What's Happening With Mortgages ?

[00:00:00] Welcome to The Canadian Real Estate Investor where hosts Daniel Foch and Nick Hill navigate

[00:00:06] the market and provide the tools and insights to build your real estate portfolio.

[00:00:10] Welcome back to the Portuguese Real Estate Investment Podcast.

[00:00:16] Wait, what?

[00:00:18] Yeah, didn't you hear I'm an influencer in Portugal now?

[00:00:21] Ah, yes. You're extremely viral posting Canada which had a pretty good reception here,

[00:00:29] but then someone in Portugal picked it up and now it's like, it's got like 8,000 likes on a chart

[00:00:37] and you've gained many new Portuguese followers.

[00:00:41] Yeah, lots of friends in Portugal now. So for context, for those of you listening,

[00:00:46] I posted a chart that showed that Canada had the second worst housing affordability in the

[00:00:50] world. And Portugal was number one because I guess they have a lot of digital nomads moving

[00:00:56] there, influencers and stuff like that. And those people are living in Portugal and it's become

[00:01:02] really expensive for the locals and they have this golden visa program which I think

[00:01:06] they're scrapping. But anyway, another Western nation that is experiencing similar woes based

[00:01:11] on excess demand for housing. So I posted this thing, Portugal appears number one on

[00:01:15] the chart and I guess somebody in Portugal famous found this thing. And I'm getting

[00:01:20] hundreds of story posts a day of this post about Canada's real estate market from people

[00:01:25] in Portugal posting how Portugal has the worst housing affordability in the world.

[00:01:29] So anyway, we're not alone here. I mean, so maybe we can learn something from our friends

[00:01:38] over there. They also, I think they decriminalize drugs before Canada. So there's that.

[00:01:44] Yeah. Yeah. Anyway, I digress. This isn't the Portuguese real estate investment podcast.

[00:01:48] This is the Canadian real estate investor podcast. I am one of your co-pilots,

[00:01:53] Daniel Foesch and I'm joined here by the lovely Nick Hill. What do we have on deck today, Nick?

[00:02:00] We have another great episode for you today and it's all about dead pledges.

[00:02:07] I bet you're the Latin historian here. You probably know them more commonly known

[00:02:14] in today's world as mortgages. Death pledge sounds like a 90s punk rock band.

[00:02:21] I think it might actually be one. The word comes from the old French word,

[00:02:26] mortgages, which literally means you have it as dead pledge in here, but I think it's death

[00:02:31] pledge. Anyway, more M-O-R-T or dead and gage pledge, dead pledge. I guess you're right. Okay.

[00:02:38] Fine. I'll give it to you. I try not to get out Latin here, but I guess it's French. So

[00:02:44] according to the online etymology dictionary, etymology is like the study of origin of words,

[00:02:50] yeah. It is so-called because the deal dies when the debt is paid or when the payment

[00:02:56] fails, which means you have to kill the mortgage. That's what I always say. It's your goal.

[00:03:02] We're mortgage murderers out here. Killing it, just killing it. And yes, we do want

[00:03:09] the deal to die in those two ways. We don't want the deal to die in other ways and

[00:03:13] thank you for that, Dan. But before we get into what's happening in the mortgage market

[00:03:18] and we're going to be going over the recent survey conducted by CMHC, which is full of,

[00:03:23] as always great data and insights. We look at what buyers are doing, what products they are

[00:03:30] taking right now. We look at renewing versus buying, how much it takes for a down payment.

[00:03:35] And then we finish off this episode with a little piece on home renovations and some

[00:03:40] of the amazing green rebates that are available and kind of the push that we're seeing towards

[00:03:47] that type of construction. But before we get into all that, Dan, can you start us off with

[00:03:53] a positive note by reading this wonderful review? Yeah, I'm also going to make a merch

[00:03:59] item that says death pledge mortgage company. So stay tuned to that. I'm excited about this

[00:04:06] and it's going to be like hardcore band themed, like early 2000s punk rock. Anyway,

[00:04:12] reviews, my favorite thing in the world. This one says my brain is bigger now. Five stars.

[00:04:19] I don't currently invest in real estate outside of my principal residence.

[00:04:23] Respect for knowing that your principal residence is not an investment, but it's

[00:04:26] something I've thought about doing in the future. Thanks to Dan and Nick, I feel like when I

[00:04:32] want to take that step, I will have the knowledge to do so. Thanks a lot guys. This

[00:04:38] is from L. Seuze, which sounds like a Portuguese name if I'm not going to lie here. So maybe one

[00:04:46] of my new fans via Apple podcasts. Oh, it says Canada. Damn. The title, the titles,

[00:04:52] so there's my brain is now bigger. We that's what we're here to do. We're here to

[00:04:57] help you expand your mind. If you know, I would be very scared to see my brain is now

[00:05:01] smaller after listening to this podcast. So if that's the case, please don't write a review,

[00:05:06] but we are always happy to hear the effect that we have on all of our lovely listeners.

[00:05:15] Anyways, each year the Canada Mortgage and Housing Corporation, who we have brought up

[00:05:20] numerous times on this show known as CMHE, they carry out their annual mortgage consumer

[00:05:26] survey. Dan, we've covered a couple other of these annual reports. The goal of this survey

[00:05:31] is to better understand the thoughts, attitudes, and behaviors of Canadian mortgage consumers

[00:05:36] about homeownership and the process of getting a mortgage. Now this year CMHC in partnership with

[00:05:44] Leger Marketing Incorporated surveyed. Have you been practicing your French?

[00:05:49] Well, I've angered too many of our amazing Quebec listeners. So yes, I have been a little

[00:05:55] bit. Say Trois Rivieres. Trois Riveries? Trois Riveries.

[00:06:02] So they surveyed just under 3,866 mortgage consumers from across the country conducted

[00:06:11] in both English and French. And the people surveyed were between 18, included the age of

[00:06:18] 18, and every other region they are the primary decision makers in their households.

