Azfar Tahir, MBA, President/Principal Broker - BCM Capital

10/20/2024

https://toronto.citynews.ca/2024/10/20/with-inflation-below-target-bank-of-canada-expected-to-deliver-supersized-rate-cut-this-week/

The Bank of Canada has lowered its key interest rate three times so far, bringing it down to 4.25 per cent.

09/16/2024

Government announces boldest mortgage reforms in decades to unlock homeownership for more Canadians
From: Department of Finance Canada

News release
September 16, 2024 - Ottawa, Ontario - Department of Finance Canada

Canadians work hard to be able to afford a home. However, the high cost of mortgage payments is a barrier to homeownership, especially for Millennials and Gen Z. To help more Canadians, particularly younger generations, buy a first home, new mortgage rules came into effect on August 1, 2024, allowing 30 year insured mortgage amortizations for first-time homebuyers purchasing new builds.

The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, today announced a suite of reforms to mortgage rules to make mortgages more affordable for Canadians and put homeownership within reach:

Increasing the $1 million price cap for insured mortgages to $1.5 million, effective December 15, 2024, to reflect current housing market realities and help more Canadians qualify for a mortgage with a downpayment below 20 per cent. Increasing the insured-mortgage cap—which has not been adjusted since 2012—to $1.5 million will help more Canadians buy a home.
Expanding eligibility for 30 year mortgage amortizations to all first-time homebuyers and to all buyers of new builds, effective December 15, 2024, to reduce the cost of monthly mortgage payments and help more Canadians buy a home. By helping Canadians buy new builds, including condos, the government is announcing yet another measure to incentivize more new housing construction and tackle the housing shortage. This builds on the Budget 2024 commitment, which came into effect on August 1, 2024, permitting 30 year mortgage amortizations for first-time homebuyers purchasing new builds, including condos.
These new measures build on the strengthened Canadian Mortgage Charter¸ announced in Budget 2024, which allows all insured mortgage holders to switch lenders at renewal without being subject to another mortgage stress test. Not having to requalify when renewing with a different lender increases mortgage competition and enables more Canadians, with insured mortgages, to switch to the best, cheapest deal.

These measures are the most significant mortgage reforms in decades and part of the federal government’s plan to build nearly 4 million new homes—the most ambitious housing plan in Canadian history—to help more Canadians become homeowners. The government will bring forward regulatory amendments to implement these proposals, with further details to be announced in the coming weeks.

As the federal government works to make mortgages more affordable so more Canadians can become homeowners, it is also taking bold action to protect the rights of home buyers and renters. Today, as announced in Budget 2024, the government released the blueprints for a Renters’ Bill of Rights and a Home Buyers’ Bill of Rights. These new blueprints will protect renters from unfair practices, make leases simpler, and increase price transparency; and help make the process of buying a home, fairer, more open, and more transparent. The government is working with provinces and territories to implement these blueprints by leveraging the $5 billion in funding available to provinces and territories through the new Canada Housing Infrastructure Fund. As part of these negotiations, the federal government is calling on provinces and territories to implement measures such as protecting Canadians from renovictions and blind bidding, standardizing lease agreements, making sales price history available on title searches, and much more—to make the housing market fairer across the country.

03/29/2024

03/29/2024

Offical REMIC Certificate for AZFAR MOHAMMAD TAHIR

01/16/2024

With interest rate cuts likely on the horizon, the Canadian Real Estate Association expects the number of homes changing hands this year to grow following a slowdown in 2023.

However, experts say they remain cautious about the timing and scale of a potential rebound.

CREA updated its 2024 housing forecast on Monday as it also reported national home sales data for December.

The association said it expects 489,661 residential properties to be sold this year — a 10.4 per cent increase from 2023 — and the national average home price to climb 2.3 per cent on an annual basis to $694,173.

Noting that Canadian housing markets have remained quiet since the Bank of Canada’s interest rate hikes last summer, the association said there's reason to be optimistic in the new year with expectations for the timing of the first 2024 rate cut pulled forward.

"The real test of the markets’ resilience will be in the spring,” said CREA chair Larry Cerqua in a press release, adding that the data for December offered up "a bit of a surprise in sales numbers to cap the year."

