Bozic on Flaherty

by |

One of the industry’s most influential thought leaders pulled no punches last Thursday when he was featured on the Canadian Mortgage Hangout (#cmhTV) – especially when talking about Finance Minister Jim Flaherty’s recent threats to intervene in the housing market once again if necessary.

“I think he’s done a terrific job but it’s a tightrope act,” Merix President and CEO, Boris Bozic said about the finance minister’s past regulation changes. “Being prudent is a good thing for our overall business… my concern is overstepping.”

And while future regulation changes are always a hot topic, Bozic believes such postulations aren’t as common as they once were.

 “One of the basic changes that we have seen over the last six months and I think it’s been critical to our business is that the decibel level has certainly dropped in terms of what we are hearing from Ottawa and also the regulators,” he said. “I think a lot of this has to do with some of the players shifting in terms of those who control the levers of power.

“This was a big problem for our industry was the decibel level and sort of the debate that was going back and forth between Carney and Minister Flaherty.”

Understandably, brokers have voiced concern about Flaherty’s constant threats to intervene further. It’s a frustration that is exacerbated by the media’s constant prodding and questioning about the minister’s future plans pertaining to the mortgage industry.

“It is unfortunate that there is a certain group of financial writers, including some mortgage brokers, who thrive on writing negative 'news' by predicting complete market collapses,” Jackson Middleton of First Foundation Residential Mortgages – and one of the hosts of #cmhTV -- told MortgageBrokerNews.ca. “The more severe their message, the more attention they draw to themselves.”

And while some may take umbrage to Flaherty’s constant threats, Bozic believes the blueprint for how to best handle media hypothesizing has already been set by the Governor of the Bank of Canada, Stephen Poloz.

“He is speaking only to monetary policy and not speaking in a broad-based sense in terms of what Canadians have to do in terms of fiscal responsibility, et cetera; so I think as much as we hear chatter today it’s not nearly as loud as it used to be and I think this is important because this all leads to consumer confidence,” Bozic said. “And it really is interesting that even with all the chatter and everything that was in the press, the consumer, I think has started to shut out all that noise. They make decisions based on their pocketbook and based on what they think is right.”

Perhaps the industry may be better served to consider the public’s opinion as well as Mr. Flaherty’s.

“The best arbiter, in terms of the health of the economy, is really the consumer, themselves,” Bozic said.

  • VLT2 on 2013-11-18 11:46:09 AM

    Stephen Poloz... Gee, this may be the first time I have heard that name since the early days when he took office. Gone are the days it seems, of the Mark Carney B.o.C. media madness.

  • Paolo Di Petta | dipettamortgage.com on 2013-11-18 12:57:55 PM

    Not sure if that comment about "some mortgage brokers, who thrive on writing negative news" was directed towards me, but I think we're all entitled to our own interpretation of the data.

    Conversely, I'd also like to say it seems a lot of reporting from most industry professionals is one sided, focuses heavily on the few positive stats, and doesn't always put them into proper context vs. other negative stats.

    As long as a logical, factually based argument is presented, I don't see a problem. We SHOULD be having open discussions about the data, and sometimes there WILL be disagreements. Though, it doesn't seem like too many people are willing to do that.

    It's our job to present our clients with the most complete data, and the best possible advice based on that data - providing them solely with one-sided cheerleading is a huge disservice.

    For the record, I'm not calling Jackson a cheerleader, but there's a lot of other industry professionals that are. And many of them do their very best to keep dissenting opinions under wraps.

    I've openly debated our housing market before (and published my opinions on my blog, MBN and elsewhere) and welcome any further discussion. You know how to reach me.

  • VLT2 on 2013-11-18 1:33:31 PM

    Fact: All the pundits have predicted interest rates on the rise for years now. Headline news all the time. Rates have not gone up despite what the so called professionals have predicted for YEARS!

    Fact: My book of business has increased every year for 7 years.

    Fact: With all the crying about how Canada was in the same position that the US was in, it was smoke and mirrors because we have always had a different way of approving mortgages.

