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episode # 278

Is Canada the Frothiest Housing Market in the World? With Kyle Green

The Bloomberg Economics Dashboard just listed Canada as the second frothiest real estate market in the world in its “bubble rank”. Uh oh…we’ve been here before. But Is this time different? Mortgage Broker and owner of the Greene Mortgage Team, Kyle Green, joins Adam & Matt to discuss the key indicators for bubbles and what the current indicators mean for the future of Vancouver & Canadian real estate. Kyle also sticks around to talk current interest rates & potential increases, investment opportunities he sees for the latter half of 2021 and beyond & his secrets for how to win in multiple offers! We asked Kyle back for a reason!

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Episode Summary


Please tell us about yourself.

I’ll have been in this business for 15 years this November. I’m a mortgage broker and owner of the Green Mortgage Team. Back in 2008, I started niching and working with real estate investors. We specialize in helping people build wealth through real estate. 

We help customers across the country, but most of our business is in BC. 80% of our client base is in BC and a lot of that is Vancouver-based. 

How’s the market? 

It’s crazy. We just had our biggest month ever, funding 61 transactions and $41 million in May. We have doubled values from two years ago. I’ve added nine people to my team in the last 15 months. We keep growing and I’m a sucker for growth. I don’t like to be market dependent; the market is busy but we’re investing in long term strategies so we can be proactive.

March was the peak for the number of leads. In general, mortgages fund 60-90 days after that, so it makes sense for May to be our peak month for funding. June is still very busy but not as busy as it was in May. 

What’s happening with activity and inventory right now? 

There is a bit more product in the market than there was in the first few months of the year. So instead of 25 people bidding against each other for a property, it’s more like 5-7. Of course, that depends on the property. We’re working a little less hard to close the same amount of business today, than we were a few months ago. We had to keep letting clients know if they qualified for a property and they then would get outbid and we’d have do it again and again.

So even though the number of leads are lower right now, I think the number of closings and sales may continue to increase or level off. 

What strategies do you employ to help buyers win in multiple offer scenarios?

One of the challenges we have in this hard seller’s market with a lack of supply and a lot of buyers is in order to make your offer competitive, you have to offer more or you have to have better conditions. 

My team has been trained to let clients know that if they’re getting outbid, we can help. We help position clients to write subject-free offers with as minimal a risk as possible. Certain properties have too much risk and we wouldn’t recommend it. But if we have enough lead time, we can get an appraisal and inspection up front, which is something you usually do after your offer is accepted. So you’re paying for due diligence up front in order to write an offer subject-free. We can also get an approval from the lender up front for the maximum the client is willing to pay. So when you make your offer, you have a higher chance of winning the bid. You may have paid $1000 up front, and you may have to do it a few times, but it can save you money in the end. 

We have an example in Chilliwack where a client offered $520,000 subject free and was accepted, while the other offers were at $550,000-555,000. So maybe the client spent $5000 doing due diligence a few times but ended up saving $30,000 to win a bid. 

Is the stress-test smart policy?

Probably. I hate saying it but, yes. The market is very hot and it’s pushing first time home buyers out of the market. A few weeks ago, you would qualify as if your rate was 4.79%, even if you were getting a 2.5% rate. But now it’s up to 5.25%. It’s not a huge increase but it decreases borrowing power by 4-5%. For clients who were right on the borderline, the stress test pushes them to the wrong side of the fence. 

I had a client who was interested in two townhouses, one was looking at offers on May 31st and the other was looking at offers on June 1st. They liked the June 1st one better but had to make an offer on the May 31st one because the stress test would limit their borrowing power as of June 1st. We were able to get that done right under the deadline. 

If you’re already in the market, this is a good thing. It narrows the bandwidth; your properties won’t increase as much, but also won’t decrease as much. You don’t want properties to be going up and down by 20-30% each year. It reduces volatility in the market, which is a good thing. 

Are you seeing a shift for buyers in these first few weeks of June?

Yes, because a lot of clients were trying to push the limit on what they could qualify for. A few buyers will say “townhouse or bust.” If they can’t get the product they want, they will leave the market. But I think that’s a small group of buyers. I think there will be a larger contingency of buyers who will try to get the product they want and if they can’t, they’ll shift down. The people who wanted a single-family home will shift into a townhouse, and the townhouse people will shift to condos.