[00:06:23] And they have been involved in a mortgage transaction in the past 18 months. So this

[00:06:29] document and its findings offer some key insights into the latest trends, the current state of home

[00:06:35] buying and homeownership and mortgage lending in Canada. So Dan, we're going to start with the

[00:06:41] main takeaways from this survey. Hit me with the first one.

[00:06:45] It's funny when they say primary decision makers in their households it reminds me

[00:06:49] of when I used to door knock or cold call in sales and I'd call a house and a teenage

[00:06:55] kid would answer the phone or something. I'm like, are you the primary decision maker in this

[00:06:57] household? You know what I mean? And then no, no, okay. Cool.

[00:07:02] It's mom and your daddy there.

[00:07:03] Yeah, because I want to buy their house right now.

[00:07:05] Yeah.

[00:07:08] Key takeaways from this report. Number one overall, the Canadian mortgage

[00:07:13] landscape in 2024 was relatively similar to 2023. The rate of mortgages contracted,

[00:07:21] it sounds like a disease, contracted in the last 18 months was stable.

[00:07:26] Renewing versus buying is the second key takeaway. Consumers renewing their mortgages

[00:07:30] increased 62% versus 50% from last year. So up 4% there whereas repeat buyers and first time

[00:07:39] home buyers decreased. Number three, significantly more mortgage

[00:07:44] consumers were impacted this year by rising interest rates, 16% of home buyers.

[00:07:49] So the mortgage market was impacted this year by rising interest rates, 65% versus 50%

[00:07:54] the year before. However, most consumers had strategies in place to avoid defaulting on

[00:07:59] their mortgage. I will note that we didn't hear them talking about defaulting much

[00:08:03] as a theme in their mortgage survey last year. So stay tuned for that one.

[00:08:09] Yeah. I don't think that word was present once and probably that word was probably

[00:08:15] in the CMHC's reports, but we're starting to see that and other scary words appear a lot more

[00:08:23] in some of the reports and mainstream media that we cover here. The fourth major takeaway

[00:08:28] from the report, it took an average of 4.2 years for consumers to save for a down payment

[00:08:34] with 30% of buyers receiving a gift to help with that cost and enter the bank of mom and

[00:08:42] dad into the conversation. I always thought, I think about this a lot

[00:08:46] like when we talk about the gifting of down payments is mom and dad are also typically

[00:08:51] co-signing on those and so they're financially exposed to those deals too. Anyway,

[00:08:57] while consumers have concerns over or uncertainty during the home buying process,

[00:09:02] majority, 79% still believe it is a good long term financial investment. Honestly,

[00:09:07] mind blowing stat from my perspective and I guess that's why we've been concerned

[00:09:12] we're seeing a little bit of a decline in viewership and we're literally like,

[00:09:15] dude do people just not think real estate is a good investment anymore? I mean it wouldn't

[00:09:20] necessarily surprise me. But anyway, it appears that that's not the case and our show just

[00:09:25] sucked and people just stopped listening to it for that reason. No, the numbers are back

[00:09:29] up now. I don't know. It must have just been whatever, people chilling doing some other

[00:09:32] stuff. Now you're all catching up so appreciate it. Thank you.

[00:09:36] Nearly three times as many buyers this year said that high interest rates made them delay

[00:09:41] buying a home. That's 13% versus only 5% in 2023. First time home buyers and newcomers

[00:09:48] were most likely to have postponed. That doesn't really come as a surprise

[00:09:54] and there's a whole another section about interest rates in here so we'll table that

[00:09:57] and come back to that one later. Yeah, seventh key takeaway. The

[00:10:01] vast majority of consumers did research before their most recent mortgage transaction. That's

[00:10:07] good news. Hey, that's good. Yeah, good work guys. With 52% of consumers so is that a vast,

[00:10:13] I don't think that's a vast majority. I think that's like just slightly a majority.

[00:10:17] Half. It's 2% more than what it qualifies to be the majority. Anyway,

[00:10:22] 52% of consumers researching exclusively online. Oh okay, so sorry it was 52% online not just

[00:10:27] 52% doing research period compared to just 34% in 2023. Did online adoption of mortgage searches

[00:10:33] grow that much in a year over year basis? Cool. I guess so. I mean, you know, I know that there's

[00:10:39] more and more resources these days than ever and I think, you know, researching stuff online

[00:10:44] is a soft way to do it, right? There's no commitment to another human being. You're just

[00:10:49] kind of perusing window shopping. The eighth and final key takeaway before we get into the

[00:10:57] rest of the report here is going green. Among homeowners who did energy efficient renovations,

[00:11:04] 93% are satisfied with the results of their innovations and 68% saw savings in their energy

[00:11:12] and electricity bills. Now we know this is important for a number of reasons. One being

[00:11:17] that things are more expensive right now and if you can save money and offset the cost of

[00:11:22] some utility bills and just build a better product overall, why wouldn't you do it? So

[00:11:28] a lot more on that at the end of the show so stay tuned for that.

[00:11:32] So I have this thought like around this stuff and we're going to talk about it a little bit

[00:11:36] more. I'll leave it for later but I think that, you know, like a lot of people care,

[00:11:40] most people aren't like screw the environment right? Most people like slightly care or care

[00:11:44] like about the environment right? But I think people are questioning whether or not like these

[00:11:48] things that will actually have an impact like whether or not, you know, like the carbon tax

[00:11:51] as an example does anything right? Which, you know, I think is a controversial one to think

[00:11:58] about but what we're seeing is like gas as an example increasing and there's a lot of financial

[00:12:02] benefit to electrification of units as landlords as an example. And yeah okay if it

[00:12:08] does help a little bit if it's more renewable or whatever then like I think that's the tertiary

[00:12:12] benefit but I think we're in an economy in Canada where, you know, the primary benefits

[00:12:17] being financial are helping a lot and that's it seems to be really helping to lead the charge

[00:12:24] there a little bit. So let's look at like coast to coast of the refinances. So 15% of Canadians

[00:12:30] took out a mortgage last year down 16% down from 16% last year, 12% of that 15% were

[00:12:38] refinancer. So remember we have the two biggest renewal years coming up in 2025-2026.

[00:12:45] Yeah it's funny I mean everyone keeps on, you know, we get this question way too often Dan right?

