Podcast 29: The Canadian Mortgage Market in a Shifting Economy - Andrew Dryer of Outline Financial
Podcast 29: The Canadian Mortgage Market in a Shifting Economy with Andrew Dryer, Outline Financial
In this podcast, we sit down with Andrew Dryer of Outline Financial to discuss the current state of the economy and how it's impacting the Canadian real estate and mortgage industries. We dive into the differences between the Canadian and US economies, the recent rate increases, and the impact of bond yields on fixed rate mortgages. Our guest also explains how Outline Financial sets itself apart by working as a team to help clients with difficult deals and staying up-to-date on industry developments. Tune in to gain valuable insights into the Canadian mortgage market and the broader economic landscape.
Be sure to follow the podcast feed on Apple or Spotify Podcasts for new episodes each week – we’ll be discussing a range of topics with experts such as current market trends, strategies for financing and refinancing, purchasing, and selling real estate.
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Hey guys, welcome to another edition of Broadview Table Talks. We got another mortgage broker, . Sorry. It happens a lot. Is Andrew Dreyer, am I pronouncing it right? That's right. Online financial, yeah. All right. So. I'm sorry to keep bringing mortgage workers onto this podcast, but it's just the way it is.
It's the industry, right? Oh, it's the economy right now too. I think it's it's a, it's, we we're focused on it, right? So we should be at least. Yeah. Yeah. So you said something in the beginning when we first, when you first came here, you said that outline financial is a little bit different. Yeah. Can you tell me a little bit about that?
You wanna go into that now or, yeah, sure. So, I think a lot of, and I'm not knocking other brokers, there's a lot of amazing brokers out there. So I think a lot of us do a great job. I think one thing we do a little differently we really focus on working as a team, so we're helping each other out with those hard deals.
We're keeping each other abreast of what's going on. So, I mean, I don't wanna bore people with details, but, you know, one of the things is one of our banks right now is pricing things real time based on bond yields. So we're all talking and when we, when one of us sees a hit where, you know, bonds have gone down and we get a good rate back, we're, we're jumping on it.
We're getting in there for all of our clients. We're keeping each other kind of knowledgeable on underwriting practices, everything that's going on. I focus a lot on the economy, so I'm keeping other agents up to date on what's happening there. And we kind of all have our different own expertise in, in how we can benefit the company.
Okay, so in the economy, in terms of that, what's happening right now, , so we know that, that Yeah, I think we're kinda at the top. It's been a fun two weeks, right? Yeah. And, and so I think we're kind of a tale of two countries affecting Canada right now. So there's, there's what's happening in Canada and what's happening in the US and those are starting to di diverge.
So in Canada we're seeing some good progress with, you know, the rate increases were painful for all of us, I think in, in the last year. But we're starting to see that take hold and we're starting to see, you know, we'll see when job support comes out later this month or later this week, and the Bank of Canada announcement next week.
But, you know, looking at inflation numbers that came out this week lower than forecast. Very good. Right? I mean, very good progress. We, we are over the hump it seems like. We don't know if it's a. Dip and if things are gonna go back up. But so far so good. In the US it looks like there is more to go if that's, you know, you hear Jerome Powell, probably the mo, one of the most powerful economic men in the world right now.
They have more increases to come. We're kind of wait and see Situation. But the US is also, you know, has a lot less of a debt burden than we do on at a consumer level. So it's makes sense that, you know, we can get there faster with, with the rate increases being e equivalent. So far and in history, if you look at all the times in history that we've seen, these rate jumps to try and combat inflation or anything else, Canada has always been able to stop earlier than the US and so the US has always had to go further than us.
So this is nothing surprising. And you know, both countries could very much be saying something that's true, where Canada is saying, we're gonna hold and we think we're okay here. And until we see something different and the US is saying, we think we need to go further. How that's all translating into Canada, Canadian, Canada, and Canada's fixed rates, I think also becomes a bit interesting.