December home sales were up 3.7 per cent compared with the same month in 2022, marking the largest year-over-year gain since August. The actual national average price of a home sold in December was $657,145, up 5.1 per cent from December 2022.

The number of newly listed homes fell 5.1 per cent on a month-over-month basis in December.

CREA senior economist Shaun Cathcart said the December bump likely wasn't the start of the expected recovery, but rather "just some of the sellers and buyers that were holding onto unrealistic pricing expectations last fall finally coming together to get deals done before the end of the year."

"We’re still forecasting a recovery in housing demand in 2024, but we’ll have to wait a few more months to get a sense of what that ultimately looks like," he said.

Some buyers may have been inclined to purchase a home as last year wrapped up in order to get ahead of the anticipated 2024 boom, said Cailey Heaps, president of the Heaps Estrin Real Estate Team in Toronto.

Although borrowing costs are still high, with the central bank holding its key rate at five per cent, she said those looking to make a move now have the advantage of potentially finding good deals on the market due to lower demand and less competition.

"The primary advantage is we will likely see upward pressure on pricing once the rates start to drop," she said.

"You're locking into a higher rate, but ... you just factor it into your purchasing price and your overall budget."

National Bank economist Daren King said data trends from Canada's largest housing markets — Toronto, Vancouver, Montreal and Calgary — suggest November was likely the trough for home sales, but he agreed the strong figures last month were not necessarily "a sign that the real estate market is now on the rise for good."

"We're seeing economic growth decelerating, the job market also is not as good it used to be, we're seeing the unemployment rate increasing, so of course, we'll have some headwinds ahead," King said in an interview.

"When we will have more confidence that the Bank of Canada will start decreasing their interest rate — we're expecting it to decrease in April, probably — at that point, we can expect the real rebound then."

Others feel the recovery might come earlier than that. A separate report released Monday by Royal LePage suggested the Canadian market is showing signs of home price stability, with the aggregate price of a home increasing 4.3 per cent annually to $789,500 in the fourth quarter of 2023.

Buyer sentiment can have an equal effect on market trends as inventory or interest rates, according to Phil Soper, president and CEO of Royal LePage.

“I believe the narrative suggesting that the housing market will rebound only when the Bank of Canada lowers rates misses the mark,” he said.

“The recovery will begin when consumers have confidence the home they buy today will not be worth less tomorrow. We see that tipping point occurring in the first quarter, before the highly anticipated easing of the Bank of Canada’s key lending rate.”

Heaps said the market is anticipating an increase in inventory this year, which adds another layer to the dilemma some buyers face before the cycle of rate cuts gets underway.

"Do you buy something now because you feel you're going to get ahead of the market pricing, knowing that there might be more options in the spring? Or do you wait for more options?" she said.

"That's a very subjective decision that people will make."

01/12/2024

www.RealtorAzfarTahir.com

01/11/2024

Interest rates are expected to decrease this year: Here's how that'll impact housing.

The first policy interest rate cut for Canada this year could come as soon as this spring, according to Marc Ercolao and TD Economics.

After a year where interest rates skyrocketed at a pace not seen in decades, economists have said that the Bank of Canada’s (BoC) focus is now moving toward rate cuts, which has implications for the country’s housing market.

In an analysis note, Ercolao, an economist at TD Bank, wrote that preliminary housing market data for December pointed to strong sales activity and declining listings as well as tightening conditions in major markets.

Ercolao added that the next inflation release, due out on January 17, might see inflation accelerate on the back of base effects that saw weak inflation a year ago.

“However, inflation is trending in the right direction, and we forecast it will durably break below the 3% level in 2024,” he wrote.

A separate recent report by Oxford Economics predicts the Bank of Canada could be in a position to lower the interest rate starting in the middle of 2024. By the end of this year, the interest rate could be lowered to 4.25%.

12/20/2023

The Bank of Canada will likely start cutting interest rates in the second quarter of 2024, predicts the chief economist at Deloitte Canada.

Deloitte is forecasting three 25-basis-point cuts from the central bank, which would reduce its overnight policy rate from five per cent to 4.25 by the end of 2024.

“We’re going to have two per cent inflation in the Bank of Canada’s sights,”

Canada’s inflation rate is still a ways away from the Bank of Canada’s two per cent target, but continues to come down. The consumer price index slowed to 3.1 per cent year over year in October from 3.8 per cent the month before.

