Scotiabank releases Q4 results

Ephraim Vecina
other

Find out how the Canadian banking giant fared

Spearheading the Q4 2021 round of earnings announcements, Scotiabank today reported net income of $2.559 billion in the quarter ending October 31, much higher than the $1.899 billion during the same period last year. Diluted earnings per share stood at $1.97, versus $1.42 a year ago.

Scotiabank also reported net income of $9.955 billion for the fiscal year 2021, compared to net income of $6.853 billion in 2020. Diluted EPS reached $7.70, up from $5.30 the year prior. Return on equity improved to 14.7%, compared to 10.4% in 2020.

“We ended the year with strong fourth quarter earnings and exceeded our medium-term financial targets in fiscal 2021. Our diversified business model demonstrated its resilience through the pandemic, and the bank is well positioned to achieve its full earnings power in the upcoming year,” said Brian Porter, president and CEO of Scotiabank.

Read more: Scotiabank planning phased return to office

Scotiabank’s Canadian banking arm generated adjusted earnings of $4.171 billion in 2021, up by approximately 60% annually. The increase was driven by lower provisions for credit losses and higher revenues driven by non-interest income and strong loan growth.

The bank’s global wealth management division also saw its adjusted earnings grow by 23% annually to $1.592 billion in 2021, driven by strong results across both its Canadian advisory and asset management businesses.

Another strong area for Scotiabank was global banking and markets, which saw earnings of $2.075 billion due to robust performance, prudent expense management, and lower provisions for credit losses. International banking, in particular, saw a 62% annual increase in adjusted earnings, reaching $1.855 billion due to strong commercial and secured lending loan growth, prudent expense management supported by accelerated customer adoption of digital channels, and lower provisions for loan losses, driven by improved credit outlook.

The bank currently has a Common Equity Tier 1 capital ratio of 12.3%, which has made it sufficiently “capitalized to support its strategic growth plans and return capital back to shareholders,” Scotiabank said. “This quarter we announced a 10 cent increase in the quarterly dividend to $1.00 per common share, 11% higher than a year ago.”

“As we close out 2021, it is clear that our sharpened footprint and our significant investments in our digital capabilities have positioned the bank for a very bright future,” Porter said. “As we look forward to 2022, we expect to deliver strong growth across all our business lines, with optionality and multiple avenues to grow.”

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Vancouver home prices projected to jump 15 per cent annually by end of the year: Royal LePage

Michelle McNally
Livabl

The cost of homes in Greater Vancouver are expected to keep rising through the rest of 2021.

In its House Price Survey for Q3-2021, Royal LePage forecasted that the aggregate price of a home in Greater Vancouver will grow 15 per cent in Q4-2021 compared to the same period last year. This prediction is consistent with the brokerage’s projections published in July.

The aggregate price, and all other aggregate pricing in the report, was calculated using a weighted average of the median values of all housing types using data from Royal LePage’s sister company, RPS Real Property Solutions. This includes both resale and new build homes. 

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“With no major relief to the inventory shortage on the horizon, I expect strong demand will continue to put upward pressure on prices, and that competition will persist through 2022,” said Randy Ryalls, general manager at the Port Moody-based Royal LePage Sterling Realty, in the report.

In Q3-2021, the aggregate price of a home in Greater Vancouver jumped 20.8 per cent annually to $1,221,400. When assessing different housing types, the median price of a single-family detached home increased the most at 23.4 per cent to $1,651,900. For condo housing types, the median price climbed 8.7 per cent yearly to $697,000 in the same business quarter.

Within the City of Vancouver, the aggregate price of a home grew 12 per cent annually to $1,326,600 during Q3-2021. In the same timeline, median prices for single-family detached and condos rose 14 per cent and 2.2 per cent to $2,399,600 and $766,800.“Vancouver and the surrounding greater region remains firmly in a seller’s market,” said Ryalls. “Although activity showed signs of slowing modestly in the summer and early days of September, the market has picked up again, now that families are back in their usual routines.”

Ryalls noted that competition remains tight in every  market segment as a result of low property inventory. The Greater Vancouver region currently has less than 9,000 listings, well below the approximately 15,000 listings needed for the market to be considered as balanced.