Because in the past two weeks we've really seen bond yields go up significantly, bond yields. For those that don't know that really. It's a, it's a significant factor in the, in the Canadian fixed rate mortgage market. So you see about 150 basis point or 1.5% uplift from the bond yield to your corresponding fix rate.
So a two year bond versus a two year fix, or a five year bond versus a five year fix. And so we saw everything coming down nicely with Canadian, you know, results. And then these past two weeks we've seen things spike about a half percent. . And that is all based solely on the US and unfortunately our bond market is not as insulated as our bank of overnight rate is.
When from the us you know, we have a lot more influence there. We export to the us there're a significant factor in our economy. And so bond pricing goes up or goes down, which means a yield goes up. So that's kind of where we're at. . So still ten two still inverted a little bit. So basically still very much inverted still.
Yeah, and I think that's, yeah, that's gonna be interesting to see what happens this year, right as the year progresses. Because at some point we should start to see when both countries start to get inflation and control, we should start to see that inversion correct itself a little bit and hopefully go a little bit straighter and eventually to that nice linear positive.
That means we're in a healthy economy. . But it is a question too, you know, there's not just inflation we need to think about, but what does GDP look like? Yeah. And, and that's the other big one, right, is you know, this looming recession because both countries are over their neutral rates. We both know that, you know, these rates are hurting the economy in both countries.
And so what does GDP look like for, for Canada as well? Well, so it's funny cause we were talking about this earlier. Yeah. All real estate agents, mortgage brokers, has to be an economist now. Yeah. We gotta be smart. Well, this year at least, you know, if, if if never before in 2022 and 2023, it's a must cause our clients are depending on us to give the right story Yeah.
And make the right big financial decisions based on this stuff. Right. So these are, yeah, I mean the, the, the, the property is gonna be the, you know, our client's biggest purchase of their lives and their mortgage is gonna be their biggest liability of their lives. So you're talking about the two biggest pieces on their, on their personal balance.
If we don't understand the economy, you know who else is gonna advise them really? Right. Here's one thing, maybe you have answer to this, maybe you don't. I don't know. I could never find this. If we're trying to get to a target inflation rate of 2% mm-hmm. and Benjamin tells says, we're not changing that cuz it's just the, there's no point getting the idea of we're not changing that target.
It's gonna be a 2%. That's what the Bank of Canada says. Right. We don't know, but that's what they say far. Right. Yeah. If we're importing plus or minus 2% of people into the economy every year. Mm-hmm. , how is that gonna get to two. You know what I mean? Like cuz those people coming, the 500,000 people are even up to a million people, including refugees and all that stuff, right?
They're gonna consume things, they're gonna take transit, they're gonna buy houses or rent houses maybe, or whatever. Right? So, , they're gonna contribute to the economy. But I think that's where we're seeing that's more of the volume piece, right? And the gdp. Mm-hmm. . And so that's where we're seeing, because the, the inflation is not just a story of how much we're consuming, but it's how much do we have in terms of supply.
Right, right, right. I think that's a, you know, what you mentioned, we kind of, we did touch on this earlier, is a huge point when we talk about GDP and, you know, if Canada doesn't go negative gdp, does that mean we're in a recession? Or we're not in a recession? Because if we're adding 400,000 people, then.
our GDP per capita. If we're flat on gdp, then our GDP per capita is negative. I think it's going down right, isn't it? Right? Yeah, it is. Yeah. So we're, we're, some would say, you know, and I heard I'm taking someone else's words here because I heard it from an mnp, special economist, but you know, they would say we're already kind of in a recession from that perspective if we look at GDP per capita.
So yeah, I think, and that's where we need to look at that piece as well. It's not just what is that gonna do to price, because if we have enough supply, , you know, even if demand goes up, doesn't mean price needs to change, right? Yeah. Again, it's, yeah, either supply push or demand pull, right? So, yeah, inflation.
