Guelph realty industry expects mortgage rule changes will have little local market impact

January 18, 2011

ROB O’FLANAGAN, MERCURY STAFF
GUELPH — Federal Finance Minister Jim Flaherty’s changes to mortgage rules likely won’t have a major influence on the way people buy homes in Guelph, a local real estate insider said Tuesday.
But one of Flaherty’s new measures could force some home owners into bankruptcy, Jennifer Lovsin, president of the Guelph and District Association of Realtors, said.
With mounting worries about the skyrocketing level of consumer debt in this country, Flaherty moved this week to rein in certain mortgage schemes considered risky. Some, like realtor Lyle McNair, said the changes were made to ease the Bank of Canada’s anxiety over excessive household debt in the country.
As of March 18, the maximum amortization period for a government-backed, insured mortgage will drop from 35 to 30 years. It had been as high as 40 years just over two years ago, but it was lowered to 35 years in 2008.
The government will also reduce the maximum amount Canadians can borrow in refinancing their mortgages, down to 85 per cent of the value of their homes from 90 per cent. It stood at 95 per cent last year. As of April 18, the government will pull guarantees on home equity lines of credit.
Lovsin said the reduction in the amortization period won’t have an impact on the local housing market, since a potential buyer must qualify for a 25-year term in order to get a mortgage. A 30- or 35-year mortgage is usually done only when the buyer wants the convenience of lower monthly mortgage payments, she said.
“There is not going to be much impact from that, but for the reduction of the use of equity from 90 to 85 per cent, that will have an effect,” she said. “Some of these people who don’t have the kind of money they need to put a new furnace in or who need to put a new roof on their home, they will take it out of their home equity. But if that is not available to them, they are out of luck. They’ll have to wait until their equity is paid down.”
Homeowners often borrow heavily on their homes when they have things such as large credit card debts or want to fold their car payments into their mortgage or buy a second home or a cottage, she explained.
“I think this change is going to have a lot of impact on the people who really are living month to month, or week to week,” Lovsin said. “If they can’t borrow against the house up to the maximum that is allowed, then they are really stuck. It is going to increase bankruptcies and foreclosures, if people can’t afford to maintain their homes.”
McNair is a realtor with Royal Lepage Royal City Realty. He said he agrees Flaherty’s changes to amortization periods likely won’t have a marked impact on the local housing market.
The finance minister’s measures, he said, address mounting concerns by Mark Carney, governor of the Bank of Canada, over household debt in the country.
“I think this has been a pretty responsible response by the finance minister to keep Mr. Carney at bay without doing anything too destructive as far as the housing market is concerned,” McNair said. “The one thing they did not change is the amount of minimum down payment you had to have to buy a house. It stays at five per cent.”
McNair said it is possible the government could move to change down-payment amounts. The changes to the home refinancing rules, he added, have been put in place to discourage homeowners from dipping into the equity they’ve got in their house in order to spend money on things like new cars or home entertainment systems – purchases that contribute to household debt.
roflanagan@guelphmercury.com

Lenders start to loosen purse strings

GRANT ROBERTSON — BANKING REPORTER

From Wednesday's Globe and Mail

Published Wednesday, Jan. 12, 2011 9:34AM EST

Last updated Wednesday, Jan. 12, 2011 4:43PM EST

Amid the worst of the economic downturn two years ago, small businesses looking for a loan faced an uphill climb.

The mood surrounding credit access for small companies is beginning to shift in Canada, according to the Bank of Canada’s survey of senior loan officers at major financial institutions, released this week. It suggests lenders are loosening their purse strings as they try to bolster their loan portfolios ahead of a recovery.

But the “heightened competition among lenders,” that the central bank flagged this week remains weighted toward more-established companies, or those with bigger operations. The competition is indeed heating up, but for the banking business of borrowers who have strong cash flow and a credit history.