Meanwhile, the economy remains weak as we exit 2023. Real gross domestic product shrank by 0.3 per cent in the third quarter and 1.1 per cent on a yearly basis.

Desjardins is anticipating these trends to continue in the new year. The Bank of Canada will then be in position to lower policy rates.

“A lot of things are sort of in train,” "We see that the inflation pressures have eased considerably.”

It is added that consumers and businesses are expecting the central bank to be successful in getting inflation back to two per cent.

“We’re going to get through this hump,” Desjardins said. “This provides some support for households.”

Desjardins added that Canada is currently experiencing a mild recession. Believes that 2024 will have a slow start but the economy’s pace should pick up a through the course of the year.

The unemployment rate, now at 5.7 per cent, is set to rise above six per cent from Canada’s rapid growth in population, but there won’t be a huge weakening in the labour market.

12/10/2023

https://www.bnnbloomberg.ca/is-a-soft-landing-possible-after-this-rate-hike-cycle-1.2008232

The Bank of Canada is expressing more confidence that its rate hikes to date are slowing the economy and inflation, but experts are split on whether the central bank will nail a “soft landing” and avoid a deep recession.

07/21/2023

Bank of Canada’s latest rate hikes are signs it made a ‘mistake’: analysts

The Bank of Canada has shifted to a less prescriptive messaging strategy than it used in January when it signaled a rate-hike pause that reignited the housing market, which added to inflation and the need to resume tightening five months later.

Last week after lifting rates to a 22-year high of 5.0 per cent, Governor Tiff Macklem struck a more hawkish tone than when he announced a pause in January, warning the bank could hike again if economic data shows it is needed.

That switch could leave the BoC less vulnerable to criticism when forecasts go awry, leaving investors and borrowers to arrive at their own conclusions in assessing the outlook for interest rates.

“Every time (the members of the governing council) try to provide that hand-holding forward guidance, it doesn’t work,” said Derek Holt, vice president of capital markets economics at Scotiabank.

Central bankers around the world have underestimated inflation and grappled with communication. Macklem came under a rare attack last year from opposition politicians for misjudging inflation and locking in to a rigid forward guidance.

‘Awful lot of pain for a very little gain’: Some economists question Bank of Canada’s key interest rate hike
“We are turning the corner on inflation,” Macklem told reporters in January when the BoC became the first major central bank to announce a pause. “If economic developments and — in particular — if inflation comes down in line with our forecast, that will confirm that we have likely done enough.”

The markets quickly priced in a half-percentage-point in cuts by the end of the year, and the slumping housing market recovered. The average sale price of a home increased 19 per cent between January and May, according to the Canadian Real Estate Association.

That jump in housing prices “is likely to persist and boost inflation by as much as 0.3 percentage points by the end of 2023, compared with the January outlook,” the BoC said last week.

Last week, Macklem defended the decision.

“It made sense to pause,” he said, to assess the effect of the most rapid increase in rates in the BoC’s history. But then the economy outperformed the bank’s expectations, he added, which is something that has happened repeatedly in recent years.

The central bank’s tightening campaign is a major concern for Canadians who loaded up on cheap mortgages and took on credit card and other debt in recent years. Household debt as a proportion of disposable income rose to 184.5 per cent in the first quarter, near a record high, which means there is $1.85 in debt for every dollar of household disposable income.

Macklem did not use the word “pause” while announcing last week’s 25-basis-point hike, the second in as many months, though some analysts now expect the bank to do just that.

“Now maybe you’re getting a certain maturity of the central bank that says, ‘We’re not going to do that again,'” Holt said.

Though many economists are doubtful another rate hike is coming, money markets are still not shifting their bets toward a possible cut as they did in January, both because of the uncertainty of the inflation outlook and the bank’s threat to raise again if needed.

Raising interest rate to 5 per cent will help relieve inflation:
Macklem has delivered misleading messaging before.

He assured Canadians during the pandemic that rates would rise only in 2023 when it expected the economic slack to be absorbed, but the central bank began hiking rates in March 2022 as inflation spiked.

In October 2021, Macklem forecast inflation would return close to the central bank’s two per cent target by the end of 2022, only to push back that goal in January of this year to end 2024. Last week, the bank further delayed that target to mid-2025.