We’re already seeing that shift into townhouses and I think we’ll see the shift to condos soon. Downtown is going to be more lively again, migration is coming back and there’s this shift of affordability. So I see a lot of value and opportunity in condos right now. 

A recent Bloomberg article said Canada was one of the frothiest housing markets in the world. They listed a number of factors that contributed to this. Let’s talk about the first factor, low interest rates.

Low interest rates are a key ingredient. But even though interest rates have dropped, qualifying rates have not, so it hasn’t been easier to get into the market. Back when rates were 4%, about 33% of your payment went to the principal. But with rates of about 1.5%, 66% of your payment is going to the principal. So of course, that makes buying more attractive.

Fixed interest rates are highly correlated with bond yields. Watch bond yields if you want to know where fixed rates are heading. Variable rates are impacted by the discount off the prime rate, which is very steep right now, and the prime rate set by the government. The general expectation is bond rates will start moving up in Q1 or Q2 of 2022. The US Fed is not likely moving their prime rate before 2024 and the Bank of Canada likely won’t move theirs until then. 

So I don’t see the rates increasing as much as some people think. It’ll be interesting to see how inflation really works. 

The second factor is unparalleled fiscal stimulus. How does that factor in?

A lot of the stimulus is going to people who have been impacted by covid the most: retail, hospitality, etc. But those are not people who are buying $1 million homes in Vancouver. So I don’t think it’s contributing much to the homeowners. 

But there was a lot of money on the table there for a time, regardless of how your business was doing. A lot of people took that money and then put it away. The savings rate is increasing very rapidly. Almost every white collar professional I’ve talked to is busier than they’ve been in their entire life and making more money than ever. 

The third factor that you’ve already hit on is the savings that people have accumulated. You’ve seen a lot of those savings come into real estate, correct?

Yes, a lot of that has been deployed in real estate. Real estate is a hard asset; in an inflationary period of time, hard assets are where you want to be. We’ve seen this with lumber costs. A lot of people are looking at what to do with their savings and a lot of that has come into real estate. 

The last factor is the expectation of the roaring 20’s. How does that play out?

It’s hard to say. I feel like everyone has a different reaction to how we will recover. A lot of people think we’re going back to normal but the psychology of behaviour may change a bit. Some people preferred this life so it will be interesting to see how we get back to normal. I think it will take some time. It could take 1-2 years before people are fully back. 

Where do you see the opportunities?

In my opinion, I really like downtown core condos. There’s a lot of value and it’s been a depressed area. There’s been no entertainment and no one has gone into work, but those things will come back. I like major urban centres for condos.

I think we’re a bit too late to the party but industrial space is a great asset class to be in. We’re doing a lot of buying online so warehouses are important. 

I’m curious about what is going to happen with office space and retail. I’m keeping my eyes on those assets. 

One other opportunity I want to mention is recreational real estate, like Airbnb, on the island. We’re buying a seven-unit apartment building in Victoria that we’re going to put on Airbnb. 

There’s a website called Air DNA where you can see the specific details of a market. We noticed the supply of Airbnbs in Victoria has decreased significantly. You’d expect it to increase as tourism comes back but it won’t be able to increase to 2019 levels because a lot of people turned their Airbnb properties into long term rentals. And you can’t just kick out a long term tenant. So that could be an interesting opportunity in Airbnbs. 

Are there regulations around Airbnb in Victoria?

Our property is zoned for transient accommodation. It’s already being used for short-term rental and so would be grandfathered in if anything changed. But that’s something you really have to watch out for.

We were looking at the Gulf Islands but the Island Trust has come out with a rule that you can’t Airbnb a property unless it’s your primary residence and you’re renting out an additional unit or dwelling on the property. 

If you do your research, there could be great opportunities. 

Right now, variable or fixed?

Variable, 100%. The fixed rate penalties today will be more expensive, which I’m worried about. I like the flexibility of the variable and you can lock it into a fixed at any point. There was a point where fixed and variable were quite similar and the fixed rate penalty was less severe. 

But now that the variable discount is more steep and based on the expected increases, I do think variable is the way to go. It’s not always that but right now, and most of the time, it is. The flexibility is worth it. Right now, the variable rate is about prime -1. A lot of our clients are getting variable rates around 1.5%. Fixed rates are at about 2.25%.  

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