//Oz Buzz #13 – New HELOC Stress Test is Ridiculous

Oz Buzz #13 – New HELOC Stress Test is Ridiculous

Oz Buzz

“The best argument against democracy is a five-minute conversation with the average voter.”

–Winston Churchill

OZ BUZZ #13 PLUS HOT PROPERTIES

Major Point: The new HELOC (stress test) changes will knock out thousands of buyers. The qualification has gone from onerous to ridiculous. READ IT AND WEEP!

Hot Properties:

  • Pemberton: $329,000
  • Victoria: $179,000
  • Oliver, Brand new $386,500
  • Kimberley: $109,900
  • Kimberley: Duplex, $449,000

Podcast interview with mortgage ace Kyle Green:

#OZBUZZ #STRESSTESTHELOC #HOTPROPERTY #LUXURYMRKETDOWN #RENTALSDOWN #PETERNEWMANBOOK #WORLDVIEW #NOCANNABISGROWINGINYOURHOUSE #RECESSIONAHEAD #ANNOYINGWORDS #LIVELIFELARGE #EYEBROWRAISER #PERSONALPLAN

Today’s issue:

  • Thank you for taking the time and sending us back the Survey. A massive response! We are evaluating it and report back the results. Some suggestions we have already incorporated. Thanks. 
  • Podcasts are now featured on a separate podcast section on the home page. We had over 432 replies that wanted more podcasts with interesting people. (The OzBuzz Podcast has been submitted to Apple and will be available soon on the iTunes store. Already available on Soundcloud.)

QUESTIONS, QUESTIONS, COMMENTS

Q. You say I should vote ‘No’ to Proportional Representation (PR), why?
A. Please read the link below as to the three options for voting. Elections BC has been explicit on this. You can vote on one question and your ballot will still be valid. As of yesterday – literally days before the vote – the NDP changed one of the contemplated issues… just to show how little thought went into the complicated questions with some of the results decided by the party … not you. This video by longtime NDPer Bill Tieleman says it all in under 1 minute. Listen! https://www.facebook.com/nobcprorep/videos/580648502350381/?t=29

Q. I know that you are predicting higher rates, my broker believes that rates will stay where they are or go back to…?
A. Yes, we have and continue to predict that interest rates will continue to rise. The US promised it, Canada promised it, the world needs it. We think the 10-year US bond rate will be 3.5%-4% by the end of 2019/2ndquarter of 2020. 5-year mortgages will hit 6%. Lock in! 

Q. The stress test has knocked out thousands of buyers, do you think the government will eliminate the test to make a more normal market?
A. Not only will the stress test not be eliminated, but more stress tests will be applied. Last week (quietly) TD bank, the largest HELOC mortgage supplier, brought in a stress test for HELOC (!) which we believe will be rolled out to all banks. Look, read and weep – below!

MUST READ NEWS

A rule change (kept quiet) will make it tough for Canadians with a HELOC (Home Equity Loan) to get a second mortgage, or to get a new one and to keep a mortgage. This one is a big one. REAL BIG! It’ll knock out thousands of buyers, both current and new! While I never liked the HELOC. (It keeps you hostage to your bank and people are seduced into using it like a piggy bank. Also, a HELOC affects your credit while a mortgage often does not.) But buyers and owners were seduced into it with the result that there are now some $233 billion are outstanding and the government is scared. That’s why the new rule!

What happened?

  1. No. 1 player in HELOCs, Toronto-Dominion Bank, just changed a key policy last week. Others will follow. 
  2. NOTE: If you are merely renewing a mortgage, there is also no impact whatsoever. It’s those people who are getting an additional mortgage and keeping their existing HELOC who get hit.
  3. For people applying for a separate new mortgage and keeping their existing HELOC, TD is requiring that applicants prove they can afford a theoretical monthly payment based on the limit – not the outstanding balance – of that HELOC. A ‘stress test’ on your HELOC could knock out your qualification. If you have a HELOC of say $300,000 – it now would mean that there is an implied payment of maybe $1,500 that the mortgage company needs to add…

In my view, this will depress the recreational place, a second-home and rental markets. We’re not talking a market crash here, but every credit-policy tightening adds up and weighs on home prices and brings us closer to economic strife.