    Fact: We learned from US mistakes

    Fact: In the political world , perception is reality so the government will make changes so the public perceives it to being doing something, regardless if nothing should be done., or it should be done to consumer debt not mortgage debt.

    Fact: If you want to reduce consumer debt, the fastest and easiest way is to reduced the consumer credit. In lieu of reducing the credit limit, reducing the consumer interest rates will allow consumer debt to reduce much faster. That fact however is really just a dream.



    ENOUGH MORTGAGE CHANGES ALREADY!

  • Ottawa Broker on 2013-11-18 1:57:28 PM

    So Paulo,
    you say you have the expe3rience and education to combat what financial analysts are depicting for our economy? These guys take into account financial situations that aren't even considered by the public, and yes, we as brokers are considered the public. We may have an better understanding than them about the mortgage industry in relation to our clients, but do you think you have a better understanding of the world economy and what can or can't tip the scales?
    I am going to guess you don't, and I don't mean that as an insult. But in a forum like this or any other public forum, arguing and making your own predictions, when you don't have all the facts, is just bad publicity. These analyst review financial date the world wide before they make any predictions. Do I agree or like a lot of their predictions, no I don't, but I am also in no position to ague with their predictions. all you can do is wait and see what the outcome is. Our countries financial decisions are based on the world economy, as all countries effect each other. the journalists love these open forums and negative battles as it feeds them there info.

  • @kiltedbroker on 2013-11-18 5:15:31 PM

    Well Paolo, you are certainly one of the people I had in mind when I made that statement, but I know that doesn't shock you! No disrespect intended at all, just a difference of opinion. And I value your right to share what you believe as much as I do mine to disagree with you.

    My problem isn't with the interpretation of the data, my struggle is with the public voicing of strong opinions, assessments, assumptions, feelings, ideas, theories, thoughts, viewpoints or speculations that comes from the assessment of that data. At the end of the day... our best guess is just that... a guess.

    Is it our responsibility to prognosticate? I don't believe so, I think we should assist our clients with finding the best mortgage product available given the current economic conditions, because that is simply all we can control. Anything more is reaching beyond the scope of what I believe a mortgage professional should be offering clients.

    If you are looking for a value add, why not consider prudent advice that isn't based on prediction? Even if you take the very best or very worst financial future in Canada, wouldn't our advice be the same? Be financially responsible, don't get in over your head and make sure you have a solid financial plan?



  • Paolo Di Petta | dipettamortgage.com on 2013-11-18 7:48:59 PM

    @VLT2 - most of those aren't facts, especially not the last one which you seem to indicate...

    @OttawaBroker - There's no real consensus even among analysts.

    It should be noted that every positive "analyst" I've ever read has some very strong ties to Real Estate, the CMHC, the government or banks - all of which have a vested interest in keeping the market afloat. Not to be a conspiracy theorist, but most independent analysts I've read think the market is at least slightly overvalued at best.

    @Jackson - RE: "Is it our responsibility to prognosticate? I don't believe so, I think we should assist our clients with finding the best mortgage product available given the current economic conditions, because that is simply all we can control. Anything more is reaching beyond the scope of what I believe a mortgage professional should be offering clients."

    That statement should be equally applied to every mortgage/RE broker that says "get into the market now before you get priced out of the market", or "better buy before rates go up", or "condos are a great investment/rental property". Yet, I rarely see any criticism of them, especially concerning since so many do it.

    And of course I advise financial responsibility. Every broker should, yet many were pushing low down-payment, long amortization, cash-back products not that long ago. Not to mention TD's current mortgage campaign is all about taking a "payment vacation". Again, if that's going to be a point of contention, the criticism should at least be applied uniformly.

    Perhaps one should consider that it might not be about getting press and attention, but about providing the rest of the story that's swept under the rug by the biased advice that already floods the market.

  • @kiltedbroker on 2013-11-18 8:38:08 PM

    Paolo, I couldn't agree with you more. My comments were intended to cover both sides of the pendulum swing that is predicting the future.

