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RBC Just Forecasted Mortgage Defaults May Be Higher Than If The BoC Did Nothing

Canada’s largest bank is prepared for the wave of mortgage defaults coming. Phew! Wait… what defaults? RBC Capital Markets sent a research note to clients last week. In it, the analysts mention up to a fifth of deferred mortgages are at risk of default. It’s great the bank is well prepared for this event, but it does bring up a lot of questions. Most notably, how effective are the Bank of Canada (BoC) policy measures? After all, the default rate RBC is forecasting is higher than the BoC said would happen if they did nothing at all.

One In Five Mortgages Deferred May Default In Canada

RBC sent a research note to institutional clients that mentions upcoming mortgage defaults. In the research note, they state “we believe 10% to 20% of mortgages under deferral are at a higher risk of defaulting.” Further adding, “if 20% of mortgages under deferral eventually become delinquent in Canada, this equates to a mortgage delinquency rate of 2.3% which is almost 4 times higher than the peak Canadian mortgage delinquency rate over the past 30 years.” Even at that rate, it’s still relatively low in the grand scheme of things. However, as the analysts note, it’s higher than Canada has seen in recent history…CLICK for complete article

Highs sale numbers and increased prices come as a relief to many homeowners looking to exit the Greater Vancouver market during September 2020. Entry level markets have seen near term highs in prices while the higher end market has begun sell albeit at much lower than expected prices. The beginning of the school year had a major imprint to the 2020 Real Estate Vancouver market. As the colossal impact of the Covid-19th dust continues to settle, we anticipate less ferocious purchasing going forward, as the pent up demand has seemingly been relinquished with the return of the school year.

Diving into the data, the completed sales did occur in higher volume, many of which were for multi million dollars. The high end of the market was very active this month with seemingly money flowing from weak hands to strong ones. A property was listed for 13.388 Million in 2019, cancelled early in 2020 and then relisted during May at 12.998 Million the sale just was achieved at 9.85Million a cool loss of 3.538 Million dollars. Another seller who achieved a sale had been waiting for more than one year. A property that had been on the market for 533 days just sold for 4.7Million, a nice sale price however, the original ask was 6.88 Million in 2018 then 5.68Million during 2019. The eventual sale price was 2.18 Million less than the asking price during 2018. Even while these sellers were bent over the proverbial barrel the high end sales enabled the average sales price to increase to just over 1.7 Million.

Technically speaking, current prices are testing both the long term downtrend and the low end of the upper echelon in the current market cycle. A triple top indicates a market reversal. That triple top occurred over the course of 2016 -2017. That triple top began the overall downtrend orange line that has forced prices lower and ultimately to test the long term uptrend indicated by the black uptrend lines on the chart. Due to the triple top prices did break below the upper channel of the long term up trend during 2019 which sent prices to the upper end of the low echelon. Eitel Insights believes the triple top and subsequent downtrend will again test the prolonged uptrend and eventually break the trend, which will force prices to retest the low end of the market cycle.

The Real Estate Board has been reminding everyone how well sales during September 2020 are doing compared with September 2019, they conveniently leave out that compared to the overall peak (peak price 1.830 Million), prices are still down 7% along with lower sale numbers. Eitel Insights had indicated over the past year or more, any property can sell, however at continually lower levels until the market bottoms likely in 2021 for most areas across Greater Vancouver. The many examples of current homeowners having to chase the market lower will ultimately push prices to retest the prolonged uptrend.

Going forward we believe the demand will dissipate, as that rush to buy land before the school year was a major factor in the recent bump to sales data. The Covid-19 reaction had families moving from condos to a detached property which caused a spike in completed sales. The sales total which is taken from the amount of completions at land titles accumulated to 1325 which is the highest over the previous 3 years. 2020 has changed the way many people work and how youngsters are learning. If a hard second shut down was to occur parents would become teachers again. The desire for the kids to have a back yard to play in has massively increased. With parents knowing this year mattered more than past or even upcoming years we believe that is what drove the completions during September to be the high water market of the current sales cycle. As time wears on Eitel Insights does not believe this type of intense demand will keep up.

The Detached inventory has remained low during 2020 and is still lower than December 2018 data with only 4773 active properties. Contrast that with the Condo market hitting the highest new monthly listings in the past 15 years and the contrast of the two market becomes obvious. The rapid demand for a back yard from young families surely gobbled up many of the newly listed properties.

The overall inventory did not increase for the first time in the past several months, however the new monthly listings hit the highest since in over a year with 2042 newly activated detached listings. As suggested in months past the seasonal norms will likely not hold true for the remainder of 2020.

The previous yearly high water market for new active listings has always occurred before May each and every year except for 2009 and now again, here in 2020. The major difference between now and then…. No 2010 Vancouver Olympics around to corner to ensure construction and the actual economy doesn’t stop, rather than a couple governments offering meager handouts in order to be re-elected.

The effects of the Covid-19 impact is still percolating in the real economy. While yes, offering free money to everyone, whether previously employed or not, is a boon to the economy at the beginning. Longer term, this will mean more taxes. An unwelcome thought for business owners who are already struggling to keep their doors open. Secondary properties are hitting the market in droves already, as the condo inventory hits the highest point in the past 5 years.

