. So that's what we want to do, we want to make sure it's easy, so when you’re ready to pull the trigger in this hot market, it’s let’s go! Ready to roll.
Richard Greaves: And so from your end in general it takes a bit more time, it just takes somebody from outside of Canada more time to be prepared and ready to be able to purchase a property - so it just takes a bit more planning on their part.
Greg Foss: That’s correct. Another big factor too is that being in this environment now for 6 years I’ve gone from numerous American, non-resident clients UK, Australia, South Africa, Russia, numerous different continents and countries so the other factor we want to look at is are you going to be in Canada to buy this property? A lot of people are not, so it may be a virtual showing on your end and then you need to sign the documentation at the lawyers, and that's something we need to look at as well.
Certain banks will allow certain things, so if people are looking at they have a bank in mind - it’s not the worst idea to get another opinion, because I’ve had numerous occasions where people thought they could have done X and it turned out it had to be Y and then they’re stranded. So that's a conversation that we’re looping in, the client, yourself, the lawyer. There's some lawyers in Canmore that are fantastic for out of country buyers that we’ll partner with and they know how to handle virtual signings and what not.
Richard Greaves: Right, but eventually they do have to sign the documentation from the lawyers on paper so that does take extra time, the lawyers have to courier the documentation to where the client may be in the world, and get that back prior to the closing date.
Well thanks for joining me today Greg, this has been a great conversation as always if you have any questions feel free to reach out to me, my contact information is just below and we’ll also put Greg’s contact information below too so that you can reach out to him if you have any questions regarding the mortgage world. Thanks again and we will chat soon!
Greg Foss: Thank you.