    I abhor the "act fast, before its too late" marketing tricks accompanied by the "you have nothing to worry about, property in Canada always goes up" garbage. I have never and will never market like that. It is cheap and underhanded.

    Please consider this my uniform application of criticism to anyone who uses predictions in an uncertain Canadian marketplace to drive consumer action.

    However, I really don't like your line of reasoning either..."providing the rest of the story" misses the mark entirely. So, what I hear you saying is that you are standing where no one else is standing simply because no one else is standing there, shouting things that no one else believes... and it isn't about press and attention?

    The problem with either side of the pendulum swing is that to be effective long term, you have to take your message to the edge, push the envelope to compete, to be heard... and soon it starts to look a lot like fear mongering... or cheerleading... take your pick.



  • Paolo Di Petta | dipettamortgage.com on 2013-11-19 5:52:26 AM

    Nice to see you're willing to admit that there's a definite issue on the other side as well.

    As for "shouting things no one else believes", well, they are things that I, and a growing percentage of people do believe. I mean, just ask the OECD, that ranks us among the most overvalued markets in the world.

    But while we're talking about "shouting things no one else believes", maybe that criticism would be best directed towards those with a much bigger reach and much more influence on the market, like Genworth, who released a report a few months back based on arguments that are basically false. Yet hardly anyone attacked Genworth about it, and worse, it was largely supported by a large part of the industry. If you need a refresher: http://mrt.gs/RosyReport

    I've said it before - I'm best suited to speak on the Toronto market, and if you look at the numbers, it's completely out of whack. I've also said many times that places like Alberta that have resources (and thus, a more economically diverse job market) will probably be safe.

    The most notable difference between cheerleaders and myself is that I don't have anything to gain from my voicing my opinions. They're just my honest perspectives by looking at the whole picture. My only hope is that my words encourage people to prepare themselves by being financially responsible instead of continuing to pile on the ever-growing, insurmountable debt.

  • Paolo Di Petta | dipettamortgage.com on 2013-11-19 5:56:01 AM

    Nice to see you're willing to admit that there's a definite issue on the other side as well.

    As for "shouting things no one else believes", well, they are things that I, and a growing percentage of people do believe. I mean, just ask the OECD, that ranks us among the most overvalued markets in the world.

    But while we're talking about "shouting things no one else believes", maybe that criticism would be best directed towards those with a much bigger reach and much more influence on the market, like Genworth, who released a report a few months back based on arguments that are basically false. Yet hardly anyone attacked Genworth about it, and worse, it was largely supported by a large part of the industry. If you need a refresher: http://mrt.gs/RosyReport

    I've said it before - I'm best suited to speak on the Toronto market, and if you look at the numbers, it's completely out of whack. I've also said many times that places like Alberta that have resources (and thus, a more economically diverse job market) will probably be safe.

    The most notable difference between cheerleaders and myself is that I don't have anything to gain from my voicing my opinions. They're just my honest perspectives by looking at the whole picture. My only hope is that my words encourage people to prepare themselves by being financially responsible instead of continuing to pile on the ever-growing, insurmountable debt.

  • Ron Butler on 2013-11-19 7:51:05 AM

    I have been saying the Toronto market is going to correct downward for the last 5 years, that makes me worse than broken clock which is right at least twice a day. Nobody could be more wrong for 5 years.

    I see nothing wrong with Paolo position, it's an honest take on what he sees and it's more or less the same as mine. Jackson makes a reasonable point that some people like Garth Turner make a living shouting about future doom. People like Turner use it to line their pockets which is unseemly at best and dishonest at worst.

    There is truth on both sides of this argument. I still worry about GTA property values but so far I have been dead wrong.

  • VLT2 on 2013-11-19 8:37:39 AM

    @ Paolo Di Petta

    Let me get this right. You don't think the fastest way to reduce consumer debt is to reduce consumer credit and or consumer debt interest rates? In fact you think there is a faster way to reduce consumer debt than by making it less available and at the same time less expensive to pay back? You think making mortgages, I don't know exactly but say 10-20% more difficult to get, is the way out of this mess we are in? Is that right? If so, with the exception of changes to HELOC's, I don't understand how you can think that making it more difficult to get a mortgage, but not making any changes at all to the credit card industry solves the problem of using your credit card more.