Very few lenders have applied this policy – yet. By next year, however all major banks will, as will scores of other lenders that get their funding from big banks.
So: There is still time… If you’re thinking about getting a second property and want to retain your HELOC, act before year-end. 

  1. Find a lender that doesn’t apply this policy (at a potentially higher interest rate)
  2. Reduce YOUR HELOC limit in order to pass the stress test
  3. Lock in YOUR HELOC to a regular amortizing mortgage 
  4. Close YOUR HELOC.

REAL ESTATE NEWS

CMHC forecasts a 9% price decline next year and 4% the year after. The agency is forecasting the average Metro Vancouver MLS home sale price to be between $940K and $980K this year. It is then expected to drop in 2019 to between $847 and $939K, and then slide to somewhere between $800,000 and $918,000 in 2020.

Major Point: The range given is quite wide. But if it were to go from $980,000 in 2018 to $800,000 in 2020 that would be a major decline of almost 19%! Yup, part of their forecast.

  • Richmond bans large houses on farmland. Maximum size allowed now 5400 sq. ft.
  • Vancouver’s new council to review pending duplex legislation. May be defeated,
  • Cannabis can’t build enough space fast enough – still a lot of illegal product. Cannabis grown in houses will drop the value by 20%! NOTE: 62 percent of Canadians will not buy a growth house – even legal! Don’t allow your tenants!
  • Real estate markets adjust to higher rates – as in down. It’s normal! But does affect first time buyers
  • Real estate remains desirable because of uncertainty…
  • Calgary office space 25 percent empty. Not paying taxes.
  • High end real estate will be hurt first – hurting now.

Luxury Prices down in Vancouver:

  1. BNN Bloomberg: On a world property journal reports that Vancouver real estate ranks as having fallen the most in luxury prices world-wide. (High end buyers rejoice.)
    Dubai joined London among the decliners with prices falling 3.8 per cent, making it the fifth-worst performer. Tying for second-worst place were StockholmIstanbul and Taipei, all registering 6.3 per cent declines in the third quarter from a year earlier. Vancouver was hit hardest, with prices there down 11 per cent as upmarket pockets like West Vancouver witnessed a marked slowdown in sales. We reported that to you Ozbuzz 11 and 12. There has been a definite “deterioration” of the detached house resale market (Westside down 21% in 6 months).
  2. Vancouver luxury rental rates dropping. (High end tenants rejoice.) 
    Why? Speculation tax, vacant home tax, Airbnb nightly rentals forbidden: adding supply. Petr Vokoun, Orca Realty, told Glacier Media that a $3 million house that would have rented for $5,000 a year ago will likely rent for around $4,000 a month today.

INTEREST RATES

  • BOC drops the word ‘gradual approach’ to interest hikes. Hmmm? Rates will be higher!
  • Poloz: Volatility is a natural part of normalization. Really? What’s normal?
  • I told you to lock in when 5-year money was 2.5 percent.
  • US mortgage rates are now at 5.1 percent, the highest since 2010.
  • Higher rates will become big problem for economy.