[00:12:51] Like is the pain, have we felt the pain yet? Is it over? Where are we in the cycle? And to me

[00:12:57] this is a big one. You know the two biggest renewal years where we are likely to see and

[00:13:03] feel more pain haven't hit yet. We are currently in 2024 and the next two years are when all of

[00:13:10] those mortgages that were, you know, at the two and three percents are going to be renewed

[00:13:17] and they are not going to be at those numbers. Now we are still likely to see at least a few rate

[00:13:22] cuts before 2025 and 2026 hit but we're not going to be going back down to where those

[00:13:27] mortgages started off. So you know a recent Bank of Canada report showed that as of November

[00:13:32] 2023 about 45% of those mortgages initiated before the Bank of Canada started hiking interest

[00:13:38] rates had already seen increased mortgage costs with the remaining 55% likely facing renewals

[00:13:47] with probably much higher payments by the end of 2026. So the answer to that question,

[00:13:52] is it over yet? Is the pain going to stop? The answer is in my opinion no not yet. We

[00:14:00] still have a rocky road ahead. Yeah I think you know it coincides with like a lot of

[00:14:07] other factors too like a lot of pre-construction supply, record pre-construction supply 24, 25,

[00:14:13] 26 in the city of Toronto at the very least which is obviously having a pretty substantial

[00:14:19] impact on rents. We'll discuss this in another episode but you know rents are in decline on

[00:14:23] a year over year basis first time I guess like we saw a bit of a blip during Covid when

[00:14:27] everybody was leaving the city but rents are in decline on a year over year basis and

[00:14:30] you know just six months ago we were talking about how modeling rents up into your assumptions

[00:14:34] now we're saying it might be worth modeling rents down into your assumptions based on what

[00:14:38] the data is telling us and we did say you know I expect that rent growth to taper off and

[00:14:43] flatten and eventually revert just ahead of a recession. So let's look at how this whole

[00:14:48] thing kind of breaks down by market. So starting so at a national level again 15%

[00:14:54] of Canadians took out a mortgage in the last 18 months which was down from 16% in the year

[00:14:59] before. 13% of people took out a mortgage in BC. The prairies was the highest of people

[00:15:05] and honestly a lot of that just probably is coming from buyers like I think we're seeing

[00:15:09] a lot of acquisition activity, people moving to the prairies, Alberta being the fastest growing

[00:15:13] state on earth right now. Yeah crazy. So the prairie is 16% of people took out a mortgage,

[00:15:19] Ontario 14% and Quebec 16% of people took out a mortgage so I guess that's tied with

[00:15:24] the prairies and Atlantic province is 14% so on par with Ontario there. Overall the Canadian

[00:15:30] mortgage landscape in 2024 was relatively similar to 2023 which would hold like

[00:15:36] the rate environment was the same, the financial stresses were the same,

[00:15:38] house prices were the same, like we haven't really seen much meaningful change

[00:15:42] in the environment since 2023. Yeah exactly and Dan it seems like we're seeing a shrinking in

[00:15:52] overall acquisition activity which is obvious in most markets except as you mentioned the

[00:15:59] fastest growing place on earth, Alberta. We're seeing a huge drop off in transactions

[00:16:05] right? I mean if people aren't transaction like they have been in the last couple years

[00:16:09] the proportion of home buyers dropped over the past 18 months and the number one people

[00:16:15] affected fewer first time home buyers down 12% in 2023 to 10% this year and fewer repeat

[00:16:22] buyers so whether that be investors or people buying you know that vacation home or whatever it

[00:16:28] may be from 10% in 2023 down to 8% this year and Dan you and I have been collaborating on

[00:16:34] a lot of Instagram charts, interactive graphic charts which seem to be very well received.

[00:16:41] We put out a viral video about this and it seems to be pretty popular and basically everyone

[00:16:46] that watches it seems to be pretty upset about it because first time home buyers represented in

[00:16:51] one of the lines as opposed to investors and repeat buyers are being drastically reduced

[00:16:59] and it's very obvious when you watch that so I'd recommend going and watching and if you don't

[00:17:04] follow Dan and myself on Instagram or the social accounts go do that too. It is worth

[00:17:09] noting that the first time home buyers are still more than well Bank of Canada hasn't

[00:17:16] that like 48% of total buyers and the and this CMHC survey hasn't that 55% of total buyers

[00:17:24] but they are declining like there so you know maybe they were 56 before you know whatever

[00:17:28] they were 60% before but it's funny like when you think about first time home buyers how are

[00:17:32] they 50% of buyers well it's pretty simple right people who already own properties don't

[00:17:36] need to buy properties so second home buyers are smaller right because they already have a

[00:17:41] house so they're not like they're not the majority portion of buyers you know that they'll

[00:17:45] move less frequently to they'll do they'll buy stuff less frequently than people who

[00:17:49] only have to buy something and then investors are obviously a smaller portion of the market as well

[00:17:55] even though investors get demonized first time home buyers are really the biggest portion of

[00:17:58] the market and so when you see I know I'm going off script here a little bit but this

[00:18:02] is important stuff from my perspective when you see policy like the government putting in

[00:18:07] this 30 year amortization for first time home buyers buying new houses I think we discussed

[00:18:11] on the show here that is you know it's like if you're if you're a policy maker it makes sense

[00:18:17] to throw policy at the biggest group of home buyers because you're gonna have the biggest

[00:18:20] net impact on the market but if it's you know if they're throwing policy at the biggest

[00:18:24] group of buyers then from my perspective that's actually a policy that's designed probably to

[00:18:28] stimulate demand right which they we know they need to see more demand in the home buying

[00:18:33] space and you and I have been at the Home Builders Association stuff actually we have

[00:18:37] another one coming up May 28th I think we're gonna do some promo stuff for them but we're

[00:18:41] I think we're waiting on some materials but May 28th I think we're gonna be at the Ottawa

[00:18:46] so East End Home Builders Association thing so if you're there we'd love to see you if

[00:18:49] you're not get some tickets highly encourage you we'd love to see you there but the final

[00:18:54] piece I'll leave with there as investors knowing now that first time home buyers are

