Whether because of temporary hits to income, a sense of uncertainty ahead, or just the ongoing media conversation around emergency funds, Canadian household savings have hit a near 20-year high recently. In Q1 of 2020, savings nationwide went up to 6.1 per cent, 69.44 per cent higher than in Q4 of 2019. These savings could point to a growing glut of cash ready to be deployed in the real estate market when economic conditions stabilize, but they could also point to a growing aversion to taking on new debt of any kind.
Matthew O’Neil, a broker with Mortgage Intelligence who largely serves Toronto and the Southwestern GTA, says he hasn’t seen that debt aversion coming from his clients or prospects just yet. After some unsteady months, he’s actually seeing record business over the summer. He recognizes the uncertainty of the times, though. If the other shoe does drop and the market takes the hit many are predicting it will, O’Neil is ensuring the continuity of his business by practicing responsible lending. The hope is that the relationships being built will carry the brokerage through whatever’s around the corner.
O’Neil says any potential downturn in housing prices will likely come in winter, as the seasonal market slows and the risks of a second wave of COVID-19 increases. If prices do drop, he says prospects and clients will likely try to put up bigger down payments or take smaller mortgages to safeguard against any income hits.
When debt-averse clients turn to him looking to upgrade, O’Neil refuses to promise them something for nothing, calling it a “deal-breaker” if clients don’t want a bigger mortgage but still want to move into a million-dollar home. Even though some brokers and realtors “sing a different tune” on promising upgrades without shouldering more debt, he says the industry as a whole has maintained a commitment to responsible lending through this crisis.
“If you don't want to take on more debt, then unfortunately, you're going to get pushed out,” he says. “You're not going to be able to buy.”
On refinances, O’Neil says the lingering economic uncertainty makes for a much easier conversation, “because 95 percent of the time when we do a consolidation, we're resetting the amortization back to 30 years, which is actually helping their cash flow.” He says he has also been helping consolidate other payments such as unsecured leases and loans.
In the early days of the crisis, O’Neil heard from clients and prospects who were waiting for 25 per cent drops in the housing market before moving in and reaping the rewards of their patience. Many have already moved in, realizing that that drop in prices is unlikely to materialize any time soon.
O’Neil says buyers will flood the market if that winter crash comes, but sellers may not be so willing to let go of their properties if prices tank.
“November, December, are historically our slowest months, regardless. If that's coupled with [the price declines] CMHC is predicting, I don't think there's going to be a lot of business for anyone out there.”