“The market has gotten a lot more competitive in the last six months,” said Alec Morley, senior vice-president of small business banking at Toronto-Dominion Bank, which continued to lend during the downturn. “In some cases it’s getting a bit crazy from a banker’s perspective.”

The Business Development Bank of Canada also notes a more optimistic tone. “We see it with some of our clients [who have] other options for financing,” said Jérôme Nycz, senior vice-president of strategy and corporate development at the BDC.

However, for most small businesses, especially startups or entrepreneurs who are looking for seed funding, the change in mood has not meant a return to the days of more bullish lending. Instead, many have had to find new, more creative, financing options.

When clothing designer Wes Misener needed a few thousand dollars to get his boutique clothing line off the ground in 2009, the banks he spoke to were reluctant to extend a loan. For Mr. Misener, who had no borrowing history as a company and no deals with retailers, it was a near-impossible sell.

These days, even though his business has picked up, the picture is similar. Mr. Misener may one day be able to return to a traditional bank in search of financing, but until then he has found other sources.

To get the funding needed to launch his line of men’s T-shirts and underwear, the designer started by taking on debt himself, then applied for a $3,800 loan from the Access Community Capital Fund, a non-profit micro-finance organization in Toronto.

The fund operates a pool of money gathered from investors in the community, who receive a return on their investment. Based on a similar concept introduced in Ottawa, the fund provides loans of up to $5,000 to small businesses at competitive rates.

Most banks are reluctant to take on risks, and lenders prefer financing that is backed by assets. Access took a chance that Mr. Misener was good for the money, though his balance sheet couldn’t prove as much.

“We really took a fine-tooth comb through his business plan,” said Alex Kjorven, development manager for the Access fund. “But with microfinance you’re really looking someone in the eye and saying, ‘Is this somebody that has the commitment to pay back the loan?’”

Although an Access loan got his business off the ground, it may not be enough to fuel Mr. Misener’s next expansion, since sales more than doubled last year after he landed a deal with a Toronto boutique retailer. His next stop will likely be the Business Development Bank of Canada.

“To this point, I’ve had to kind of scratch and claw to get anywhere as far as financing goes,” Mr. Misener said.

Securing financing has become easier for Ken Leblanc, one of the founders of Property Guys, now that his business is bigger and more established. When his company, which helps people sell their homes without a real estate agent, started in 1998, it was routinely turned away by banks.

It now has 108 branches across the country. Mr. LeBlanc has seen a shift in the attitude of bankers, who seem more willing to lend to companies with fewer assets if they bring other benefits to the table. Even though Property Guys is a service firm with limited assets to put up as collateral, financing is easier to come by now.

“In the past they wanted to see assets, but they’ve taken things like intellectual property into consideration, and the value of the business,” Mr. Leblanc said.

Meanwhile, banks are also seeing more competition from credit unions, including those interested in picking up businesses that have been turned away for financing by banks.

Lindsay Finneran Gingras, a spokeswoman for Meridian Credit Union in Ontario, said credit unions have seen opportunity in the downturn. “Individuals came to us having grown frustrated with the hoops they had to jump through with the banks,” she said. “Because of the strict regulations, there was no flexibility.”