Marc Chandler, chief market strategist at Bannockburn Global Forex LLC, said the fact that the BoC hiked not once, but twice starting in June after announcing the pause is evidence that it knew there was ground to be made up.

“The June hike wasn’t a one-off … it wasn’t just an insurance policy, but (a sign) they think that they made a mistake.”

06/22/2023

Some Canadian mortgage holders extending amortization periods by more than double:

As Canadians continue to deal with higher borrowing costs, one mortgage expert said some homeowners have been extending their amortization periods to more than double the typical 25 years.
Since the Bank of Canada began raising interest rates in March of 2022, some of his clients have drastically extended the amortization for their mortgages.

Had many clients with amortizations, that are 70, 80, even 90 years remaining, in the extreme cases, and that's simply because their payments are not going towards any principle at all,”

“It's mainly because the payments are strictly just paying interest to the bank, they're not paying down any of the principal payment at all.”

According to the Financial Consumer Agency of Canada, longer amortization periods will result in lower payments, however, when a homeowner takes longer to pay off their mortgage, they will pay more in interest.

Mortgage owners can reduce their amortization period by choosing to pay extra toward their principal balance. However, those electing to just pay the interest on their mortgage are basically “just paying rent to the bank,”

The maximum amortization period that is available from an A-lender is 30 years. However, due to the rising interest rate environment, “amortizations have been extended automatically by the lenders.”

Canada’s A-lenders include major banks, which are federally regulated; meaning those applying for a mortgage will be subject to the stress test.

For the past year or so, homeowners have been able to stay in their homes while paying only the interest on their mortgage and avoiding the impacts of higher payments. However, this is only a temporary solution.

“It will be a huge shock to homeowners and they should prepare for this. Sooner or later, the lenders will need to start forcing these customers to pay down the principal balance.

Office of the Superintendent of Financial Institutions (OSFI) will make changes requiring lenders to compel mortgage holders to make payments toward the principal of their loan, not just the interest.

“It has been about a year now, it could have been done earlier. But sooner or later, new rules will be implemented.

“Otherwise, we may have generational mortgages where these mortgages can be passed on to their kids, if the amortization stays at elevated levels at 70, 80, or even 90 years. So something has to happen.”

08/02/2022

How to navigate rising rates, tighter mortgage qualifications and softer valuations

We all know by now that things are changing in the real estate market.

I love this quote by writer H. Jackson Brown:

“When you can't change the direction of the wind – adjust your sails,”

That is exactly what we need to do as real estate investors right now. Changes are happening on many fronts, and we all need to adjust our sails to navigate the new waters, keep the momentum going and reach our destinations.

Here is a summary of the fundamental changes and what you can do as an investor:

Change # 1: Rising rates

Clearly, the Bank of Canada is on a mission to combat inflation and is using the rate policy as a tool to do so. The prime rate has increased several times in 2022, with the last increase in July by 1%.

The media is scaring everyone and making it sound like the sky is falling. Yes, the rates are rising, and the prospects of a recession are rising. These are things you and I cannot control. What we can control is how we navigate the waters ahead. It is important to remember that rate increases will stop once the BOC gets a handle on inflation. While no one has a crystal ball, indicators show that we are yet to see another 1.5% - 2% increase by early 2023; then, we will stay there for a while, a period of 18 - 24 months before things start to ease up again.

So, what can you do here to navigate:

Now is the time to sit down with your mortgage advisor and assess the impact of rising rates on your cash flow and portfolio and discuss the best ways to navigate your case. There are various tools and strategies that you can utilize, including:

Locking into a 1 - 2 years fixed rate (5 years is not recommended at the moment as the gap between a 5-year variable and fixed is about 200 points, and you would be locking in at the peak of rates for the next 5 years).

Debt consolidation strategies include replacing high payments (such as car loans, investment loans and unsecured loans) with cheaper debt (secured lines of credit or lower rate mortgages).
Re-amortizing loans by extending the amortization to reduce the monthly payment.

Convert to capped rate mortgages; the monthly payment stays stable as rates rise but more goes towards interest versus principal.
Restructuring your mortgage into a mortgage (principal and interest payment) and a secured line of credit (interest-only payment) can reduce the monthly payments and ease the pressure on your budget. Some products allow you to re-convert the line of credit to a mortgage anytime.