[00:19:00] 55 percent of the total market try not to compete with them because they have a qualitative

[00:19:04] incentive to pay more than you you know so if you're buying a subdivision house that'd be

[00:19:08] perfect for a family like and I say this both from a social and also from an economical

[00:19:12] perspective like investors maybe shouldn't be stealing houses from families like that's

[00:19:16] probably a easy thing to say and but also investors probably shouldn't be buying the same

[00:19:21] product as families and so we're seeing all this policy evolving right now with the major

[00:19:26] streets plan that just came out in Toronto which we're going to do a review on with some

[00:19:30] cool people in the space I think hopefully maybe a webinar on it and we just saw Calgary actually

[00:19:35] up zoned to four units which people are very upset about out there apparently but regardless

[00:19:42] the easiest way to not compete with a first time home buyer from my perspective is buy on

[00:19:46] a main road like for the most part I live on a main road because I like the investment

[00:19:51] quality of owning property on a main road in the fullness of time but and I don't mind

[00:19:56] living on a main road but first most first time buyers don't want to live on main roads

[00:19:59] and main roads is where you're going to get a higher degree of growth in your mortgage value

[00:20:04] or sorry in your in your property value because that's more likely to get up zoned by policies

[00:20:09] like this one because the services are bigger there the traffic is less impactful there it's

[00:20:14] less intrusive to neighborhoods and so you're more likely to get a higher output value from

[00:20:19] buying a street on a main road and you're more likely to get a better price on the way in

[00:20:22] because you're not competing with the biggest group of home buyers and frankly the most irrational

[00:20:27] group of home buyers which is the first time buyers no offense guys anyway back to the report

[00:20:31] here mortgage renewers increased from 58 percent of respondents in 2023 to 62 percent in 2024

[00:20:38] for this report so and the percentage of respondents who refinance their mortgage

[00:20:42] so not not renewing but refinance like chose to get a different mortgage was stable at 19

[00:20:47] percent so a lot of people just hitting that renewal box because probably because they can't

[00:20:51] refinance to get a better quality mortgage anyway this next page i found really interesting

[00:20:57] so maybe read this one to me yeah this the heading for this one is the reasons to buy or

[00:21:04] refinance now the reasons that the respondents to the survey gave for buying or refinancing a

[00:21:10] mortgage were similar to some of the recent years but there are a few notable differences

[00:21:15] the main reasons to buy a home included 38 percent of people saw a home as a safe and secure

[00:21:22] investment that's wild to me so even after all of the volatility that we've seen in real estate

[00:21:28] over the last few years canadians still think that real estate is a good investment i mean i

[00:21:32] guess that's good news for us as the guys who run the canadian real estate investor podcast

[00:21:38] i thought this was the portuguese yeah it was at the beginning of the episode but then oh now

[00:21:43] we're signed off yeah we're doing a crossover episode because i'm new i'm new to the portuguese

[00:21:48] real estate scene the same but i'm excited about it um the uh the other main reasons

[00:21:53] homeowners refinanced an existing mortgage were to fund home renovations 33 percent and again a

[00:22:01] lot of those were green renos to reconcile debts 23 buying a rental property six percent

[00:22:09] purchase a non-real estate asset investment likely uh good for the cdu market there

[00:22:15] jet skis five percent and then the smallest percentage of people that refinance were to

[00:22:23] fund unexpected life events so i'm guessing some kind of family emergency or you know what

[00:22:29] have you yeah interesting like the funding home renovations we're going to get to that

[00:22:33] because they they did some really interesting analysis on that and i think that it's it

[00:22:36] bears especially with like what is outlined in the housing plan it looks like we're gonna get

[00:22:40] another round of a bunch of these grants that we were seeing for uh homeowners who want to like

[00:22:45] upgrade to uh electrified like heat pumps and stuff like that we're seeing a lot of landlords

[00:22:50] like a lot of listeners to the show a lot of people that we have in the course on realist

[00:22:53] who are realizing okay i can put everything on electricity in this i can reduce the energy

[00:22:58] cost but i can also capitalize that energy cost into the rent structure because i can if

[00:23:04] if everything is on an electrical circuit going to the suite then i can give the tenant control

[00:23:09] over how much energy they're using which you know technically is more environmentally friendly

[00:23:13] as well because when they see it they're likely to use less electricity right or less energy and

[00:23:18] so you know you put you have two units maybe four units but it was on an older panel and

[00:23:24] all of them were wired you know all the circuits would be individual they wouldn't

[00:23:27] shouldn't be crossing over between suites but maybe you got to do some rewiring but

[00:23:30] it's all on one meter and putting in new several meters is expensive i've done it we're doing a

[00:23:36] sub metering on a building that we have as well um a more formal sub metering on a 10 unit and

[00:23:40] it's also very expensive but what you can do is if the circuits are set up properly is actually

[00:23:45] like there's this um inline solution that a lot of groups are seeing using and actually

[00:23:49] there's a guy i met at a couple of our meetups uh who has something similar for water as

[00:23:54] well but these inline solutions like as the technology evolves they're becoming good for people

[00:23:59] to say okay well now mr tenant you're in control of your heat because you have electric heat you

[00:24:02] have this this heat pump with it which is ac and heat um and then all of the other things you

[00:24:07] can put in floor heating all different kinds of stuff so the space is evolving very quickly

[00:24:11] in that regard and it's in a lot of cases you're getting support from the government to

[00:24:16] to make these expenditures which is huge so it's nice to see that

[00:24:21] so the next page really surprised me about first time home buyers obviously if podcasts

[00:24:26] focused on um investment so we don't think about first time home buyers too much

[00:24:30] but there's an important stat in here that i wanted to to look at which is that one i

[00:24:34] mentioned earlier 55 percent of buyers in the last year were first time home buyers 71

[00:24:40] of them rented before buying the remainder of them lived at home 53 percent of first time

[00:24:45] home buyers rented for less than five years so this to me means like you know a lot of

[00:24:50] people are maybe they find they live at home then they find a mate they want to live

[00:24:54] together for a little bit you know take a test run before you you know take a little test drive

