In this crazy, “unprecedented” (there’s that Oxword of the year again—by the way, Cambridge and Mirriam-Webster each chose only one word for 2020: “pandemic”–) year, who’d have thought when this started that the housing market and the prospects of home-ownership would change so much?
Who’d have thought that these changes would lead to a surge in the rent 2 own industry?
Let’s take a look at what’s happened:
- First, the housing market died. Everyone hunkered down. Realtors sat at home, doing jig-saw puzzles and playing crib. With the economy suddenly comatose, and government paying people to stay at home, what would stimulate the economy? Voila! . . .
- Interest rates plummeted to almost nothing. Interest rates have hit record lows ten times this year as they kept going down, a sliver at a time. Now you can get mortgages for as low as around 1.5%. Then . . .
- June came along. Amongst that segment of the population whose income was not affected by the lockdowns, there was pent-up demand from the usual spring housing market that hadn’t happened, ready to be unleashed when the economy started opening up. Add to that the extra money those people had available from summer vacations they wouldn’t be taking, that they’d saved from not commuting while locked down, or eating out or socializing. Combine the pent-up demand, the found money, and the rock-bottom interest rates and . . .
- the housing market boomed! It’s a good thing realtors had had all that time to rest in spring because they made up for it, come summer. We returned to multiple offer scenarios, with prices sometimes bid up. (I know—we lost everal bids before we finally snagged one for a rent 2 own couple). This led to . . .
- a huge demand for mortgages. So, the banks could be picky. Did they really want to give away mortgages at below 2%? Besides, with the prospect of increased foreclosures from that other segment of the population (those hurting financially because of the pandemic), they were antsy. Banks are financially savvy. They simply adjust their criteria, to make sure they still come out with the profits they were anticipating. So . . .
- They made it extremely difficult to qualify for a mortgage on grounds other than simply monthly payment affordability (tied to interest rates). It became difficult to qualify on the basis of job and income security (somewhat justified by the uncertainty of that, due to the pandemic). Simply being past your probationary period in a new job was no longer good enough; you needed to show a much longer job security. Any extra income besides what your basic job letter reported no longer qualified, even if it was on your T-4, unless you could show two years’ worth.
- Also the goodwill of government programs had consequences that back-fired. The opportunity to defer mortgage payments, for example, meant they were simply added to the mortgage, and the term extended. But, guess what else! The credit bureaus added a new category: “Deferred Payments.” What do you think a “Deferred Payment” notation does to your credit score? Maybe not as bad as “Default” but certainly not as good as “Paid as agreed and up to date.”
- And, furthermore, renters who are forced to move (often due to owners taking advantage of soaring prices to cash out—who could blame them?) are facing massive rent hikes because landlords who were forced to freeze rents and who were prevented from evicting delinquent renters during the pandemic, are needing to find some way to recover their losses.
So, here we are, late into this year, once again fairly locked down. Some people’s mortgages are due, and they no longer qualify. Others want to get into home ownership while the rates are low and before the market escalates further, but they can’t qualify because the mortgage criteria have changed. And then there are renters forced to move facing huge rent increases that intensify their thirst for ownership.
So, they apply for rent 2 own. We can work some magic, but only so much, because, at the end of the rent 2 own period, they still need to qualify for a mortgage on the criteria that will then be in place (a moving target, to be sure). What we can do is “buy time,” and be creative, to help our clients get to qualification, while giving them the opportunity to get into the home now instead of waiting until the prices soar, and also avoiding multiple moves.
So what would we advise now? If you want to qualify for a mortgage, either now or in a few years after a rent 2 own program:
- Keep whatever job security you have now. Don’t jump from job to job. You’ll only delay your eligibility.
- Don’t defer mortgage or rent payments if you can avoid it. That will put you in a worse situation.
- Avoid bankruptcies and, especially, consumer proposals—at all costs!
- Don’t feel too pressured by low interest rates; they’ll stay low for quite some time. (The massive debt incurred by our government and all governments during this pandemic will force that.)
- Keep your expectations modest. High prices mean you’ll have to start in the housing market at an entry level. Later, you may be able to move up to something more exciting.
- The housing market may not continue to soar, but it likely won’t drop back down, either. So locking up a final purchase price now in a rent 2 own contract may be a good move.
- And, keep your chin up. As Bonnie Henry keeps reminding us: “This is for now; this is not forever.”
At least, that’s how I see it . . .