WORLDVIEW

  • 10 years of debt spending worldwide. Very stimulating policies everywhere: Now reversing?
  • Over 50 percent of S&P stocks have declined more than 20 percent!
  • GE worst since 2009
  • Buy exceptions: Listen to Josef Schachter: Buy Natural gas stocks … read his ‘table pounding opportunity’.
  • Invest in rail. Rails will do better because of anti-pipeline sentiments increasing. (Even Keystone is now put on hold and Enbridge’s expansions will be fought by the Michigan governor.)
  • Investors are sellers – selling into any strength. Be very, very careful – not much traction.
  • We still look for the Canadian dollar to hit 73/74 cents.
  • America or other countries have an exhausted middle class. That middle has become angrier every year for 25 years. That’s why hyper partisanship has been around a long time and growing stronger. Would have happened if Clinton had won too.
  • Populism is everywhere. Don’t ask what, ask why?
  • US is Canada’s most important economic relationship. But now Canada has to diversify away from only this relationship.
  • Brexit, the problem is that the UK is not negotiating with Europe but only negotiating with itself.

Major Point: Amount of debt has exploded in the world. Debt levels are far higher than 2008. Next crisis ahead … 2020?

HOT PROPERTY

  • Pemberton, show suite beautiful building all new. $329,000
  • Victoria, least expensive condo in Victoria, 1 bedroom $179,000
  • Oliver, Super deal: brand new house (to be built) approx. $386,500 (1,000 sq. ft down and 1,200 up)
  • Kimberley, 2 bedrooms, 1 bath, in downtown, $109,900
  • Kimberley, modern duplex, 2 times 2 bedrooms, plus loft, dbl garage, 100 yards form the quad chair (on the hill). Currently rented at $2,200 per month. Nightly rental possible? Yes, unlimited potential income. $449,000

ECONOMY

Low interest rates in the last 10 years have let us borrow around the world at really cheap rates. Clever speculators used different currencies to create the famous ‘carry trade’. Carry trades are only appropriate for deep-pocketed entities because of two major risks: the risk of a sharp decline in the price of the invested assets and the implicit exchange risk when the funding currency differs from the borrower’s domestic currency. With rising rates affecting emerging markets negatively these borrowed dollars have created a deteriorating environment. We got ‘carried away’ with cheap dollars.

So, watch it. Regardless of your preferred investment … investigate the world around you – and what you want to invest in. Nothing goes up for ever. In fact, some of the world’s leading companies are down 20% and more! Uncertainty keeps people from investing! There is a global commodity slowdown, an enormous volatile stock market. (Carry Trade started the crash in 2007 – look at the end of this newsletter – if interested.)

Major Point: As we said at ‘OUTLOOK’: “ In this environment Cash is not Trash!

EYEBROW RAISERS

  • Government-subsidized Bombardier received $11 billion in support over the years and has this week laid off 3,000 people! These kinds of things make middle class taxpayers angry.
  • Calgary votes down the Olympics. The taxpayer has no faith in Government creating something that does not create more taxes.
  • Co-Founder of Apple, Steve Wozniak feels that we will never have truly self-driving cars. While he has a Tesla, he does not believe in Elon Musk. It’s not going to happen! You can have driver assisted but not self-driving.
  • Every year since 1926 Canadians have lived 3 months longer … work it out. Look after your own retirement!

BOOK

I love everything by Canadian ace writer Peter Newman (Titans,etc.) His latest Hostages to Fortune: The United Empire Loyalists and the Making of Canada” recounts the dramatic journey of the United Empire Loyalists — their exodus from America, their resettlement in the wilds of British North America, and their defense of what would prove to be the social and moral foundation of Canada. 

SONGS OF THE WEEK

Linkin Park– Favourite: “What I have done” 

Hawksley Workman – Favourite: “We will still need a song”

AUDIO BOOK

Too busy to read? Want to listen to Ozzie’s book for FREE? Sign-up for a free trial at Audible by clicking HERE and get Real Estate Action 2.0 FREE!

WANT TO PARTICIPATE?

Go to FREE www.realestatetalks.com – Some 2,500 members (47,009 posts) talk real estate. Ozzie created this bulletin board in 1998!
If you are in a real estate related industry of any sort (realtor, appraiser, lawyer, home inspector, etc.) list yourself in Ozzie’s FREE British Columbia Real Estate Directory at www.bcred.ca.