Interprovincial migration has also put “further strain” on British Columbia’s housing market, according to Royal LePage. StatsCan reported that the province saw the largest increase in interprovincial migration nationally during 2020-2021, welcoming 34,000 Canadians from out-of-province.

“Supply would essentially need to double in order to meet the current demand,” added Ryalls. “As a result of the shortage, prices continue to rise, forcing some buyers who have been priced out of the single-family detached market to purchase condominiums instead.”

On the national level, the aggregate price of a home in Canada jumped 21.4 per cent year-over-year to $749,800 in Q3-2021.

Based on the Royal LePage National House Price Composite — which uses national proprietary property data and information from 62 Canadian real estate markets — the national median price for single-family detached homes and condos also increased. The value of a detached home jumped 25.2 per cent year-over-year to $790,000, while condos saw an annual increase of 13 per cent to $533,600.

In Q4-2021, the aggregate price of a home in Canada will increase 16 per cent yearly to $771,500, Royal LePage predicts.

“Looking back to the late spring of 2020, the Royal LePage benchmark value of a home was $580,000,” said Phil Soper, president and CEO of Royal LePage. “The subsequent ‘Covid-catalyst’ which drove legions of Canadians to upgrade their living situations, has created a period of exceptional home price growth with real estate values on track to grow 33 per cent by year end.

© 2020 BuzzBuzzHome Corp.

Review of blind-bidding in B.C. real estate market to look at rules elsewhere

Jaonne Lee-Young
The Province

B.C.’s Ministry of Finance is studying options for legislation on real estate sales that it plans to introduce next spring. Photo by Gerry Kahrmann /PNG

The provincial government is expected to study other real estate markets and their bidding practices — such as blind-bidding and automatic step-up clauses — before presenting new real estate legislation for B.C. this spring.

The Ministry of Finance said it will ask market and consumer experts to consider alternatives and how bidding practices work elsewhere.

During the federal election campaign, the governing Liberals talked about implementing a national ban on blind-bidding, whereby home sellers would have to tell buyers exactly what dollar amount competing offers were willing to pay, and the requirement would be tied to an amendment to the Criminal Code.

But the talk has given way to a realization that real estate regulation ultimately falls under the oversight of provinces and territories, which already have slightly different approaches.

On the possibility of changes to blind-bidding, the B.C. Ministry of Finance said it understands “people’s concerns about the process. It’s also important to note that it is a long-standing practice that is used across Canada.”

Critics of banning blind-bidding point to privacy issues and concerns that greater transparency in very hot markets can actually fuel “the fear of missing out” that drives up sales prices.

The ministry didn’t specify, but one difference it could consider might be how home buyers in B.C. rely solely on the seller’s agent’s willingness to reveal on how many other offers there are. In Ontario, brokerages are required to let other buyers know the number of competing written offers.

“Whenever you’re in a multiple-offer situation, that is the one thing that I am allowed and should be telling people is how many offers they’re up against so at least they know that,” said Brendan Powell, a Toronto real estate agent. “There’s no formal process for that registration, but it is a process that we’re obligated to follow. People have a right to know how many offers they’re up against.”

The number of other bids is one indication of demand, but Powell also said it can have its limits in a hotter market.

“Back in the day, let’s say five or six or 10 years ago, we used to have a rule of thumb of how may offers equals how much it was going to go over asking price, but that’s out the window now,” he said. “We used to joke that every offer means another 10 grand over asking, but it’s been some years since that’s even close to relevant anymore. The only time it’s really helpful (to know the number of other bids) is when you’re the only offer or if there is one other offer.”

Still, he said, “if I know there’s only one other offer, or no other offers, that would very well change the number that I have my buyer willing to pay, versus if there are 15 other offers. If it’s 15, you damn well better put your best foot forward.”

Another option is the use of an “automatic step-up clause,” a mechanism found on most online auction sites that allows for bidding in set increments. Buyers would still submit their maximum bid, but the winning bid would just beat out the next highest bid by a reasonable, set amount rather than a very wide margin.

© 2021 The Province

Canadian home sales set new record, beating 2020

Michelle McNally
Livabl

 The year is not even over yet and Canada has posted the most home sales on record, surpassing previous record-holding levels logged in 2020.