At the end of the day, I don't know what's , A lot of people are saying that the rates are gonna stay flat for the rest of the year. Where do you think they're gonna go? Some people are saying that the overnight rate, which affects the variable rate and the prime rate that everyone has, you know, kind of seen jump.
I, I think we'll see it. I think, I hope that we'll see it flat. You know, they're not going to. they're not gonna drop it early, is what they're telling everyone. And, and, and that is predicated based on something that happened in the seventies. So in the seventies we saw a lot of inflation and they raised the rates and then inflation dropped and they dropped the rates, and then inflation came back and it bounced back and it bounced back worse.
And they raised the rates and inflation came down. That's right. And then it actually did it a third time. And that third. That was when we saw that huge recession in the seventies. And so both the US and Canadian banks are both very scared of that happening again. So that's why you hear the Bank of Canada saying, we're not gonna drop rates even if we get back to target inflation mid-year, we're gonna hold until later in the year.
So I don't think we're gonna see a drop. I hope that we don't see it go further up and I hope we stay on course. But that, yeah, I think it's still rain the scene and, and we need to be kind of flexible in, in how we approach all this because. , what we think today could easily change tomorrow, unfortunately, with all the volatility out there.
Mm-hmm. now mm-hmm. . Mm-hmm. , you know, it's dangerous when we're at these peaks because it's hard for anyone to say it is a true peak or if it's sort of a, a false dip. Right. But ultimately, you shouldn't be treating the real estate market like a stock market anyway. Right. So people should be buying a long run.
Yeah, that's a good point. Right. And if we look at pricing, we saw pricing come down and I think it. It's fairly flat, you know, in the core city, I mean in different areas. Real estate difference. You mean real estate prices? Yeah. We've seen that kind of flatten out a little bit in the past little while, which is good, means a bit of stability, but that's more lack of inventory than anything.
Yeah, of course, too. But yeah, I think the key is if you're getting in, I mean, if, first of all, if you're buying and selling, this is a fantastic time because the, the difference between the two is less. If you have the same monthly payment and a higher interest rate, that means your mortgage is smaller.
So if you can get away with that, which you can right now versus you know, this time last year, then it's a fantastic time to buy and sell. Don't forget about portability too, right? Mortgage and you can port your mortgage. Yeah. So you have a lower rate from before. You can always move it over a hundred percent, right?
If you've got a fixed rate that's 3% or something that you renewed, you're taking that with. and so you're only paying the higher rate on the top up. So that, I mean, that makes it even more compelling. For new purchases. I think what I tell usually say to buyers is say, stop trying to time it where you're at the bottom.
I said, look at that linear curve that we follow for the past 30 years in Toronto. And if b prices are below that linear curve on the, on the price increases, that's a good time to. , right? If prices are high, you might still wanna buy for other reasons, but if it's below which it is right now, then I think it's a good time to buy.
Like, I think if it makes sense and your budget works for you, then you should do it. Right. And these are people on the fence, right? There's also other people that absolutely need to sell or buy, right? Depending on their situation. Yeah. You know, depending what they're going through. So, you know, expanding families, shrinking families, whatever it is, right?
Yep. Death, divorce, that kind of stuff. So I guess ultimately if you need to make a decision, you need to make a move. You just gotta really look. Situation. Yeah. And I think, I think the key is, is knowing that there's a lot of volatility is, is keep yourself, you know, somewhat nimble, right? So look at how long we see volatility for.
So that's why a lot of people are looking at two year and three year fix right now. It's not gonna put you in a position where you're kicking yourself in three years because rates have come down and you're stuck with a 5% that you know you feel is high. Which by the way, historically is not that high.
Mm-hmm. , it's just high relative to where we've been in the past two years. Yeah. It's a shock to the economy, right? You're used to paying whatever amount and then all of a sudden doubles. That's, I mean, that's huge. Yeah. I remember my first place I got 4 99 and I was ecstatic like it was, you know, it was great.