    What the finance minister has done by making it more difficult to get a mortgage, but doing nothing about the size and availability of consumer debt for would be home owners is to make it easier to build up greater consumer debt sooner. How is this helpful to the overall debt issue that the experts say are threatening our economy? "You shouldn't have home ownership when you graduate from university," is pretty much what he said. When it came to not spending money on your credit cards and reducing your consumer debt so you can afford a home... Crickets

    The OECD said this morning that we may have to increase our interest rates in 2 years. What is that? Tell me something that has meaning. What were its thoughts on Y2K? We are overvalued? We are in a balanced market here in Ottawa, on our way to a buyer's market. I am not an economics major, but isn't a buyers market an undervalued market?

    Again, ENOUGH MORTGAGE CHANGES ALREADY!

  • John Van Driel on 2013-11-19 8:55:50 AM

    I agree with Paolo. Until Flaherty does somwthing about @21-@26% credit cards, he should keep his mitts off of 3.5% mortgages!!

  • John Van Driel on 2013-11-19 8:56:03 AM

    I agree with Paolo. Until Flaherty does somwthing about @21-@26% credit cards, he should keep his mitts off of 3.5% mortgages!!

  • Paul Therien - CENTUM on 2013-11-19 9:33:03 AM

    People on this forum and others have been calling for Flaherty to regulate the interest rates on credit cards for some time now, and I think that there is a misunderstanding of what can and cannot be done. The government can regulate mortgages because they always have had their finger in that pie. CMHC, a crown corporation, is the largest insurer of mortgages, and the government provides a 90% guarantee to Genworth and Canada Guarantee. That means that they have certain levels of accountability and authority. Housing is also a much more significant contributor to our economy, and given that housing is typically the largest expense for an individual, it merits greater scrutiny by both government and media. Credit cards carry the rates of interest they do because of arrears rates, and it must be considered that the government has never had their hand in that pie. There is no risk to the government financially if a consumer reneges on paying a credit card, the bank carries the debt and 100% of the risk. If government starts to poke at credit cards and unsecured lending, it is a slippery slope.

    If we want to reduce credit card debt, the best thing is to educate the consumer and to combat our culture of extreme consumerism. The whole “keeping up with the joneses” mentality is the primary driver of credit card debt.

    As for a bubble… housing I believe will remain consistent. I say this because of two principle factors that have always been in play in the past when we have seen a steep market decline. Rates and Employment. So long as rates remain at a manageable (under 6%) level and employment remains fairly strong or consistent there is limited risk of a significant crash in the marketplace. Consumer demand for housing remains relatively strong in most areas with some markets seeing growth. The economy is doing well as compared to most other countries, and unless we see a major issue on the international stage, most indicators show that will not change. Income levels remain somewhat stagnant and they will need to do some catch up to inflation, but that has never happened at the same rate.

    Housing is front and centre for a lot of consumers because they are barraged by it in the news and by industry. The issues in the U.S. made mortgages a household concern around the world. That means that Flaherty will continue to posture and meddle as government sees fit. It might not make sense, but to the majority of consumers it gives a sense of comfort knowing that our government “cares”. To the world, it looks like our government is being proactive – even if unnecessarily. In 2015 we may have a new government and that could change things dramatically. Who knows what will happen? I certainly don't. All I can do is make my best guess, and still plan for any possibility.

  • John Dearin on 2013-11-19 12:54:24 PM

    Ever notice that when the government releases statistics on anything, the byline is the "estimators' missed by 20 - 50%. That goes for the employment rate and mortgage rates. 7 years ago I listened to these guys that interest rates were going to take off so I locked into a five year rate for the first time in my life...I was always adjustable rate. Six months later the rates tanked.

    Flip a three sided coin and you will get a better guess at to what is going to happen next month than the professions offer.