RADIO

Ozzie is on air with Michael Campbell every Saturday on CKNW 980 sometime between 8:30AM – 10 AM. The Hot Property that we discuss there, is available by subscribing to the Ozzie Dispatch at Jurock.com

YOUTUBE.com/Jurockvideo

Look at Ozzie’s YouTube video– including selected bits of the fabulous Michael Campbell show. The last Campbell audio cast uploaded here is November 11! You can also find the “Blasts of the Past” – i.e. watch what Ozzie said in 2010 on BCTV and more.

LIVE LIFE LARGE

Every small business has a plan
Every company has a budget
Every bank has a plan
To be the best one can be, one
has to create a personal plan

I create a personal plan
I review my plan daily
I hold myself accountable
I focus on my top 20% of customers
I plan my free time – I guard it zealously
I plan my work time – I work with commitment
I plan my get ready time – where preparation
meets opportunity with confidence

I will grow into my future best!

Look up and buy(!) all of Ozzie’s “Grow into your future best” cards at: www.commitperformmeasure.com

We have 89 sets left – if you want to own these fabulously designed (by famous German Artist Roland Schicht) you have to act now.

((The carry trade involving the Japanese yen reached $1 trillion by 2007, as it became a favored currency for borrowing thanks to near-zero interest rates. As the global economy deteriorated in 2008, the collapse in virtually all asset prices led to the unwinding of the yen carry trade, leading to it surging as much as 29 percent against the yen in 2008, and 19 percent versus the US dollar by February 2009.))

Oz Buzz Podcast

Disclaimer

Please note that any response to any email or any invitation to any meeting is accepted on the understanding that “Jurock Real Estate Insider (JREI)” or the “Jurock Case Real Estate Action Group (JCREAG)” as the case may be, are not responsible for any result or results of any action or actions taken in reliance upon any information contained in this posting or meeting, nor for any errors contained therein or presented thereat or omissions in relation thereto. It is further understood that the said JREI and JCREAG, as the case may be, do not, pursuant to this posting, purport to render legal, accounting, tax, financial, planning or other professional advice. The said JREI and JCREAG may or may not own properties discussed at meetings or receive or not receive referral fees at any meeting you may attend as a result of this posting or invitation. The said JREI and JCREAG, as the case may be, hereby disclaim all and any, liability to any person, whether a purchaser of any offering, a reader of any offering, or, otherwise, arising in respect of this postings and of the consequences of anything done or purported to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of this postings. If you respond to any posting JREI and JCREAG fully expect that you get independent legal/tax/investment/mortgage advice as the case may be.

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By |2018-11-19T08:45:27+00:00November 18th, 2018|Oz Buzz|1 Comment

About the Author:

Ozzie helps members build an action plan toward real estate success with his Real Estate Action Group, arming investors with the best information and insights possible with his Jurock Real Estate Insider. More info OzzieJurock.com

One Comment

  1. Terry Feeny November 20, 2018 at 7:08 pm - Reply

    I have to laugh at the NDP spending millions on rental accommodation….as you know this current provincial government brought this mess on us by way of rent controls in 1972……builders and investors were chased out the rental market because of rent controls and the rentals man and now there is a tight rental market…go figure.
    Talk to any landlord and the horror stories of trying to get rid of a bad tenant even if they are not paying the rent. So many people will leave their house empty before taking a chance on a renter and that is why so many have put their properties on VRBO…it comes under the hotel act and it is not a problem to get rid of a problem tenant.
    It is very hard to get a decent return on the investment so the money went elsewhere ( money always goes where it is most welcome )…. now they are throwing money at the problem and it is you and me paying. But it should be the investors and builders.
    If the government would only stay out of business it would attract investment back…if there was a need for more rentals they would be built if there was a glut they would not……….the old time tested supply and demand would apply and the rents would be competitive.
    These clowns brought us ICBC at the same time and we know the billions lost in that exercise and yet….we still have it !!!
    Funny how voters have such short memories.

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