In its monthly national market report for October, the Canadian Real Estate Association (CREA) stated property sales grew from September to October as the average national home price rose on an annual basis.

“After a summer where it looked like housing markets might be calming down a bit, October’s numbers suggest we might be moving back towards what we saw this Spring, with regards to current market demand and supply conditions,” said Cliff Stevenson, chair of CREA, in the report.

“That said, one month of data is not a trend, so we’ll be watching how the balance of this memorable year plays out closely,” he added.

Here’s what we know from CREA’s latest insights.

Home sales soar to new highs

Year-to-date, 581,275 homes have been bought and sold between January and October across Canada. This has surpassed the total number of homes sold during all of 2020, which reported an annual record of 552,423 sales.

The number of yearly property sales for October 2021 was down by 11.5 per cent, a drop from October 2020’s record. However, last month was still the second-highest October for sales on record.

Month-to-month, home sales were up 8.6 per cent from September to October, the largest monthly increase reported since July 2020. Sales were reported to have increased monthly in three-quarters of all local markets and in all major cities. 

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”2021 continues to surprise,” said Shaun Cathcart, CREA’s Senior Economist, in the report. “Sales beat last year’s annual record by about Thanksgiving weekend so that was always a lock, but I don’t think too many observers would have guessed the monthly trend would be moving up again heading into 2022.”

Cathcart added that a month with more new listings allowed for more sales to take place, but with market demand so strong, the supply of homes for sale continues to shrink and is at its lowest point on record.

Less than two months of home inventory was available

The quantity of newly-listed homes coming online moved up by 3.2 per cent between September and October, with most gains in local markets.

However, on a national scale, there was just 1.9 months worth of inventory by the end of October 2021. This marks a half-month drop from three months earlier, falling back to February and March’s extreme lows.

“With so many markets starved for supply, it’s not surprising to see sales go up in months when more properties go up for sale,” the CREA report noted.

The sales-to-new listings ratio rose to 79.5 per cent, up from 75.5 per cent in September and 73.5 per cent in August. Based on sales-to-new-listings ratios, two-thirds of local markets were seller’s markets in October.

National home price continues to trend upward

The actual national average home price was $716,585 in October 2021, up 18.2 per cent from October 2020. When excluding Greater Vancouver and the Greater Toronto Area from this calculation, the national average price drops $155,000 to approximately $561,585.

Last month, the Aggregate Composite MLS Home Price Index was up 2.7 per cent monthly and 23.4 per cent year-over-year.

When analyzing specific markets, British Columbia reported annual home price growth above 20 per cent, but this was lower in Vancouver. Year-over-year price growth came close to 30 per cent in Ontario and was reported to be a little over 20 per cent in Greater Montreal.

© 2020 BuzzBuzzHome Corp.

Province extends deadline for filings to ‘hidden ownership’ real estate registry

Joanne Lee Young
The Vancouver Sun

Lawyers say the law was complex and guidance from the government on interpreting the law was insufficient

 Towers in and around Coal Harbour in downtown Vancouver on Dec. 9, 2020. Photo by Mike Bell /PNG

The province is extending the deadline for people to file information to a registry intended to track the “hidden ownership” of real estate in B.C. The deadline, originally the end of this month, is now the end of November 2022.

The Land Owner Transparency Act came into effect in December, giving both new property buyers and existing property owners a year to disclose interest holders in corporations, trusts and partnerships.

The goal was a publicly searchable database of information about who directly or indirectly owns real estate in hopes of curbing rising home prices fuelled by shell companies, nominees and trusts that allow for obscuring owners’ identities and, potentially, money laundering.

The extension to next year, in part, acknowledges the administrative strain caused by COVID-19. However, it was also sparked by points made by many lawyers and others.

“It’s much easier to say you are doing something than to actually do it,” said Ron Usher, a lawyer who represents B.C.’s notaries public that work on real estate transactions and sat on the panel that led to an overhaul of real estate regulations.

“It’s a very complex law, and it’s going to take time and staffing to explain it to the public and then to enforce it,” said Usher.

An Oct. 25 letter from the Canadian Bar Association’s B.C. branch to the Ministry of Finance said the original deadline was “unrealistic for a number of reasons.”