    PS I have been betting on a housing bubble for seven years. Never invested as I watched a bunch of my business clients flip and profit. Maybe next year

  • Paolo Di Petta | dipettamortgage.com on 2013-11-19 1:14:01 PM

    @VLT2

    If low interest rates were the way out of debt, then why has debt consistently risen as rates have continued to drop?

    The fact is low interest rates don't encourage debt repayment at all - they encourage people to consume more by borrowing more, which is exactly why rates have been kept low by the BoC. The finance minister will call it "stimulating the economy", but really it's a double edged sword. With no real incentive to pay it back, people have and will continue to keep borrowing.

    And calling Ottawa a "balanced market" is pretty laughable. You should ask Ben Rabidoux for the data, but from what I've read, there's a massive oversupply problem up there. And using the euphemism "buyer's market" for the future doesn't change reality - there's too much supply, and prices will have to come down until demand is stimulated.

    @Ron - It doesn't necessarily mean you're wrong - at the end of the day the market fundamentals are going to win out, it's just a matter of time. Salaries haven't kept up with home prices and other consumer debt is constantly rising - clearly our lifestyles aren't affordable and there will eventually be a breaking point.

    @Paul - all great points though I think there's one point you might not have considered.

    "So long as ... employment remains fairly strong or consistent there is limited risk of a significant crash in the marketplace. Consumer demand for housing remains relatively strong in most areas with some markets seeing growth."

    The problem is that a significant portion of our GDP is Real Estate related. Our economy, to an extent, depends on it. But according to you, our economy is also what fuels it. Unfortunately, demand isn't infinite and we just can't build forever - it's going to catch up to us. As soon as demand slows, there's likely to be a cascade effect - Construction, Real Estate, and the major industries they patronize are going to fall out of the positive feedback look and into a negative one. Incomes and spending won't catch up or stay stagnant, they're likely to drop substantially. I think you can see where this is headed

  • Paul Therien - CENTUM on 2013-11-19 1:52:24 PM

    @Paolo – you are slightly misquoting me. I stated that so long as rates AND employment remain consistent there is limited risk of a crash. If you look at all historic data surrounding declines in the real estate market both have happened after a significant increase in both interest rates and unemployment rates in Canada. As for the economy, all economies are cyclical with each segment feeding the other. Consumer confidence however is the ultimate driving force of any economy. It is why it is considered to be one of the strongest indicators of economic stability.

    The likely hood that income levels will suddenly “drop substantially” is slim to none, in fact a phenomena that has only been seen once in our history (the great depression) and it was a blip on the radar. Income levels actually were higher at the start of WWII than they were prior to the depression, and WWII started before the depression ended. What is likely to happen is that spending will decrease, which will have an effect on the economy, but the flip side of that drop in spending will be increased savings and reduction in consumer debt. Something that we saw in the 1990’s after the 1989 recession.

    As for housing demand…

    It is estimated that there will be 1 million new jobs created in Canada in 2014, and immigration numbers are set to be very strong. Using my home town as an example: Vancouver is estimated set to ingest over 60,000 immigrants in 2014 and that does not include the rest of the lower mainland (Surrey, Langley, etc.) which is estimated at 90,000 people – that is a population increase of 150,000 people, or 12,500 per month. All of these people need places to live. With rental vacancy rates at historic lows, there is only one solution – construction and sales. There are approximately 12,000 listings of homes for sale currently in the lower mainland, and aprox 2000 rental vacancies. Even if we only got 10% of the immigration, there is still a demand for housing that current supplies cannot meet because there are also first time homeowners, and other real estate transactions to consider.

    Vancouver’s immigration rate is significantly smaller than the GTA, and is about on par with Alberta. Saskatchewan is seeing an increase due to the rapidly growing oil and gas sectors in that province. Some economists are saying that the west will soon become the engine of Canada’s economy because of access to Asia and one of the world’s richest deposits of natural resources. These all bode very well for our outlook.