So so I think. . It is all relative. I think, you know, it, it does feel high certainly versus the 1 69 s that were out there, but when you look at how much people were having to pay on those 1 69 s it was tough. You know? It was tough for them too. So, and they're kind of stuck where some of them are in a position where it's like, wow, I'm glad I don't need to sell right now because I overpaid for my house.
Right. So, you know, you kind of. You gotta take with both sides and look at the whole picture, I think. What are you seeing in terms of originations? Are you seeing more, are you seeing volume business go up, down, flat. Flat, I would say versus the fall. We're certainly seeing it up now, which is good. Seeing a more activity now.
I think we're seeing a lot more interested buyers now, which is good. A lot of people renewing their prs, you know, we've kind of reached out to everyone and said, Hey, we've seen a bit of a dip since the. What are, you know, are you still thinking in their lag? Absolutely, yes. I'm just, you know, looking for the right place and I want to make sure that it is the right place for me, which I think is smart.
But I expect we're gonna see, definitely, we'll see a, you know, I think a stronger start to the year than we saw a finish to last year. I don't think any of us wanted to go back to the levels. It was at the early 2022. I think it was too hard on buyers. Mm-hmm. . . So I think, you know, we want some reasonable and, and rational decision making by buyers.
It's, it's really the right call, right? I'm not treating housing as a, I guess a speculation. This is the place you live, right? That's right, yeah. And it's a long term thing, right? That you know, you, it is gonna go up in value over the long term and it will continue to go up. We are inherently supply constrained in this city, and we will continue to be that way.
That's right. So there's no reason to feel that you need to make, you know, some huge gain in your first. , what do you do with people that are struggling to meet the payments that maybe they bought in the past few months or past year and now they're realizing that they can't afford anymore? So what some strateg point you're doing that's a banks are starting to become open to the idea of some temporary relief as well.
Yeah, you really have to kind of work through options. If someone, if it's someone that maybe they're doing a renewal and where they had a lower rate, you know, there's a little bit more that we can do in terms of we can extend amortization. Oh yeah. Yeah. We can play with things like that to try and make things, you know, work from a cash flow model for them.
If it's someone that's done something recent, like let's say they're at a variable rate and they're feeling a bit stuck, you know, don't the stress is gonna get to you. Don't, don't let it get to you without talking to professionals about it. So talk to your broker, talk to your bank, whoever is the right person, and see what can be done.
Because sometimes, you know, the banks will say, Hey, we'll go interest only for six. or you know, we'll do some things like this for you because they don't want to do any foreclosures or power sales. Like they're on the business though. Yeah. Yeah. That's, that's not their business. If you're a good client, they want to keep you and they understand that this is a tough time for everyone.
I read somewhere where, you know, the, the mortgages are based on, they lend based on your income ability. Yep. But they security against the house. Mm-hmm. , some people think the other way around. Right. Like, that's just a different way of thinking of it. Cuz some people think that, oh, my house is worth this. I paid this much for it and it's worth this.
And I have this much equity in it, I should get the mortgage. It doesn't work that way. Yeah, no, it's equity based. Lending's gone, right? That's right, that's right. Unless you own privates or something. Right. You can do equity based lending, but it's expensive. Yeah. It's, it's a, it's, it's more, I mean, if, you know, reverse mortgages are a bit of a D story, but and you can do some equity lending there, but yeah.
When you talk about it is not your, your father's world when it comes to comes to mortgages these days, it is all income based. They wanna look at, and this is driven right from osfi, right from the. , they wanna see that you have, you have monthly income that can cover your expenses, and that is the primary gauge.
Now, they will give some exceptions based on if you've got money in the bank and you know, as collateral, like mm-hmm. not so much as registered collateral, but show that you demonstrate that you've got some other alternatives here. Or if you're self-employed as well. You know, there's, there's some, they know there's additional write offs and things and that's fine, but yeah, they wanna make sure that, that you can handle it.
