December 8, 2017
Laurentian Mortgage Scandal, B-20 Warnings, and TREB Loses Data Sharing Appeal: Weekly Real Estate News Recap
Laurentian Under Fire for Misrepresented Mortgages
Laurentian Bank is under intense scrutiny after an audit of its sold mortgage portfolios revealed some of the loans weren’t credible having been either “misflagged” or containing “documentation issues”.
The revelation drew immediate comparisons to the scandal plaguing alternative mortgage company Home Capital; several of its brokers were caught fudging mortgage qualification paperwork and the lender was subsequently fined by the Ontario Securities Commission.
Like Home Capital, Laurentian’s stock plummeted on the news, however CEO François Desjardins insists that’s where the similarities end; Laurentian’s inaccuracies can be chalked up to error, he says, rather than intentional misrepresentation. The affected mortgages also make up less than half a per cent of the bank’s portfolio, he told Business News Network.
He also puts the blame on clients who misrepresent themselves on their mortgage applications. “As time has gone by, yes, there is a percentage of people who embellish what they put on their application forms, and it’s the job of the financial institution to weed that out,” he told BNN. “It’s why most of the financial institutions take less and less credence of what’s on the application form and more and more from other means like the credit bureau or other sources.”
As a result, Laurentian is poised to buy back $89-million-worth of affected mortgages, which account for 4.9 per cent of what was sold to the third party. Because the audit is not yet complete, that amount could balloon to $304 million, however Desjardins downplayed it as not having a “material effect”.
While he says the “buck stops” with him, Desjardins scolded mortgage customers, imploring them to be honest on their applications. “I would urge everyone that’s applying for a loan to do the right thing and be disciplined in terms of what they’re writing and what they’re disclosing. It’s better for all of us,” he said.
November Sales Strong as Toronto Buyers Rush Ahead of Mortgage Rules
Pending B-20 mortgage rules, taking effect in January, are sparking a frenzy of short-term activity in the Greater Toronto Area housing market, as buyers fast track their deals to avoid being stress tested.
The Toronto Real Estate Board reports sales were 3.59 per cent higher than in October with 7,374 homes sold. Inventory also shrank by 3.7 per cent, squeezing the market into unseasonable seller-friendly conditions.
“We have seen an uptick in demand for ownership housing in the GTA this fall, over and above the regular seasonal trend. Similar to the Greater Vancouver experience, the impact of the Ontario Fair Housing Plan and particularly the foreign buyer tax may be starting to wane,” says TREB President Tim Syrianos. “On top of this, it is also possible that the upcoming changes to mortgage lending guidelines, which come into effect in January, have prompted some households to speed up their home buying decision.”
However, sales are still 13.3 per cent lower than 2016’s record-breaking conditions, and that slower activity is starting to impact prices, which fell 2 per cent year over year to an average of $761,757.
TREB Loses Appeal to Keep Sold Data Private
There’s been a new development in the fight to release historical real estate data: the Federal Court of Appeals has officially rejected an attempt by the Toronto Real Estate Board to withhold information about past home sales.
The Court ruled against the real estate board’s appeal on December 1, saying TREB’s copyright and privacy protection claims didn’t hold up. At the heart of the issue is whether members of TREB – real estate agents, brokerages, and virtual office websites (VOWs) – should be allowed to share info from its database widely with the public, for example, by publishing it online or emailing it to a subscriber base. Currently, such info can only be divulged directly between an agent and their clients.
“… the Tribunal found TREB’s concern with privacy to be unpersuasive. We will turn to this issue in greater detail later in these reasons; suffice to say at this point that, looking at the record before it, the Tribunal found little evidence that TREB’s VOW committee had considered or acted upon privacy concerns before establishing TREB’s VOW Policy,” reads the appeal statement.
TREB first lost its case in the Competition Tribunal in 2016 after the Competition Bureau said its refusal to share its data was anti-competitive and harmful to online real estate businesses. While it intends to appeal once more to the Supreme Court of Canada, this latest move is a win for market transparency and consumer empowerment, says Lauren Haw, Zoocasa’s Broker of Record.