In summary, September was a nice bump higher and ideally sellers took advantage, but ultimately, this great data point, in hindsight, will be seen as nothing more than a lower high on the way to the bottom.

Dane Eitel, Eitel Insights
Founder & Lead Analyst
604 813-1418

Watch Eitel’s latest video here:

This Month’s Mortgage Rate Updates: September 2020

Our friends over at The Green Mortgage Team sent us this informative article on whether now is the time to lock-in your mortgage. ~Ed

It was quite a bumpy ride for rates in the past two months. Fixed rates dropped in early March, and then rebounded quickly from their lows only about a week later. The spreads over bonds jumped up due to liquidity issues in the market, as well as, a higher risk premium being associated with lending. 

Since then, the spread has been normalizing as we predicted…Click for full article.

Condo Market Hits Highest Inventory in Past 5 Years

Historic government stimulus and mortgage deferrals not to mention the eviction ban has held prices buoyant in the intermediate, these stimuli’s are all coming to an end. Eitel Insights does not believe prices will hold their current level as the months continue to progress and the economic climate nationally, and locally worsens.

The Greater Vancouver price chart is testing the long term conservative downtrend which was initiated during the markets peak of January 2018. Prices during peak conditions were $751,000 current prices are $692,978 indicating an 8% decline from the peak. The current test of the downtrend is the second test in the past 6 months. During March 2020 the previous test of the downtrend resulted in a $38,000 price drop the following month.

Inventory is the headline of the August market update. The Greater Vancouver condo market has just risen over 6000. The first time the inventory has been that high in over 5 years. Eitel Insights has warned that need based sellers would continue to force inventory levels higher.

The new normal has people working from home and the need to live downtown has diminished. This trend is likely continue, the old draws that had young working people moving to the city’s core are as gone, as the handshake. With businesses allowing more employees to work from home, no social gathering after work at the favourite watering hole, and no exciting weekends at the night clubs. These and more factors are leaving the downtown real estate market with a glut of inventory.

Lest we forget the upcoming onslaught of inventory that has been scheduled to complete during 2021, along with eviction bans being lifted and government stimulus to be rolled back. Eitel Insights forecasts the need to sell continuing to rise.

The rising need to sell is best exemplified through the new monthly listings, which once again was over 2900 new listings. Which marks the first time that has occurred in over a decade. What makes this data and chart interesting is the higher highs along with the higher lows over the previous 2 years. As technicians say the trend is your friend. Higher inventory out of a need to sell, will create intense competition amongst sellers of comparable units which inevitably leads to lower sales prices.

August sales of 1336 were lower than what occurred during July. The sales have remained inside of the Identified market cycle since 2017. With the August data concluded thus ends the seasonal hot market. Historically, April to August are the 5 hottest months of the year. During 2020 the sales over the 5 months averaged just 984. Some analysts and the Greater Vancouver Real Estate Board have touted 2020 as a great year simply because it was better than 2019. What a great year looked like was 2016 with the 5 months of hot selling season averaging over 1850 sales per month.

There was good reason for why sales did rise during the past two months. With the second wave of the Corona Virus long talked about, there was a rush for those who had a need to buy to do so, before a potential second shut down occurred. Another reason for the rush, is the extremely low interest rate environment. Now that the US Federal Reserve has stated there will not be any rise to the interest rates until inflation rises well above 2% for a sustained period of time. There earliest projection for accomplishing the 2% breakeven is 2023.

Eitel Insights does not see any reason to rush into the Greater Vancouver condo market especially as a strict investment. Location matters, but timing is everything. There are 20 markets which make up the Greater Vancouver data, and each area has its own velocity inside of their market cycles. Become and Eitel Insights client to find out which market trends are dominant in your neighbourhood.

Dane Eitel, Eitel Insights

Watch Eitel’s latest video here:

Real Estate Market Forecasts

Dane Eitel, founder of Eitel Insights, shares his technical and timing analysis with Michael. As well as his forecasts for the bottoms of the detached home and condo markets.

Canadian Seniors Have Racked Up Over $4.3 Billion In Reverse Mortgage Debt

Canadian homeowners in their twilight years are drawing on their home equity at a rapid pace. Office of the Superintendent of Financial Institutions (OSFI) filings show reverse mortgage debt reached a new record high in July. The debt is still showing double digit growth, but the rate has fallen to almost a quarter of peak.

Reverse Mortgages

Reverse mortgages are a type of loan for seniors that is secured by home equity, without mandatory payments. Homeowners use their home equity to secure a loan, that’s either paid out as a lump sum or in a bulk payment. It’s kind of like other home equity loans such as HELOCs, but with that big point – payments aren’t required. Generally the borrower doesn’t have to pay off the loan until death, default, or sale.

In exchange for the flexible repayment terms, reverse mortgage borrowers generally pay higher interest rates. Since payment isn’t required, and the borrowers are at an age where they’re unlikely to get a surge of income – they’re also difficult to pay back. While they’re not paying it back, interest quietly racks up in the background slowly eating away at the equity. Afterall, it’s not a charity… CLICK for complete article