Peering into the 2011 housing picture

By Bob Ransford, Special to the Sun December 31, 2010
At this time of the year, I am always tempted to try to make a prediction about how the year ahead might unfold in terms of real estate markets and housing prices. The “price” question is always a topic of public conversation in our part of the world, regardless of whether we are cursing untouchable prices during boom periods or commiserating about the dwindling value of our precious investment in our homes during market slumps.
But I’ve avoided the temptation to make a prediction in years past and will do so again this year because I am conscious of the reality that housing prices are all about supply and demand. I simply don’t track market statistics close enough to reliably analyze supply and demand.
I am also reminded that it has usually been forces external to our market that have tipped the supply-demand balance noticeably in one direction or another. Those tips have been small ones, either spiking the long, steady upward trend line in prices for a number of months or twisting the line down for a few months before it recovers again.
What I am trying to say, without actually making a prediction, is that I don’t see ahead any huge and long-lasting departure from the trend of rising residential real estate prices in Metro Vancouver. We’re either currently at the end of a small recovery surge, in which the trend line will level out somewhat for a short period, or we may be at the beginning of a new steady upward climb, likely one slower and more normal than we experienced during the most past real estate booms.
In short, people from around the world continue to want to settle in Metro Vancouver, and many of them consider our housing prices still relatively very affordable. Meanwhile, the largest cohort of the population already living here continues to age and those within it are reaching a point in their lives where new and more appropriate forms of housing are on their list, or will soon be. As economic cycles continue to change, we will once again see even more promising job growth, also creating further demand for housing among first-time buyers.
Finally, we have a limited supply of land that can be developed and a population still blind to the reality that we will need to welcome greater density in our suburbs, as well as our inner cities, if we want to preserve our quality of life.
This all points to my belief, rather than my prediction, that investment in residential real estate today in Metro Vancouver is a pretty solid investment that will pay off over the long term.
Now, I want to move on to make a few other predictions about what we might see in the year ahead with real estate, development and urbanism in Metro Vancouver in the year ahead. I am going to give you my quick list of predictions, together with my personal wishes and hopes related to them. A year from now, we can review all of this and you can then determine whether I was hoping and dreaming or seeing some signs and trends.
First, the relaunch of the sale of condominiums homes in the Olympic Village will see buyers jump at some real bargains, and this sales campaign will make an impressive dent in the inventory that remains with this beleaguered, but important, inner-city urban renewal project. I hope this first round of price adjustments won’t lead to political pressure for a full-on fire sale. Patience will bring better prices — perhaps prices not high enough for the city to recoup its significant investment, but prices that should at least compensate for current holding costs.
My second prediction is that over the next year, you will hear Vancouver city councillors talk about a new process of engaging citizens in discussions about change in their neighbourhoods. They will talk about empowering citizens in an effort to try to move beyond the rancour and distrust that has erupted over the last four or five years, every time the planning department has tried to plan for change or review a new development application.
This coming year is a civic election year, so most of what you will hear around this will only be talk, rather than action. The last thing politicians want to do is incite even more rancour and distrust by implementing a change in process, even though they know this change is long overdue.
My hope is that we move quickly from the talk stage to the action stage and totally revamp the way the city does its planning. As I have said in previous columns, we need a city-wide master plan for Vancouver, and it needs to be one that is drafted in collaboration with citizens. It also needs to be a plan that is graphic and detailed enough for people to see what change looks like in their neighbourhoods. It has to be a realistic plan that recognizes forces of change beyond anyone’s control and it has to be one that has both enough certainty and regulatory power that citizens working with city hall can begin to manage change, especially in Vancouver’s first ring suburbs.
My last prediction relates to how Metro Vancouver will try to manage change in the region. Metro Vancouver’s regional growth strategy will get adopted this year. The product of at least half a decade of circular talk, horse trading and less than creative or ambitious planning will end up getting adopted simply because everyone is exhausted talking. The local politicians who make up Metro’s board can’t seem to see beyond their local boundaries and visualize the region as a whole.
At the same time, those same local politicians who gather as regional “leaders” will continue to try to unload the responsibility for funding regional transit to the province, not accepting that sound metropolitan planning requires land-use and transportation planning to be inseparably tied together and, yes, planning and funding do go together.
My hope is that a new provincial government will perhaps see long-term housing affordability and regional sustainability threatened by the adoption of this cop-out regional plan and by the stalemate over transit funding. I hope they will act on what was supposed to be the second phase of the Community Charter reform of seven years ago and create a new model of regional governance that is effective and accountable.
The urban agenda remains an important one as 2011 dawns. There is no better urban place in the world to debate that agenda than here in Metro Vancouver where our urbanism is the envy of many.
My final prediction is that Metro Vancouver will remain one of the best urban places on the earth to live.
Happy New Year!