He says slight rate increases "not the end of the world"
It’s the big question in the Canadian mortgage industry these days: how long can current housing market activity last?
At present, the frenetic pace of last year shows little sign of abating, with Canadian Real Estate Association (CREA) figures recording a 39.2% year over year surge in home sales activity in February. Still, that robust performance has also been accompanied by warnings of “overheating” from RBC, with a potential price collapse in the offing.
Joe Taibi (pictured), president and principal broker at MorCan Financial, told Mortgage Broker News that a range of factors are likely to affect the outlook for Canada’s mortgage industry as the year rolls on. Still, he said that likely interest rate increases aren’t necessarily anything to get too worked up about – as long as they remain relatively modest.
“There’s always that adjustment period [when rates creep up],” he said. “Even if they increased by a small amount – say 25 basis points – there’s always that shock and awe at the beginning, and then [people] really realize how little of an impact a quarter of a percent really has in the overall picture.
“Of course there’s that sticker shock at first, but a quarter of a percent – it’s a little bit of an increase, but it’s not the end of the world.”
Taibi said that the government might consider offsetting the potential risk of a housing bubble by rethinking its approach to amortization. “I think consumers should get the benefit of the low rates if they’re available, but we’ve always been on a 25-year am. Maybe we should be going back to a 20-year am.
“It benefits everybody: the consumers could pay off their homes faster, they’re getting the benefit of the low rate, and maybe it will lower the amount they qualify for. It might help slow the housing market down.”
That said, Taibi warned that such an approach would be by no means straightforward. “It would take the government to pass a ruling like they did before with the stress test,” he said. “The problem is that the government is only going to be able to enforce that with institutions – they’re not going to be able to enforce it with private lenders, so I don’t know how far that will get them.”
Of course, another significant factor dictating the post-COVID outlook for the mortgage industry will be whether the remote-working revolution continues even as the pandemic eases. Taibi said that office activity is unlikely to return to pre-pandemic levels, with the reality lying somewhere in the middle.
“It’s probably going to be something in between,” he said. “I’m sure businesses are realizing that certain employees don’t need to come back; other companies are going to see that it’s been challenging, and they need employees to come back to the office and [have] more direct contact.
“I don’t think we’re going to be at the scale we were pre-pandemic, but definitely higher than we are now, in terms of people going back to the office.”
Taibi also said that one of the key unknowns about Canada’s present housing market surge concerns immigration, and the possibility that immigrants who arrived in the country before the pandemic are making up a sizeable percentage of current homebuyers. “From what I’ve seen when immigrants come in, it usually takes a year or two between the time they arrive and the time they buy a house,” he noted.
“[Immigration] has always had a huge impact on our housing market; it’s going to be interesting to see how many immigrants we bring in. There’s a lot of factors going on – we don’t know when it’s going to pick up again, and at what levels.”