    Are they guarantees? Of course not, nothing in life is truly guaranteed because there are too many variables that we cannot control. What they do give us however is a high demand for immigration and a strong employment sector. That translates into housing demand. It might not be as strong as in the past, but people need somewhere to live. Even in the recessions of the 80’s and 90’s there were still people buying and selling homes – it is not like the market suddenly just stopped. It slowed, but it did not stop.

  • M. Robertson on 2013-11-19 1:59:14 PM

    @ Paul

    I am confused. You say that if you got 10% there would still be demand, but that would be 15,000 people trying to move into 14000 homes, that is not a huge demand...

  • Paul Therien - CENTUM on 2013-11-19 2:02:19 PM

    @ Robertson

    Consider it this way. 12,000 listings, means that those people still need housing. Even if 1/2 of them left the province there is still less housing than people if you consider immigration.

    We also have a generation of people coming into the marketplace to purchase. Those numbers do not consider them.

  • M. Robertson on 2013-11-19 2:03:37 PM

    @Paul

    Nevermind... bit of a mind fart there. I should have read more closely and not skimmed.

  • Paolo Di Petta | dipettamortgage.com on 2013-11-19 2:13:29 PM

    @ Paul - more great points. Again, though, I politely disagree on a few.

    The estimate that there will be 1 million new jobs created in 2014 is, as you said, across Canada.

    Again, I covered this in my criticism of the Genworth report a few months ago: http://mrt.gs/RosyReport - Jobs and Immigration in Ontario are on the decline.

    VS Alberta, there are more skilled labourers moving there from here than from there to here. That decrease in jobs (and immigration to fill those jobs) are likely going to mean a lot of empty units in the Toronto market.

    Again, resource-based economies that have economic diversity within Canada will have a much better chance of weathering the storm, but RE-based ones are likely to suffer.

    How that will affect the market as a whole remains to be seen, but now, more than ever, local markets face more isolated issues. We should be aware and prepared.

  • Ron Butler on 2013-11-19 2:21:44 PM

    If you were in Toronto in 1990 it sure as heck seemed like it stopped. Condo values fell 38% single family fell 26% in 12 months. There is no question the situation is NOT the same as then but values can go backwards. There was sales activity in 2000 but wow, it was so slow. It took till 1996 for real upward movement to begin, since then except for the 6 month blip in 2008 when the World Financial Crisis hit its been straight up for 17 years. A very fine run. Definitely some brief local price deviations in B.C. Alberta and Montreal over those years but overall a nice time to be a mortgage broker.

  • Paolo Di Petta | dipettamortgage.com on 2013-11-20 6:21:05 AM

    @Ron - exactly my point.

    Another note - midtown TO had a lot of condo units in the 60/70's that became apartments in the 80's.

    Apparently, rental laws/standards HAD to be relaxed to make this happen and REITs snatched them up at a discount.

    This all happened as a combination of multiple factors facing us again today

    - Condo's generally have a 15-20 year life cycle, after that they're too expensive to maintain (maintenance, special assessments, reserve accounts, major repairs) (hence the move in the 80's to easily convert to apartments)

    - Condo building generally starts when the the demographics makes sense - Generations come in waves - young, single 20-somethings all move out. In the 60/70's it was the boomers, in the late 90's/00's it was their kids. In their 30's, they all pair up, have kids and unload their condos, and there's another 20 year gap until their kids are old enough to start another condo boom.

    Well, if you start back at '96, it's easy to see that the condo boom is winding down. And with a ton in the pipeline all set to complete and hit the market in Feb 2014, it's easy to see why this is going to be a HUGE problem. We're having a massive amount of inventory hitting the market, when we're at the tail end of the demand cycle.

  • Bryan Jaskolka on 2013-11-29 6:19:55 AM

    I don't think Bozic has actually listened to anything Flaherty has had to say since last July. Flaherty has specifically said that he has no plans to intervene with the market right now. And when he said that, he was meeting with people from the industry that wanted to voice their own concerns. He was meeting with them to hear them out, and then said he didn't think there would be more changes on the way any time soon. I really don't understand the point of twisting his words into something he didn't say.

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