“The ability to share and display market data (such as past-sold prices) with consumers is a positive development for the real estate industry,” she says. “We strongly believe in a model where consumers are educated and able to work with experienced agents that act in an advisor capacity – not as gatekeepers of information.”
Bank of Canada Holds December Interest Rate
The Bank of Canada (BoC) opted to keep its Overnight Lending Rate – which is used to set the price of variable mortgages and line of credit loans – at 1 per cent in December, saying caution is needed as it transitions the economy to “normalized” conditions.
However, while there’s no change to borrowing costs in the short term, the BoC strongly alluded there are several rate hikes to come in 2018.
“While higher interest rates will likely be required over time, Governing Council will continue to be cautious, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation,” the Bank stated.
While it’s not yet clear how many hikes will occur, some analysts are forecasting two to three, with the rate rising to 1.50 per cent by the end of next year.
Vancouver Prices Spike 14% in November
Demand for Vancouver real estate has been on a tear over the last quarter, with sales surging 26 per cent year over year, and prices following suit at an average of $1,046,900 across all home types.
“We’re seeing steady demand in today’s market,” says Jill Oudil, President of the Real Estate Board of Greater Vancouver. “Home buyer activity is operating above our long-term averages, particularly in our townhome and condominium markets.”
Condo sales led the market by a wide margin, accounting for 1,508 of the total 2,795 homes that changed hands, at an average price of $648,200. There were 841 detached homes sold, at an average price of $1,608,000, and 446 townhomes, at $805,200.
There was also a flood of new listings compared to last year’s levels, with 4,109 properties (an increase of 30.6 per cent) coming to market – but that wasn’t enough to ease incredibly tight buyer conditions, says Oudil. “While we’re seeing more listings enter the market today than we saw at this time last year, we have a long way to go before our home listing inventory is back to more historically typical levels,” she says.
The sales-to-active listings ratio rose to 32 per cent in November, well above the 20 per cent threshold that puts upward pressure on prices, and an increase of 3 per cent since September, illustrating just how quickly sales have picked up speed. (A ratio below 12 per cent puts downward pressure on prices).
By home type, detached homes had a ratio of 15.9 per cent, while demand for multi-family housing pushed the ratio for townhomes to 36.4 per cent and a whopping 67. 8 per cent for condos.
Mortgage Report Says B-20 Will Hurt to an “Unnecessary Degree”
Reaction from the real estate industry to the aforementioned B-20 mortgage rules have been mixed – but the latest report from a mortgage professionals association paints a negative picture.
Mortgage Professionals Canada’s Annual State of the Residential Mortgage Market in Canada report states the new stress test’s “excessive stringency” will block 6 – 7.5 per cent of prospective home buyers from affording their home purchases by “an unnecessary degree”, and will drag down the national rate of homeownership, which has fallen from 69 per cent in 2011 to 67.8 per cent in 2017.
Will Dunning, MPC’s chief economist and author of the report, says middle-class millennial and first-time buyers will be the hardest hit, with the homeownership rate for this group falling by 4 per cent.
“The homeownership rate in Canada has fallen as young, middle-class Canadians have found it increasingly difficult to make first-time purchase,” he says. “With recent further tightening of mortgage rules, ownership challenges have been intensified.”
The report forecasts that by the time the next federal election rolls around, over 200,000 home buyers will have flunked the stress test “even though they can afford to borrow the amount they need.”
Dunning says the new rules will also drag on the economy, reducing the amount of mortgage borrowing and overly cooling the housing market.
“The market is already slowing under the weight of increased interest rates, and policies aimed at suppressing the market further might be adding to economic risks,” he says, adding he forecasts mortgage growth to slow to 5.9 per cent this year and 5.5 per cent next, from the 12-year average of 7.3 per cent annually.