Even though there was awareness among lawyers, notices were never sent to property owners “alerting them to the Nov. 30, 2021 deadline,” said the letter.

Since trust arrangements don’t require owners to appear on property titles, there was the challenge of figuring out who to inform of the filing deadline.

The letter, more pointedly, also said “there has been a lack of meaningful guidance to legal professionals through authoritative policy statements by the ministry regarding the interpretation and application of the Act.” It warned that a year after the law being enacted people in the legal profession often have differing views of the correct interpretation of the law.

As one lawyer pointed out, the Ministry of Finance provides dozens of bulletins and publications interpreting the Property Transfer Tax, but little information on the much more complex topics of interpreting “indirect control” of real estate and transactions by foreign buyers.

“Legislative complexity coupled with inadequate guidance means that legal professionals are spending more time handling each (transparency) matter, which, in turn, leads to backlogs of client requests and the inability to provide adequate legal representation,” said the letter.

The lawyers’ group argued for an extended deadline because the Act is so complex, but has a “scope of penalties” and there is the significant potential for misfilings due to misinterpretations.

[email protected]

© 2022 Vancouver Sun

Home ownership becoming out of reach in B.C. suburbs that were once affordable

Glenda Luymes
The Vancouver Sun

With B.C. home listings at historic lows and prices climbing even higher, the quest for affordable housing is taking some buyers beyond the ‘burbs.

 Fraser Valley realtors and brothers Merrick and Michele Matteazzi of Movement Real Estate Group. Rising mortgage rates next year could lead to prices “levelling off and a slow build up of inventory,” said Michele Matteazzi. Photo by Submitted photo – Richelle Kend /PNG

For years, B.C. home buyers seeking more for their money have looked east.

“People move from Vancouver to Surrey. Surrey to Abbotsford. Abbotsford to Chilliwack,” explained Surrey realtor Rajiv Bhagirath.

But with the listing of B.C. homes for sale hitting historic lows and prices climbing even higher, the quest for affordable housing is taking some buyers beyond the ‘burbs, while others are deciding to wait it out.

Chilliwack realtor Serena Laye said 30 per cent of her sales the last two months have been people leaving Chilliwack for places like Castlegar, Terrace and 100 Mile House.

“Because of that influx of people from Vancouver, you’re seeing sellers in Chilliwack looking north,” she said.

Those who sell high, but want to remain in the community, must also buy high.

As a result, some sellers have chosen to delay listing their homes until more properties come on the market, said Abbotsford realtor Michele Matteazzi.

He recently had a client who hoped to sell and buy back in the same neighbourhood.

“He could have sold in a heartbeat, but we advised him to wait because there’s nothing available for sale,” he said.

Data from 10 real estate boards across the province paints a picture of low supply, high demand and rising prices.

On Wednesday, the B.C. Real Estate Association reported 19,214 active listings across the province in October — a nearly 40 per cent drop from October 2020 and a record low.

A total of 9,593 sales were recorded by the Multiple Listing Service, a 13.7 per cent decrease from last October, while the average residential price was $964,777, an 18.9 per cent increase.

The steepest decrease in homes for sale was in the Fraser Valley, where there were 53 per cent fewer homes listed this October compared to the same time last year. Kamloops saw a 49 per cent drop, followed by Vancouver at 47 per cent and Victoria at 55 per cent.

In Greater Vancouver, where the average home price is highest, the sales-to-active-listings ratio reached nearly 42 sales for every 100 listings.

Other regions have an even tighter supply: Chilliwack’s ratio hit 84.5 in October, while Victoria was just under 94 per cent and the Fraser Valley was 69 per cent.

Analysts say a sales-to-active-listings ratio of 20 or higher indicates a seller’s market, where there are more people looking for a home than homes available.

“The story across the province continues to be the record low number of listings,” said Brendon Ogmundson, chief economist for the BCREA, which represents about 23,000 realtors across the province.

“Rising mortgage rates should start to temper sales activity next year, but even with a moderation in demand it will take quite some time for the inventory of homes to return to a healthy level.”