[00:24:59] before you you do the the commitment for life and go buy an asset with the person but so to

[00:25:04] me this could actually lead to a shrinking of the average tenancy term and a greater ability

[00:25:08] for landlords to reprice units due to natural turnover therefore lowering our risk of exposure

[00:25:13] to inflation which otherwise takes away that pricing power in in a rent controlled market

[00:25:19] so just a fascinating one from my perspective yeah no really interesting stuff you know on

[00:25:24] that note the the next piece here is about the consumer doing research which obviously dan is

[00:25:31] is two guys that run a very research-based podcast i found this one fascinating as well

[00:25:35] canadian mortgage consumers remained highly motivated in 2022 or sorry 2024 to do their

[00:25:42] research before making a decision that is a good idea according to the survey 85 percent

[00:25:47] of mortgage consumers searched for at least one piece of information during their most recent

[00:25:52] mortgage transaction the most enthusiastic enthusiastic researchers were of course the

[00:25:57] first-time home buyers aged about 25 to 34 about half of the consumers did their research

[00:26:04] exclusively online that fits the bill for for that portion of the population 52 percent

[00:26:11] compared to 34 percent in 2023 the most frequent searches were for current interest rates so here's

[00:26:19] a quick list of the main searches during the most recent mortgage transaction so again 58 percent

[00:26:26] of people researched mortgage rates 29 research to mortgage calculators 22 looked up loan terms

[00:26:35] 16 looked up loan types and 15 looked up mortgage closing costs those are all

[00:26:42] things that if you are entering the home ownership space and need a mortgage to do so

[00:26:49] you need to know all of those things so good to see people out there doing their research i'd

[00:26:52] like to see all those numbers in like the 80 90 percentile but i'm sure people were also

[00:26:58] relying on good old mortgage brokers and lenders to help them figure that off figure

[00:27:03] that out as well so this lends itself to the next topic here dan which is affordability

[00:27:09] and rising interest rates can you tell me how that has affected the market yeah so obviously

[00:27:15] interest rates being the highest searched thing like you mentioned you know i think we all

[00:27:20] understand why that's a thing so throughout uh yeah throughout 2024 affordability and rising

[00:27:26] interest rates continued to be some of the biggest factors impacting mortgage consumers no

[00:27:30] surprise there i'm sure overall recent or upcoming interest rate increases affected 81

[00:27:35] percent of consumers so i mean it should eventually be 100 so i don't really know how

[00:27:41] i mean i guess assuming maybe rates come down when all these new renewals come up i'm not sure but

[00:27:47] this was up significantly from the 74 percent in 2023 so maybe some people are thinking oh

[00:27:51] it's not going to impact me because i you know i renew in 26 or whatever and then you know maybe

[00:27:57] last year some people are like oh i it doesn't matter to me because i'm renewing in 25 and

[00:28:00] now they're like oh shit it actually does impact me because rates are still not where

[00:28:03] i need them to be so anyway that the effects of these rising interest rates are

[00:28:07] especially hard on refinancers 35 to 44 especially and residents of ontario and the prairies and

[00:28:14] territories um ontario makes sense because it's a super credit sensitive market obviously everybody's

[00:28:19] levered to the gills over here just treading water but uh but i think like the refinancing

[00:28:26] piece is i mean you talk to anybody in the mortgage space it's like nobody's doing a refi

[00:28:29] right everybody's hitting everybody's hitting check just checking the renewal box because they

[00:28:33] know if oh if i go to do a refi i'm not going to qualify and i don't want the bank to

[00:28:36] realize that right yeah and i mean it's it's interesting because this next piece is similar

[00:28:42] to that it's you know timing the market versus time in the market and it's interesting to see

[00:28:48] how people have responded to you know the rate sensitivity and you know the concerns about

[00:28:55] interest rates actually caused 22 percent of the respondents to this survey to buy a home sooner

[00:29:01] than they expected so people trying to get in and and lock in a rate maybe before we see any

[00:29:07] more increases interesting like to front run front run rates yeah i mean you know that's

[00:29:13] that's a bold move for some people but then again nearly three times as many buyers this

[00:29:18] year said that high interest rates made them delay buying a home so again that makes a lot

[00:29:24] more sense the most likely to postpone a purchase were the first time home buyers at 18 percent and

[00:29:31] newcomers to the country at 26 percent so it is people trying to play timing there on their

[00:29:39] side which which usually doesn't work out i guess all the realtors who are saying you have

[00:29:43] to buy before rates drop and prices skyrocket are are getting under the skin of some of the

[00:29:48] 22 percent of these people some of them are uh yeah some of the people have responded to

[00:29:52] that old rhetoric it is funny like that or like that like to me it's like everybody will say

[00:29:58] something about urgency like they'll try and create urgency in any way with the you know

[00:30:02] with fear in the real estate profession but like nobody's saying hey people are

[00:30:08] gonna their capital gains is going to go up by 100k on the 25th you should offer them 50k

[00:30:14] discount on their property like i don't know so i know one guy saying yeah yeah but um

[00:30:19] um it yeah i don't know man honestly the thing is like look you can't time the market i can't

[00:30:25] time the market i i actually might be the person who researches this more than anyone like and

[00:30:30] i'm not saying i'm the best or i know better whatever but like there's a decent chance that

[00:30:33] like nobody in canada researches what would lead to market timing or being an expert market

[00:30:41] timer and i probably still wouldn't try like if i was gonna buy a property really like i

[00:30:45] would say okay like i think the market times itself kind of like the budget balances itself

[00:30:50] right the market times itself like to me if you like in 2022 deals didn't pencil right 2021

[00:30:57] deals didn't pencil so i wasn't buying them it wasn't that i was trying to time the market

[00:31:02] it was that the i couldn't find a property where i could meet my investment thesis which

[00:31:08] was i know a time test and true investment thesis right so i wasn't like the market in

[00:31:13] my perspective was saying it was pushing me out right and then i didn't buy during that period

[00:31:18] of time and we were fortunate enough to start our acquisitions after the market had kind of

[00:31:21] crashed in a lot of the places that we were in and i guess i'll leave it at that because

