President on the big questions facing the area's industry
Steven Tulman (pictured) is well placed to assess the lay of the land in the Greater Toronto Area housing market.
As Clover Mortgage president, the Mississauga-based agent oversees a team with a presence throughout the GTA and Ontario in its currently red-hot residential and commercial spheres. He told Mortgage Broker News that the outlook for the area’s thriving market depends on a number of factors – not least the pace of pandemic recovery.
Attention has long focused on the rapidly dwindling supply of new homes in the area, with Altus Group data showing that remaining inventory in the GTA at the end of February stood at its lowest level since December 2017. Tulman said that sky-high demand, and its accompanying impact on house prices, had the potential to cause headaches for the mortgage industry in the future – although he also noted the past durability of the Canadian housing market.
“One of the main ways that [lack of supply and high prices] can present a problem is if, after the pandemic, the financial effects on individuals are negatively amplified to the point where people won’t be able to afford these houses, and the market slumps downward to correct itself,” he said. “How big of a correction? I don’t know.
“[However], when we were going into the pandemic, most economists predicted doom and gloom for the housing market – and that hasn’t happened. It slowed down for three to four months, and then skyrocketed back. The Canadian real estate market has been resilient.”
With the benchmark price for new single-family homes in the GTA hitting $1.373 million – a 25.1% annual increase – the current spate of bidding wars for properties that eventually sell significantly over their listed price shows little sign of slowing down. Tulman said that that presented its own unique challenges for brokers and their customers.
“I do warn our clients with a caveat: if they’re purchasing a home and paying above asking price, try to make an offer conditional on financing, because a lender will require an appraisal,” he said. “If an appraisal doesn’t come back at that new higher purchase price, then it can be a challenge for many to get the mortgage that they may need – especially if it’s a high ratio mortgage where they’re putting down less than 20%.”
A high ratio mortgage, Tulman said, means that clients are ultimately faced with less choice. “They’re more limited with the type of lenders they can go with. They’re limited to three major insurers that need to approve the loan – and they won’t if the appraisal doesn’t come back at the right value, unless the clients have enough extra funds to cover any shortfall that may arise due to a lower appraised value.”
Tulman also raised remotely conducted desktop appraisals as an obstacle that had emerged from the pandemic.
“You could have an appraiser from anywhere in Ontario sitting at their computer,” he said, “not seeing the house, the property, the neighbourhood – they’re not familiar with how properties are assessed in a specific neighbourhood, and they’re giving an estimated price. Often, that can come in significantly lower than if an appraiser from the area would go in, look at the home, and see the area.
“Using a proper local appraiser is important for homebuyers to be able to get the proper appraisal price, so that they can get the finance at a reasonable rate.”
Tulman said that Clover’s commercial mortgage division had seen an increase in demand outside of the GTA, with the likes of Hamilton, Kitchener and Barrie showing an uptick in interest since last March. That trend has notably been mirrored on the residential front, with the “urban exodus” out of Toronto gathering pace since the beginning of the pandemic. That movement, Tulman said, could continue even post-COVID.
“If the pandemic eases up or halts in the near future, do I see people moving back into the city? Not necessarily,” he said. “Major institutional organizations have upgraded their technology platforms to enable working from home, and a lot of companies have seen an increase in productivity.
“Whether the pandemic ceases or continues, I think we’re going to see a continuation of people moving away from major cities. And that’s probably going to happen across the globe – not just in Ontario and Canada.”