The fallout from COVID-19 is changing views on how best to leverage equity
As ready as Canadians are to move on from the past two months of COVID-19 coverage, disruption and distress, there are few signs that a return to normal is imminent. The Canadian Federation of Independent Business is predicting “tens of thousands” of job losses and the Conference Board of Canada recently surveyed the level of confidence among the country’s business leaders and found it to be the lowest ever recorded.
In such an unpredictable economic climate, where housing prices could just as easily spike as crash, Canadian homeowners in need of cash flow are finding it increasingly risky to leverage strategies that would have worked only weeks ago.
Most homeowners have been savvy enough to avoid selling their properties at a time when buyers, realtors and appraisers can’t even view homes in person. Sales declines in April in Toronto (67% lower than a year before) Edmonton (55% lower), Hamilton (63%) and Victoria (59%) illustrate both a colossal lack of demand on the part of buyers and a lack of seller faith in the market.
Homeowners who have diversified their portfolios with equities are facing a similar situation. With the S&P 500 already having lost approximately 15% in 2020, selling off shares into such an unstable market may be a less than ideal option, especially at a time when so much has already been lost.
According to Paul von Martels, Vice President of Prime and Reverse Mortgage Lending at Equitable Bank, it’s little surprise that a growing number of Canadians are now considering reverse mortgages as an alternative solution, one that removes many of the variables that can result in even further financial discomfort.
“Given the complexities and challenges presented by our current situation, it’s reasonable to expect a short-term shift in how Canadians access their property wealth,” von Martels says. “Homeowners and advisors alike may view reverse mortgages as a means to optimize equity preservation while ensuring funds are accessible for essential needs.”
Reverse mortgages, von Martels explains, address many concerns homeowners may be feeling. The lower rates – Equitable’s range from 3.94% to 4.84% depending on the reset term – appeal to virtually anyone, and the possibility of the process being successfully carried out remotely using e-signatures and virtual appraisals means clients dedicated to social distancing can still complete their transactions while contributing to the health of their communities.
“Clients really can source a reverse mortgage in a confident and convenient manner, entirely remotely,” von Martels says.
Demand for reverse mortgages is also being driven by one of the fastest growing segments of the population, seniors, who have found in reverse mortgages a financing solution that allows them to keep their homes, age where they’re most comfortable and ensure their and their families’ financial well-being.
“Longer-term, we believe the preference to age in place will grow relative to alternatives like retirement care facilities,” says von Martels. “The COVID-19 situation has highlighted key advantages of having your own home. And, more and more, businesses will keep emerging to provide critical home delivery-like services to help people live more efficient, comfortable and independent lives on their own.”
With the market need for real estate liquidity at an all-time high, and traditional methods of creating liquidity facing unprecedented constraints, von Martels encourages brokers, especially those who take a financial planning approach to their business, to seriously consider incorporating reverse mortgages into their planning programs.
“It creates a real opportunity,” he says.