[00:31:25] i want to continue moving through this report but i just think it's fascinating that people

[00:31:28] think that they can time the market or educate their clients to time the market based on

[00:31:32] either prices or interest rates it's like they're both like bond traders who are like

[00:31:37] huge quant funds that have like millions of math people at these desks that are trying

[00:31:42] to figure out what's going to happen with bonds that's what determines interest rates

[00:31:45] like literally people with like if you're like you're talking like a supercomputer worth of brain

[00:31:50] power right there right like chat gbt version of you know human beings honestly man like

[00:31:56] that's how smart these people are and they still get interest rate calls wrong like

[00:32:01] to the point where it's funny like that's how how wrong they are and yet we have realtors who

[00:32:07] took a you know a six month course for three grand and made a bunch of videos dancing on

[00:32:13] on the internet about they're telling you how to time interest rates and people are listening

[00:32:17] so welcome to canada ladies and gentlemen talk a little bit of default risks and strategies

[00:32:22] obviously one of the things that i like a lot risk management half of respondents worried

[00:32:27] about the risk of default on their mortgage as a result many consumers have taken steps to

[00:32:32] cut their expenses create a budget or increase their their income while many consumers struggled

[00:32:37] with their debt only 14 actually that's not an only that's a lot 14 found it hard to cover the

[00:32:43] mortgage payments that's maybe a little bit of a scary stat from my perspective yeah totally

[00:32:49] you know we and i think it's stats like that that they create the market uncertainty and the

[00:32:55] unexpected cost right so compared to 2023 buyers experience similar levels of uncertainty

[00:33:01] when it came to buying a home and all 63 percent of respondents expressed concerns about buying a

[00:33:09] home 36 also incurred unexpected expenses during their acquisition so some of the most common

[00:33:18] concerns and the common worries about buying a home 62 of people worry about paying too much

[00:33:24] and that is a very very valid concern rising interest rates 53 percent of people concerned

[00:33:31] about that 48 percent unforeseen housing costs 43 costs after buying and 39 percent

[00:33:40] people are concerned about finding the right property so this next chart is probably one of

[00:33:47] the most important to think about as an investor so you were mentioning unexpected costs and they

[00:33:52] have this chart on the report that says top unexpected costs and it basically shows that

[00:33:58] you know i've had a lot of these as an investor right unexpected costs nothing can blow up a deal

[00:34:03] and a model like an unexpected cost like a furnace dying or a large roof leak or something

[00:34:07] like that so try and get those things out of the way or model them in because apparently i'm

[00:34:11] not alone top unexpected costs number 40 they're number one with 43 immediate repairs so when

[00:34:16] you're modeling a deal don't just stress test your interest rate and vacancy are you

[00:34:20] stress testing if you can survive a furnace replacement or another major repair of ten

[00:34:25] thousand dollars and and if so where's that money coming from 33 was lawyer fees so maybe

[00:34:30] we should do an episode with a lawyer soon about these costs and what that process looks

[00:34:34] like i know i think the network guys have been talking to a lawyer tech company actually a

[00:34:39] little bit about something like that so maybe you know i think getting a better clarity for

[00:34:44] our audience on that but i mean this isn't rocket science call a couple lawyers before you

[00:34:48] and model those into your closing costs 29 land transfer tax i mean come on guys do the math here

[00:34:52] there's no excuses on that one and it's the same with lawyer fees like there's a phone call away

[00:34:56] or a more a calculate online calculator away 27 additional taxes property tax like this is all

[00:35:03] in the deal in in the listing on mls so all of this stuff should be in your model folks if

[00:35:09] you do not know what any of those costs are you should not be investing in real estate like

[00:35:13] straight up you're not you need more experience you need more information you need more

[00:35:16] knowledge so know all of those things before you even think about making a real estate investment

[00:35:20] if you're buying a property without knowing what those costs are those are all controllable

[00:35:23] factors yeah i completely agree i mean i'd like to see more people researching that stuff instead

[00:35:30] of just typing in what is interest rate so this next part is more about the type of

[00:35:36] mortgage products which are currently being consumed which can tell us a lot about

[00:35:41] how the market thinks rates are going to progress from here yeah so the mortgage trends and

[00:35:47] characteristics many of the trends around mortgages were seen in 2023 held steady for this year

[00:35:53] the percentage of homeowners who made more than their minimum payment required mortgage payments

[00:35:57] was consistent at 39 as an example yeah but that number is down significantly from its high

[00:36:05] in 2022 of 53 percent and those who chose to pay more tended to be older i'm not done you know

[00:36:14] those between 55 and 64 so really the difference in age between the first time home buyers again

[00:36:21] that 25 to 34 so and most of those people live in ontario right so wealthy boomers who

[00:36:27] already have a bunch of equity in their house are making themselves more wealthy by paying

[00:36:31] off their mortgage to pay less interest and i'm assuming those mortgages are you know have have a

[00:36:36] very low amount left we're not talking massive mortgages we're talking probably you're at the

[00:36:40] end of your term regardless yeah mortgage types fixed rate mortgages continue to be the

[00:36:45] most popular type of mortgage the percentage of consumers who opt for a fixed rate increase

[00:36:50] from 66 in 2023 to 69 this year so i think people have capitulated on the variable thing

[00:36:56] like you know usually would think if people think rate cuts are coming they would be piling

[00:37:00] into variables to try and capitalize on that but they're not i mean it could be like the

[00:37:04] mutual fund thing though right like the consumer is pretty much perfectly good at they give you

[00:37:08] inverse what everyone else is doing if you inverse the majority you'll actually trade well

[00:37:12] so i don't know yeah amortization periods and renewal terms there was a lot a notable shift

[00:37:20] towards longer amortization periods and shorter renewal terms for example in 2022

[00:37:26] 32 percent of mortgage consumers chose an amortization period of 11 to 20 years

[00:37:34] this year 29 percent of consumers chose an amortization period of 25 years or more

[00:37:42] well the five-year renewal terms continue to be the most popular more consumers are starting

[00:37:47] to look for renewal terms of three years or less okay so i think we need to go through