If you are a commercial real estate investor in the midst of a renovation/construction and looking to refinance 12 – 18 months out, we must assess the impact of rising rates on your future equity take-out. Increasing rates for both Government of Canada and the Canadian Mortgage Bonds will directly impact the Debt Coverage of your property and, therefore, the loan amount the property qualifies for.

Do not wait until the time comes to discover that you can not take out the equity you initially planned for or that you are running into a shortage that you can not pay off existing liens on the property.

Change # 2: Tighter mortgage qualifications

As the rates continue to rise, the qualification bar the residential lenders use to approve borrowers for mortgages will also rise because, under the Stress Test rules, lenders will qualify the loan request at the higher of the Bank of Canada qualification rate, which is 5.25, and the mortgage rate you are being approved for plus 2%.

After the recent July rate increase, the qualification bar has exceeded the 5.25 benchmark for the first time. This means qualifying for less than you wish for, injecting a higher down payment or shifting your deal from an A lender to a B or from a B to a private lender.

You can utilize various debt management and income-generating strategies to help maintain your borrowing power.

Debt management strategies

These are strategies that focus primarily on reducing the monthly payments on your balance sheet in the eyes of the lenders to help ease up the pressure on the lending ratios.

The fact that you are paying an interest-only payment on a loan or that you have an interest-free loan with a six months grace period does not mean that the lender will take that into the calculation. Lenders have their own ways of running the numbers. As a result, re-shuffling some debts through consolidation or re-amortization can have a huge positive impact on the numbers.

A simple example on this topic: is a $20,000 balance on a Home Depot card that you used for renovations and that you are currently not paying anything on because you got a 3-month no-pay promotion. In the eyes of some lenders, that card is costing you 3% per month (i.e. 600 dollars)

Another example is a car loan or an RRSP loan, where your monthly payment is high, and you have a small balance left on the loan. The lender does not care about the small balance. They care about the monthly obligation.

Debt management strategies can help you declutter your balance sheet and open up the room with the lenders to maintain your borrowing power.

Income strategies

The other tool is income related, where we can look at ways to add income to your application by utilizing higher rental income or supplementing your income. This includes: using higher rents on your application through an appraiser’s opinions of what a property can rent for. This can help the numbers in some cases where you have a vacant unit or you are charging below market rents and where the market rents are higher.

In regards to your income: we can look at ways to pay yourself more from one or more of your businesses if you are an entrepreneur or add a guarantor to the deal or partner to help the numbers.

Change # 3: Softer valuations

Demand in some markets has cooled as rising rates and tighter mortgage qualifications impacted affordability. In return, it has affected what houses are selling for and the time on the market to sell. For investors, this presents both a risk and an opportunity.

On the risk front:

If you are in the midst of doing a BRRR (Buy/Renovate/Refinance/Rent), adjust your expectations in regards to the values on exit and revisit the refinancing options and numbers with your mortgage advisor to ensure you are well positioned to exit the deal.

Suppose you have private money on one or more properties and have taken a high leverage position to purchase the property and renovate it. In that case, it is best to exit that expensive money now while the values are relatively holding up.

Some clients may need an equity partner to step into the deal to help exit the private money if the funds from a refinance are insufficient to clear the debt.

Planning and exploring your options are key to heading into this new cycle.

On the opportunity front:

If you have equity in your properties, you should line up the equity through secured lines of credit (increase existing lines or set up new ones) while property values are still holding up and the qualification bar is still manageable.

Do not wait to line up equity when you need it. Do it when you do not need it and have it in your back pocket. The next 12-18 months will present buying opportunities for investors, and those who got their ducks in a row will benefit.

If your renewals are six months out, do not wait. Take the time to revisit your options, including your equity in the property and the terms available to you now versus six months out.

And finally, take time to clean house now so you can still qualify in the future if you want to continue growing your portfolio. By cleaning house, I mean: getting rid of any expensive debts or mortgages like private mortgages.

If you are concerned about the environment ahead and need guidance on how to ride the wave, position your finances to ease up any cash flow pressures, or jump on the real estate opportunities the new environment will present, contact me or my team for a complimentary planning session. We will help you move forward with clarity and confidence.

www.realtorazfartahir.com
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