Friday Mortgage Round Up: November 2nd, 2012

The latest lowdown on the mortgage marketIn a blink of an eye you will see the store fronts and lawn ornaments quickly change from Halloween to Christmas themes.  As the Holiday seasons transform, you may also start to notice some Financial Institutions planting the RRSP season bug in your brain.  And just as it is “never too early” to start Christmas shopping, remember it’s never too early to make your RSP contributions – although you do have until the end of February to do so.  Psst... if you could use an extra $100 in your pocket for holiday shopping plus a chance to win $1,100 click here.

The Connection to the Mortgage Market

You might be wondering what RSPs have to do with the mortgage and real estate markets.  Truth be told, it’s the absence of a sustainable RSP plan that could shake the market.  A recent survey conducted by BMO found that four in 10 are not confident in their ability to save for retirement while 41 per cent say that they might just end up using their homes to cover any shortfall in their so-called golden years.


… It’s trending!  Baby Boomers continue to have a significant impact on our markets and economy – you would be foolish to count them out of anything.  What is concerning is that about one third of Baby Boomers plan to sell their home to fund their retirement.  This would be an acceptable plan B to a dwindling RSP if you were the only senior citizen doing this… but think about what happens when you take one third of a sizable demographic of the Canadian population and contend them against one another to sell off their largest asset.

Increase in Supply and Decreased Demand

First and foremost, as you all know it has been increasingly difficult to obtain mortgage financing, which means that there is a decrease in demand for housing.  Now this is arguably a synthetic decrease in demand, but none the less – demand has subsided.

The ill-prepared Baby Boomer’s RSP plan is to sell their home and live off the proceeds.  But who are you going to sell it to?  Boomers Tom, Dick and Mary are also trying to sell their homes and downsize as they cozy up to retirement, but unfortunately the Echo generation isn’t big enough.  Boomers in Canada only had about 1.6 or 1.7 kids per family vs. the States who averaged two and are replacing themselves so to speak, plus the Echos are not able to obtain mortgages as easily.  So you have an increase in the supply of homes during a period of decreased demand.

The Effect on the Housing Market: It’s Goin’ Down (Prices That Is)

Naturally the above equation formulates a decrease in prices… great.  What happens when four people are trying to sell their homes to three people?  Well, one of those houses is not going to sell.  So how do you make sure that you’re the one that’s not left high and dry?  You’re going to make your house more attractive than the other houses.  And sure, this can be done esthetically but you don’t have time for that – time is money!  Try dropping the price though and you’ll see how quickly your RSP fund appreciates.

Increase Supply + Decreased Demand = Downward Pressure on Prices.  Let’s hope that the Boomers aren’t highly leveraged and have some equity to use in their home; otherwise they could be in some serious hot water.

The Rebuttal

Don Lawby, Chief Executive of Century 21 Canada has been hearing these warnings for some time now and he “isn’t buying it, [and] thinks it’s just talk”.  Lawby believes that immigration will continue to support the demand for housing, especially in places like Vancouver as immigrants have more money to buy the single-family homes of the Boomers.  And he also points out that Boomers are living longer and are not downsizing as quickly as they used to.

Don believes that major-city dwellings will continue to see an increase in value as land becomes scarce, however he did side with the opposition when he admittedly said, “If I had a wonderful single-family home in [a small town], I can’t retire on the increased value, but in major cities I think they are just wrong.”  Where do you think the Boomers are living these days?  The average resident in my Toronto condo building would suggest the suburbs. Week in Review

This week was a half and half!  Half of the rates on the best mortgage rates page changed and half stayed the same.

Increases: 3 year fixed increased 22 basis points, 4 year fixed increased 5 basis points and 10 year fixed increased only 1 basis point.

Decreases: 5 year fixed decreased 3 basis points and the 7 year fixed decreased 5 basis points.

Related Topics

Mortgage News / Mortgages

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