[00:37:55] this unpack this here because these points need to be repeated it says a lot about the real estate

[00:37:59] market in canada right now so let's just unpack this and chat a little bit on this so the first

[00:38:04] piece said there was a notable shift towards longer amortization period so we're actually

[00:38:08] seeing a shift towards people on renewal topping up to their 25 year ams rather than you know

[00:38:13] if you so so let's just like contextualize this if you are on a 25 year am you pay

[00:38:17] your mortgage off for a full mortgage term you should automatically roll into a 20 year am

[00:38:20] right because you just paid your mortgage off for 20 years and on the 20 or sorry for five years

[00:38:25] and so you have 20 left and you'd be on the same schedule people are going back to the 25

[00:38:30] because i'm assuming they are trying to reduce their mortgage payments so do you have any

[00:38:36] thoughts on that one if not hit me with the second portion of that yeah i mean my thought

[00:38:39] is you're just you're kicking your preferably uh debt can down further down the road right

[00:38:46] you're kind of erasing some of the progress that you've made so the next piece here is

[00:38:50] renewal terms going towards three years though still mostly five years so we're seeing

[00:38:57] more people optimistic that rates might come down on that three year horizon and trying to

[00:39:02] capture that future rate benefit and i can tell you as a mortgage broker that is

[00:39:07] very very true anecdotally myself our business and and all the other mortgage brokers i talk

[00:39:14] to three years are super popular right now so now let's quickly touch on mortgage brokers and

[00:39:20] lenders in 2024 the proportion of consumers who used a mortgage broker increased significantly

[00:39:27] 43 percent in 2023 48 percent in 2024 i like to see that i think people using mortgage

[00:39:35] brokers and agents is a very good thing maybe because i am one but i also think that

[00:39:41] we offer a level of service that you're not going to get going to a lender now the use

[00:39:46] of lenders over the same period time decreased by almost the same amount 52 percent to 47 percent

[00:39:52] as a result 2024 is the first year since 2019 that almost the same percentage of consumers

[00:39:58] used a broker as much as they used a lender now the difference is you know coming to a

[00:40:03] person like me at a brokerage i'm a mortgage broker versus going to your bank and saying i

[00:40:08] need a mortgage that's the main difference right there and we're certain to see that

[00:40:12] becoming a bit more even playing field i think it was funny there was a i saw a stat in here

[00:40:16] somewhere i don't think it's in our notes but that quebec was like more like they're the

[00:40:19] ones who are most likely to go direct to lenders so like quebec is just like a province of

[00:40:22] people who broker their own mortgage deals like it's like the majority of people in quebec

[00:40:26] who i mean i guess the lenders there are probably just go better at going direct to

[00:40:28] consumer but anyway that the next piece is particularly interesting consumer attitudes and

[00:40:33] behaviors although commonly held beliefs about homeownership appear to be high the results in

[00:40:37] 2023 in general are the lowest seen since 2019 so 79 believe homeownership is a good good long

[00:40:44] term investment so obviously still everybody but fewer than before 78 understood how much

[00:40:49] they could afford to spend on a home that's a nice stat 77 believe they can make future

[00:40:54] mortgage payments 74 are confident about managing their debt 70 felt getting a mortgage was

[00:41:00] easy and straightforward but again they said so these are good numbers but they're probably

[00:41:03] not as good as cmhc wants them to be yeah exactly i mean you know it's funny looking at this

[00:41:10] going back to consumer sentiment consumer sentiment is a powerful drug and you know

[00:41:15] otherwise known adam smith the father of modern economics the you know the invisible hand of

[00:41:21] the economy consumer sentiment just as a reminder is the statistical measurement of the overall

[00:41:27] health of an economy and that's determined by the consumer's opinion so what me you dan and

[00:41:34] all of our listeners are thinking and how we're how we're acting and how we're spending our money

[00:41:39] it takes into account people's feelings towards their current financial health so are people

[00:41:43] satisfied or are they worried the health of the economy in both the short term and the

[00:41:48] long term and what those prospects for longer term economic growth are you know and this is

[00:41:54] these are all really good at economic indicators you know consumer sentiment emerged as an economic

[00:41:59] statistic during the mid 20th century and is now kind of the common one of the common barometers

[00:42:05] that influences both public and economic policy and you know if you haven't listened to us and

[00:42:11] and heard us talk about some things like the fear and greed index go check that out because

[00:42:16] consumer sentiment especially in times like these plays a very powerful role yeah for

[00:42:21] sure i also just love that you're you're the one quoting adam smith at me right now but

[00:42:26] anyway never heard of him yeah no never heard of that guy okay let's chat on the final piece

[00:42:29] here home renovations yeah but uh specifically home renovations are going green so that's what

[00:42:35] we're going to be talking about cool all right um so renovations also continue to be popular

[00:42:39] among homeowners in 2024 the past three years 45 percent of mortgage consumers renovated their

[00:42:45] homes i mean this is like one of those things right just very quickly like this is how money

[00:42:49] that gets pumped into the housing economy also makes it into the remainder of the economy

[00:42:53] right like oh i got a bunch of equity now i'm gonna go pay a contractor and blah blah blah

[00:42:57] and the government obviously likes this format of canadian economy that's why they're pumping

[00:43:02] more and more money into real estate 28 percent of uh those who renovated their homes did so

[00:43:08] to make it more energy efficient another 15 adapted their homes to prepare for impacts

[00:43:12] of climate change that's kind of like i mean i guess maybe like better windows or something

[00:43:17] like i don't you know what i mean like for they there we'll get to that because we actually have

[00:43:21] a list of what people did here which is really fascinating but but you're probably wondering what

[00:43:27] were the reasons to renovate well the most popular renovations were with our lovely

[00:43:33] kebakers and it's because they saved all their money brokering their own mortgages

[00:43:38] exactly aged 18 to 34 uh and those people were refinancing to improve their homes now across

[00:43:46] the country the top four reasons given to renovate whether it is past renovation or a

[00:43:52] planned renovation were to personalize a home that's 51 so you know redo that kitchen so

[00:43:59] it's your dream kitchen or redo those windows so you're saving money or whatever that may be