Matteazzi said the impacts of the pandemic are still being felt on the Fraser Valley real estate market as people who found themselves working from home wanted more space as commuting became less of a factor. Some people who sold at the start of COVID, believing the housing market would crash and allow them to buy back in for less, were priced out as prices rose.

“It’s always hard to time the market,” he said. “If it’s your principal residence, buy and hold. Never play with your principal residence.”

The realtor predicted rising mortgage rates next year won’t lead to a crash, but rather “a levelling off and a slow build up of inventory.”

With files by Cheryl Chan

[email protected]

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© 2022 Vancouver Sun

Pandemic trends reduce housing supply, heat up rental markets

Ryan Garner
Livabl

 Looming interest rate hikes have spurred sales and reduced inventory, heating up housing and rental markets on both sides of the border.

Zonda chief economist Ali Wolf outlined the latest economic and housing trends from the COVID-19 pandemic in a Nov. 11 webinar. She noted that buyers are expecting interest rate increases due to recent inflation data, which is pushing them toward buying sooner than later.

It’s a trend market watchers have also been noticing in Canada, with inventory levels low across the country and buyers anxious to get in ahead of higher rates.

“If I were a buyer right now I would be looking at some of the certainty of being able to lock in the rate where it is,” Wolf said.

Reduced inventory levels persist south of the border, with both new home and resale listings down 20 per cent from a year ago – a number that mirrors the Canadian situation.

Wolf anticipates supply increasing after the winter: “I think there are a lot of sellers that are trying to be opportunistic and trying to time the market correctly, and think that entering next year during the spring selling season will be a really good time.”

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Rising home prices and low inventory have also resulted in a hot rental market.

In the U.S., occupancies are at an all-time high, reaching 97 per cent at the national level, above the 95 per cent mark pre-pandemic. In addition, third quarter renewal rates are exceeding the 52 per cent benchmark in almost all markets.

Zonda managing principal Kimberley Bynum says the rental market is the hottest she’s seen in more than 30 years. REITs are reflecting that shift, with AvalonBay Communities reporting that rental rates are now equal to or greater than 2019 levels in every region except Northern California.

Canada’s two largest markets have also seen their rental markets intensify, squeezing supply and hiking prices. According to Zonda Urban, Toronto rent prices increased six per cent from $3.27 per square foot (PSF) during the second quarter to $3.46 at the end of the third quarter, a $0.19 increase. In Vancouver, rents rose an average of $0.10 PSF during the third quarter, an increase of 3.1 per cent.

Wolf attributed the numbers to two factors.

The first is a decrease in people moving out of rental communities to purchase. She cited a recent survey by Camden Property Trust indicating that move-outs to home purchases decreased from 17.7 per cent during the second quarter to 15 per cent in the third quarter, trending below the long-term average of around 18 per cent.

The second factor strengthening the rental market is the renewal ratio. At the start of the pandemic, the second quarter of 2020 saw rental renewals hit all-time highs. Those numbers dipped during the following year before rebounding to record levels during the most recent quarter.

Wolf pointed out that renewals increased because people that wanted to move did so earlier in the year, while others decided to stay put due to either limited housing inventory or increased rent.

© 2020 BuzzBuzzHome Corp.

How to build a mortgage brokerage from scratch

Fergal McAlinden
other

For one top professional, there was a clear focus

 How does a mortgage professional with an entrepreneurial mindset decide to take the plunge and start their own company? For Meaghan Hastings (pictured top), the move into business ownership arose when she was working as a mortgage agent and casting around for brokerages to join, with the sudden realization that her ideal company was one she could create herself.

“I was looking for the perfect environment where I thought I could maximize my potential, so I shortlisted brokerages that I would want to join as an agent,” she told Canadian Mortgage Professional. “At some point I thought, ‘Why am I looking for someone else to create this? I have a very clear vision of what I want – why don’t I just build it myself?’”

That epiphany saw Hastings start laying the groundwork for The Mortgage Coach, her Toronto-based brokerage that’s witnessed sizeable growth since opening its doors in 2019. Initially starting out with just five employees – Hastings, an admin staffer and three agents – the company numbered 30 agents by the end of its first year, with that figure currently standing at around 70.