And everyone in Covid, even if they were getting two. They were getting measured at 5.25% stress test. Yeah. And whether they, and, you know, whether they could hit it. So that is a huge saving grace that I think a lot of us in 2018 maybe said, oh, I don't know this, this is a bad thing. And, you know, I think everyone now would say that was a good, good move.
Right. I, I think it was a smart call to, to have some sort of stress test in there for people because it's probably good what's gonna save a lot of people from going into. . So speaking of Opsi, not everybody's regulated through opsi, right. As you know. So some private, some, some other lenders as well too.
Yep. And there's a lot of news about them trying to make changes to, you know, to well keep our Yeah. It's crazy that there's a couple things. There's a lot of rule changes now and you know what, I think I understand the intention and I think actually I spoke to, to, to someone else on this. I, I totally get the intention of.
I guess I'm looking at some of the measures they're talking about in terms of qualification and and stuff like that. And I wonder, is it maybe a little bit too late for that where we're already in this risky situation and we need to look at how do we, how do we mitigate risk that already exists rather than how do we prevent new risks from occurring?
yeah, that's a good point. And so I wonder if those are the right approaches because they're not the ones for dealing policy, right? I mean, it should be the federal government at the end of the day, not, not the banking regulator. Yeah. Yeah. And, and so, and cross, you know, they're doing things like, you know, mandating changing ratios and limiting special programs is sort of on the table from them.
They've also just recently, I mean, you'll, if, if anyone's out there shopping for mortgages, you're gonna see a huge disparity between the banks right now, because in January they came out with a change in, in leg in regulations for the banks of their deposit to credit ratios. And so what they've done is they've said, we want you to hold more of your deposits in reserve for for your mortgage p.
Or for your liabilities portfolio, I guess, which mortgages is a large piece of that. And so a couple of the banks have just done recent acquisitions globally and, and their ratios are off where they need to be. So Scotia, for example, unfortunately right now is in this temporary holding pattern. So if you're renewing at Scotia, you're gonna see a very different rate than if you were renewing at TD or RBC or Bank of Montreal and things.
And so we've seen a bigger rate disparity this year than we've ever. Sorry, sorry, I don't get that. So that affects their rates, not their, well, because holdings, because their portfolio is too large relative to their deposits, they need to somehow shrink their portfolios. Right. And so the best way to shrink your portfolios is to be un competitive on your rates.
Right. So that people just self-select themselves out of the company. Right, right. The bank, sorry, I should say. Yeah. And so yeah, it's, it's, that's interesting. That's a different perspective and it's really kind of, Created a, a situation where you've got this disparity between the banks that, you know, we might see like a 0.1% difference between them or 0.2 or something, you know, a little bit when one's hung than the others, but, but nothing like this, like 1% differences and stuff at times.
It's, it's big. Right, right, right. They're trying to shrink their books, but yeah, I thought the other way around, I didn't even think about the, the total portfolio. I thought that, you know, cuz mortgage originations are starting to be slower. That they would try to compete with others, try to get that small amount of pie available, but it kinda makes sense.
Wanna reduce something. I, there's a couple banks out there that are, are really hungry and so they're like, Hey, we'll trim our margins to get more in. Right, right, right. And because we know these other guys are in a, in a bad spot. And I mean, we saw, we saw increases at, at Scotia across the board, both branch and broker channel in December that were, you know, like their one year went up.
60 basis points or something like that. Overnight with no, no change in bond yields nothing, and with no explanation. And that was just, that's a result of, of what's happening there with, with what Osby is, is making changes on. Great. Well, it just goes to show that there's so many different avenues that you can pick.
Yeah. In terms of the lending side. Right. You can so many different avenues. Well, and I think I'm, I am, I think that's the other thing that I'm seeing this year is on renewals we're seeing. people reaching out more than ever. A lot of people are just typically satisfied with their, with taking whatever the bank's offering.
Cause it's, you know, they're like kinda like three or 3.1. But people are shopping now and they should because, and, and I'm very honest with people, I don't want people to do, I don't wanna make work projects for anyone. So, and most of us don't, right? So we say like, Hey, you're getting a good rate. Keep it, run with it.