[00:44:03] 40 percent renovated to increase the property value we love that one dan

[00:44:08] 28 to improve energy efficiency and then again 15 to prepare for climate change

[00:44:17] what were these people spending so maybe we'll look at i guess i think there's a whole thing

[00:44:22] in there about renovation budgets right so in terms of budget 35 percent of renovate

[00:44:27] renovators spent less than ten thousand dollars on their home rentals about around 50 spent

[00:44:32] between 10 and 50 000 interesting because um the that federal government program that

[00:44:36] we're talking about that they're talking about coming out with the extra 40k fits right in

[00:44:40] there yeah so you know homeowners who improved the energy efficiency of their homes spend an

[00:44:44] average of 54 percent of the renovation budget on energy efficient upgrades about two-thirds of

[00:44:50] those renovations said the changes helped them to reduce their energy bills an impressive 93

[00:44:54] were satisfied with the results of their energy efficiency renovations so i mean this will like

[00:44:59] this stuff all makes sense to me it doesn't like you know even if people who are opposed

[00:45:03] to like a lot of this stuff like if the numbers are there it just makes sense right so

[00:45:07] yeah exactly now dan you had just asked what were some of the popular renovations most

[00:45:12] popular green renovations well solar is up there among those who renovated to make their home

[00:45:18] more energy efficient 13 percent of them installed solar energy and that's doubled

[00:45:24] since last year 47 percent were for led lighting 44 did new doors and windows we also have better

[00:45:32] insulation 39 that's a huge one on ml i select deals right sorry 38 better insulation

[00:45:38] like a lot of the big ones on hip roofs for like uh to to do the um improving an energy

[00:45:44] efficiency of a building by 40 people were taking out the insulation below and putting

[00:45:47] a new blown in insulation 32 water saving measures so that's another one most of these

[00:45:53] things would all like in combination improve the energy efficiency of a building by 40 and

[00:45:57] then that's how you can get that cmhc existing building energy efficiency financing

[00:46:01] program so that's like a dual flush toilet low flow shower heads etc 30 smart thermostats

[00:46:07] and more than half uh so 57 of home buyers in 2024 said energy efficiency was a key factor

[00:46:12] in choosing a home it is interesting because it makes you wonder like do households actually

[00:46:16] care this much about the environment or are they being like are they are they really feeling

[00:46:21] the cost like it's almost like you know i mean as much as you hate to say it like

[00:46:25] well i think the carbon tax distribution thing is like obviously been proven to be not as not

[00:46:31] as true or like not not the way that they're explaining it but it's clearly dissuading

[00:46:35] behavior like and i see this too it's like sometimes i don't want to like i think about

[00:46:39] driving do i have to make this drive you know is there a way i can heat my house with electricity

[00:46:44] like i've thought about going heat pump going electric tankless hot water and even if like

[00:46:48] even if we see a political shift and it ends up getting rid of the carbon tax like the

[00:46:52] axing of the tax and all these things that we're hearing then at least i have those things

[00:46:56] for the future anyway right because i feel like at enbridge if they've seen how much

[00:46:59] canadians are willing to pay for gas are they really i know there's it's regulated so

[00:47:03] before anybody jumps in and tells me but are they really going to be in a hurry to get those gas

[00:47:07] prices back to you know anyway just a thought looking ahead 69 percent of respondents say

[00:47:13] that they plan to renovate their home in the next five years which is very interesting

[00:47:17] because we also have that roya la page survey that says 25 percent of canadians plan to

[00:47:23] buy or invest in real estate so real estate and renovations and and green renovations are

[00:47:30] not going anywhere and around 11 percent are renovating right now will 19 plan to renovate

[00:47:37] within the next year so between now and you know spring of 2025 and dan i think this is

[00:47:42] a huge opportunity in the green renovation space you know for trades to jump in here

[00:47:48] for investors to jump into this and especially to take advantage of all the green rebates

[00:47:55] that we've seen the government propose and chat about so

[00:47:59] then do you think this could be a good topic for maybe one of our upcoming webinars

[00:48:02] yeah i think if we start seeing some of those grants coming back up i know we have like we

[00:48:07] have a grant writer in the realist program who's actually been teaching other people how to

[00:48:13] get into like grant writing and grant applying for things like this so i think that

[00:48:16] shout out to nia who's an awesome dude i know he's listening he listens like every

[00:48:19] episode so absolute beauty you know so if you if you i think he's going to be actually

[00:48:23] doing some pre-recorded content and some like probably calls as well on like on the

[00:48:28] grant writing segment of the the course let's call it as this starts to evolve and it starts to

[00:48:33] become more opportune for investors so stay tuned for that but yeah i think we would probably

[00:48:37] with him and then maybe also with a contractor as an expert in installing these things like i

[00:48:41] have a friend who does electrifying these units sub metering etc so i think that's

[00:48:46] everything we got for today make sure you check out realist.ca if you want to join our

[00:48:51] course and community there's a free version which we host those free webinars on on a monthly

[00:48:55] basis and and then there's a paid version which is where we're mentioning a lot of these these

[00:49:01] groups that are in we just did our our free monthly webinar on um on the canada's housing

[00:49:06] plan there's a recording of it available in there we'd love to see you in there we'd

[00:49:09] love interacting with our fans keep the reviews coming keep sharing screenshots of

[00:49:13] yourself listening to the podcast tag us interact with us we love to hear from you

[00:49:17] and we're just generally super appreciative of our audience so i just want to make it super

[00:49:22] clear thanks thanks for getting through this episode and thanks for continuing to get get

[00:49:25] through them we love you lots i got nothing more to say love you lots we'll see you next

[00:49:31] time thanks so much the canadian real estate investor podcast is for entertainment purposes

[00:49:37] only and it is not financial advice nick hill is a mortgage agent with premier mortgage

[00:49:43] centre and a partner in the g and h mortgage group license number 10317 agent license m2 1004037

[00:49:55] daniel foch is a real estate broker licensed with rare real estate a member of the canadian

[00:50:02] real estate association the toronto real estate board and the ontario real estate association