Perhaps the company’s success since its foundation is unsurprising, given the entrepreneurship and initiative that have pervaded Hastings’ career. At the beginning of that journey, she rose from receptionist to business manager at a car dealership in a short space of time, with a stint as a mortgage specialist at a leading Canadian bank preceding her move into the agent and broker channel.

The importance of education

What’s the secret behind the rapid rise that’s seen The Mortgage Coach named by CMP as a Top Brokerage, and Hastings as a Woman of Influence and member of the mortgage industry’s Hot List? For Hastings, the importance of company culture can’t be overstated, with furthering agents’ training and education also a key priority.

“As much as possible, I really try and keep that vision as if I was an agent looking to further my career. We always keep that focus in the brokerage,” she said.

Read next: Top Brokerages 2020: The Mortgage Coach

“Whether it’s product training, lender training, mindset or sales training – it’s kind of a smorgasbord. What’s important to me isn’t always important to someone else. It’s making sure it’s all available to them and being super-open to their ideas.”

That emphasis on ensuring that new agents have the tools and support they need to succeed is one that’s become doubly relevant in the current climate, with new mortgage professionals often thrown into a hectic and daunting environment from the get-go.

For Hastings, creating a culture that allows new team members to flourish is one of the most important aspects of running a successful brokerage and ensuring the utmost support – whether that means she’s fielding calls from agents during the workday, or at six in the morning.

 “We really do a lot to make them feel welcome and comfortable really quickly,” she said. “From the time that they’re hired they go through a call with me, a welcome call with our office manager, we send them out a welcome kit with a letter from the Mortgage Coach.

“We have it set up so that other senior agents within the brokerage reach out to them and introduce themselves – just so that they have another friendly face, or a voice they can call if they have a question.”

Adjusting to the new normal

Of course, the COVID-19 pandemic ushered in a radical adjustment for mortgage professionals across the country – one that presented its own unique challenges as offices emptied and the work-from-home revolution began.

Hastings faced the task of maintaining a strong team environment amid that chaos, with the added responsibility of helping two elementary-school-aged children adjust to home schooling. She managed that by making sure the wellbeing of her staff was accounted for and scheduling an additional team call each week to allow everyone to check in with each other.

Read next: 2020 Women of Influence: Meaghan Hastings

“Making sure that everyone had a good experience was one of the most important things for me. I didn’t want to put pressure on my kids or my agents – it was really just making sure that everybody was OK,” she said.

“When COVID hit, we started another team call on Thursday afternoons – we could just chat about anything, about our days. It really wasn’t product or mortgage focused; it was just being focused on them as people.”

She also arranged for COVID care packages to be sent out to the team, with virtual events and trivia nights helping maintain the connection and ensure that everybody knew the company was there for them.

That’s the type of leadership and attention to detail that have cemented Hastings’ reputation as a trailblazer in the mortgage industry, a broker-owner whose stock continues to rise. As a prominent female executive in the mortgage sector, she emphasized how crucial it is for women to help pave the way for the next generation to come through and reach even greater heights.

“I think it’s really important as a woman in leadership that we are setting examples for the agents entering the industry,” she said, “and not just setting examples – but helping them in their growth.”

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How many Bank of Canada rate hikes are likely in 2022?

Ephraim Vecina
other

The central bank might be wavering on its rate-freeze commitment given inflationary pressures

Amid sustained inflationary pressures and supply-chain issues, the Bank of Canada will likely implement three rate increases in 2022 beginning in April, according to a new report by RBC Economics.

This is because while the central bank has committed to freezing its rates until economic slack is absorbed, it might have reconsidered that assurance last month when it said that it was open to earlier hikes despite downgrading its growth projections, said Josh Nye, report author and RBC senior economist.

“The BoC seems to be putting more stock in strong employment data than soft GDP readings, and brought forward its estimate for when economic slack will be absorbed next year,” Nye said.

Read more: Rate hikes won’t stop runaway price growth – economist

However, Nye said that these hikes will not be as aggressive as markets are pricing.

“Our call for three rate increases in 2022 is still well short of the four to five hikes priced in by markets,” Nye said. “Canada’s GDP recovery has progressed in fits and starts and that appears to have continued with a ‘flash’ estimate pointing to flat activity in September. If confirmed, that would mean the economy hasn’t strung together consecutive monthly gains since the first quarter.”