That's the best you're gonna get right now. , A lot of times there's better options out there for people. So, and we're doing things like you, you should be hedging, you know, you should say, Hey, yeah, I want that rate, but I'm not renewing to the last minute with you. Mm-hmm. . And if you don't like that, I'm gonna go talk to someone else because that, they should offer that to you.
Mm-hmm. , and that's your right. Right. You've got your current rate. You don't want to renew early because if you take a deal with your existing bank, you don't want them to to, to set it in right away. can you talk about the life insurance part of it that you were mentioning about the, the online financial that you guys have?
Yeah, so we do it's just sort of a compliment that works well, I think. So we do have a personal insurance arm. I don't do it myself, but we do have we do have a team of, of insurance agents that work on that and it kind of spurred from, you know, there's always been this mortgage default option insurance that we need to offer to clients.
And sometimes it's a good idea and sometimes it's not. And we said, well, you know, when we had some people with insurance backgrounds on the team and they said, well, hey, let's talk to clients about, hey, like, these are the other options too. And, and a lot of times when people are buying homes, that's the time they start thinking about life insurance because they're like, Hey, what happens?
I'm buying a home with my partner. What happens if I pass? Like they have to give up the house. And so you do want some protection. , maybe mortgage default insurance is the right, or mortgage insurance is the right option. Maybe it's not. So where you lose your job and things like that. Right. Yeah. Or disability.
Exactly. Right. Like is is another one there or so, but it's, yeah, all these things that can happen kind of giving you a little bit of extra protection in there and, and sort of, it's, it's working well that way too. And it's giving us, you know, some unique partnerships as well on the mortgage side, I'll say.
So. So you're using whole life insurance as well to. A portfolio for qualification or something. I, I don't know if I caught that right in the beginning part as well too. Yeah. So before this call, so if we have a client that is a life insurance client, then we have some other avenues that we can work with as well on the mortgage side.
So that might not be, you know, traditional brokers might not have, so it's sort of giving us an extended lender portfolio as well that way. That's awesome. I just learned about whole life insurance a couple years back and finally got a couple policies, so it's been, it's been awesome. Yeah, and I think that's another one, right?
Is. Knowing, like, you know, mortgage insurance is typically this term policy, which is okay, but it, you know, you don't, and having some term policies are good, but whole life is another whole piece that, you know, people should understand that this is essentially an investment and it's a tax-free estate planning method too.
It's an asset. Yeah. Especially for people with corporations. Yeah. Yeah. It's a good way to to contribute there and, and to, you know, have some tax benefits on that for the future as well. Right, right. Yeah. I need to get somebody on here that can. Tenant insurance? No. Tenant insurance. Tenant insurance.
Tenant default insurance. Okay. You know, that's, that's a different product that not very many lenders are. I mean, insurance providers. I think I probably know a couple people. I know there's a couple of 'em out there, but it'd just be different to see how, you know, anyway, it's, see the industry mature a little bit more because a lot of defaults going on with the rising economy and stuff like that.
Rising cost of the living really. Right. Yeah. So a lot of tenants are, I find anyway, are starting a default on their, on their rent and not pay for the rent really? Yeah. Yeah. This kind of sucks. There's a lot of cases out there anyway. Yeah. But no, I appreciate the intellectual conversation. That's really amazing that you do this educational stuff Yeah.
As well too. It's you seem to know a lot about the economy and yeah. Well, you know, I think, like, like we talked about at the start, I think we have to, right now, we want to be responsible for and help our clients. It's, it's important. Right. So with that, how do people find you? How do they reach out to.
Yeah, you can get me you can go to our website out [www.outline.ca](http://www.outline.ca/). You can reach out to me personally, [andrew@outline.ca](mailto:andrew@outline.ca). Yeah, those are the best two ways. All right, good talking to you and thanks for joining me. Thanks Ken.
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