Given this uncertainty surrounding the degree of economic slack, and combined with inflation trends, the BoC will lean towards an earlier April hike, Nye said.

“The Canadian dollar has been supported by both hawkish central bank expectations and rising commodity prices. But with BoC pricing looking more stretched than for the [US Federal Reserve], we think interest rate dynamics will work against the loonie in the coming months,” Nye said. “With energy prices also expected to provide less of a tailwind, we continue to expect the Canadian dollar will slip back toward 80 US cents by year-end and dip modestly below that mark in 2022.”

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The growing influence of the

Fergal McAlinden
other

New buyers are increasingly relying on family assistance for down payments. What does it mean for the industry?

 Considering the well-documented struggles of new entrants to an increasingly unaffordable Canadian housing market, the news that first-time buyers are increasingly seeking assistance from their parents for a down payment comes as little surprise.

A new report from the Canadian Imperial Bank of Commerce (CIBC) has revealed that just under 30% of those buying for the first time received help from family members in the purchasing process, a figure that has climbed precipitously since 2015.

The average amount gifted by family members to assist homebuyers has also risen dramatically since that year, a reflection of skyrocketing prices in the country’s hottest markets. The bank’s report showed that the average gifted amount has hit a record high of $82,000 in 2021, up from $52,000 six years before.

With a 20% down payment on a home priced at $1 million or more deemed increasingly out of reach for first-time buyers, those who turn to the so-called “Bank of Mom and Dad” for support typically do so for a chunk of that hefty payment.

Read next: How are first-time buyers getting the money they need?

The report said that fully two-thirds of first-time buyers that received a gift used it as the main source of their down payment, with the average amount received by those Canadians – $104,000 – substantially higher than the overall average.

The trend of homebuyers using gifted payments to supplement their own down payment contribution isn’t a new one – and, curiously, the percentage of first-time buyers receiving a gift from family members has remained steady since last year despite the frenetic market activity of the pandemic era.

Still, the current figures are stark, with CIBC’s analysis revealing over $10 billion provided in gift payments over the past year. That statistic means that gifts made up around 10% of all down payments during the previous 12 months, a share that could be expected to grow even further in the near future.

A consequence of that increasing reliance among new buyers on gifted payments could be new requirements introduced by some lenders to ensure the source of the donation is solid. Christelle Mwamba (pictured top), a mortgage agent at Mortgage Scout, told Canadian Mortgage Professional that she had noted many lenders requesting additional information where gifted payments were concerned.

“I’m seeing the trend that a lot of parents are gifting the down payments. The new thing now is that lenders have kind of picked up on that,” she said. “They also want to make sure that the parents are not getting themselves into a financial liability by giving the money to their kids.

“Before, parents would just sign a gift letter and transfer the money to their kids’ accounts. But now, lenders are asking, ‘What do the parents do? What kind of job, are they retired?’”

Read next: Can the First-Time Home Buyer Incentive be salvaged?

CIBC’s report emphasized that, nationally, about 5.5% of gifting parents finance the payment through debt, although that figure is higher in the country’s priciest markets of Toronto and Vancouver.

During the first three quarters of 2021, the average gifted amount in Toronto was upwards of $130,000 for first-time buyers, with that figure rising to an eyewatering $180,000 in Vancouver.

Leah Zlatkin, principal broker at Toronto-based Brite Mortgage, said that it was common for a refinance on the parents’ part to free up equity for the gift payment – with the growing popularity of reverse mortgages potentially set to accelerate because of the current prominence of the gifting trend.

“I think the big story is going to be reverse mortgages, which seem to be a great option for a lot of people as they realize how much equity they have in their homes and how much debt they’re carrying as they approach retirement,” she said.

Mwamba said that parents often lead the way in the process of a gift for a down payment, particularly when they want to verify if the mortgage is a manageable financial burden for their child before going through with the gift.

“The only wiggle room when they’re ready to buy and they find a property is that if the purchase price is slightly higher, that’s when the kid and the parents maybe go back and talk about it,” she said, “but usually, [with] most of my clients, it’s the parent that actually reaches out to me because they want to make sure that the kid can actually carry the mortgage payment.”

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