Human Resources Committee on June 3rd, 2024

[The Chair, Liberal, Bobby Morrissey]

Thank you, Ms. Chabot.

Ms. Zarrillo, you have the floor for six minutes.

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

Thank you, Mr. Chair.

I'm going to use all of my six minutes for questions for Ms. Zlatkin.

Ms. Zlatkin, we're doing a study right now that wants to learn from history but also to understand that Canadians are spending up to 65% of their monthly income right now on housing. I have a few questions for you.

For my first one, you mentioned the overspending that potentially occurred due to forward guidance from the Bank of Canada. My question is in regard to the transparency of the Bank of Canada's forward guidance. Do you think it's adequate? Do you think it has become less or more transparent over, let's say, the last 20 years? That's how long we're looking at in this study.

[Leah Zlatkin]

In regard to that question, I would say that it has become less transparent. There is a lack of transparency when we tell people that rates are going to stay low and then they immediately go up by 4% over the course of the next two years. Certainly, that's not transparency, and I'm not sure whether it's specific to the Bank of Canada making those decisions or premonitions, or whether it has to do with different people in the federal government making those claims.

In regard to mortgages as a percentage of income, I did pull some stats on that. In Toronto, as a percentage of your income, your mortgage is actually comprised at 73% of your income for most Torontonians. In Vancouver, it's at 72%. Across Canada overall—

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

Thank you, Ms. Zlatkin. I'm so sorry. I only have six minutes, and I have some other questions that I really need your opinion and expertise on.

The second question is as follows: What effect have historically low interest rates had on the type of housing that has been built and bought in, let's say, the last five years?

[Leah Zlatkin]

In terms of the housing that's been bought and built in the last few years, most Canadians prefer to buy townhomes and detached homes.

In the last few years, condominiums have been on a surplus. These are not the right kinds of homes for young families and the people who are trying to utilize the first-time homebuyers' plan. Unfortunately, for many Canadians, that's really all they can afford.

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

Just going back to the historically low interest rates—because you mentioned that overspending potentially happened based on the Bank of Canada's forward guidance that interest rates would stay low—in your opinion, have the historically low interest rates caused any of this housing inaffordability?

[Leah Zlatkin]

Certainly when you're looking at rates close to 0.9% several years ago—in 2022—compared to 5.95% today, that's a dramatic difference. When it comes to affordability, you have to qualify not only at the rate, but at the rate plus 2% in many cases. For many people, that qualification standard does not allow you to qualify for the mortgage you need to buy the home you want.

When housing prices are at the million-dollar mark in Toronto and Vancouver, those people cannot afford homes, because they need to have an income of $200,000 a year to qualify for that property, which many Canadians don't have when the average income in those cities is much less.

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

Thank you so much.

I'm going to ask you for some of your insights into the profile of these buyers to really get an understanding of who's being served. What is the profile, demographically? Maybe age, type of house they're buying, type of home they're buying...? What is the profile of a buyer who uses a broker and how has that changed over the last 10 years?

[Leah Zlatkin]

These days, everybody tries to use a broker, so I think it has changed dramatically.

It used to be very skilled and knowledgeable people using brokers. These days, it's everyone. We go from educating new clients and explaining to them how mortgages work, all the way up to experienced buyers who are using us to get the best rates.

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

How educated do you feel those buyers are when they come to see a broker? Do you feel that they're getting adequate education from the banks? Are they getting adequate information from their agents? What kind of information are they armed with?

[Leah Zlatkin]

There are a lot of inaccuracies. I would say that most Canadians who come to us for a mortgage who are not experienced investors do not have strong financial literacy and lack those skills.

It's a lot of guiding, explaining and educating people in order to help them get the right products. When they go to the bank, they're not always getting that same information, because in the bank it's not really regulated, like by FSRA, which is what mortgage brokers are regulated by. A lot of those people may be uneducated and are simply selling the products the bank offers as opposed to educating a client.

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

Can I just ask you, on my last question—because I think we're going to run out of time—what effects has the rapid rise in interest rates over this last year and a half had on buyers? Can you give us maybe even one or two specific stories about how it has affected people?

[Leah Zlatkin]

Yes. In terms of qualifying, many people are not qualifying for the home they want. Then, for those people who already have an existing home, it's very difficult to actually move to a different company or a different lender at their point of renewal. When it comes to renewal time, a lot of these people aren't qualifying.

That's why I propose that we not stress-test clients who are switching mortgage products, especially if they're switching to a fixed product, because it simply makes it unaffordable for people and they're trapped with their existing lender, who is going to offer them a higher rate.

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

I'm going to try to fit in my last question.

How could mortgage products and services be better tailored to support investments in co-ops and social housing developments? Do you have any ideas or thoughts on that?

[Leah Zlatkin]

I would say that you have to be able to use market rents on properties. One of the challenges there may be qualifying the property with market rents in order to qualify for more income or substantial income to be able to afford the home. That would probably require different changes to how we utilize qualification materials.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Ms. Zarrillo.

We will now go to Mrs. Gray for five minutes.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thank you to all the witnesses for being here today My first questions are for Ms. Zlatkin.

Ms. Zlatkin, insured mortgages only apply when a homebuyer puts less than 20% of a home's purchase price down up front and when the property is valued at less than one million dollars.

In your experience in your mortgage broker firm, in the current housing market in our major population centres like Toronto and Vancouver, are you seeing a lot of new homes come into the market with a value of less than a million dollars?

[Leah Zlatkin]

No.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

As well, do you think it will be very meaningful, or are you skeptical that the Liberal's 2024 budget proposal of a higher withdrawal ceiling through the RRSP homebuyers' plan would have an effective impact for first-time homebuyers saving for a down payment?

[Leah Zlatkin]

No, I think it's going to be very challenging given the increases in property values, despite the fact that you can now withdraw some extra money. I think that only really results in about $3,000 of savings in terms of the taxes that you'd get deducted.

For many of these people, the struggle they are having is actually in coming up with that 5% to 20%. If they are buying a property of over a million dollars, in most cases, they do need to have 20% down, so for those people, they are really struggling to get that 20% down. That's where we could come up with a federal program that allows for a shared equity program on properties of over a million dollars and with incomes over $120,000 or $150,000, because those were some of the problems with the CMHC's previous policy.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you.

In your mortgage brokerage, have you seen any changes in the number of mortgage pre-approvals recently?

[Leah Zlatkin]

Yes, absolutely. Now that people are getting wary of the fact that the Bank of Canada may decrease rates, a lot of people are looking for pre-approvals right now, because they are trying to get into the market before it really heats up.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

What would this usually be a sign or a trend of, just to maybe expand on that a bit?

[Leah Zlatkin]

In terms of pre-approvals, it's usually a sign of bidding wars. It's usually a sign that the market's becoming more competitive and that people are concerned about affordability.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

You had given some numbers with respect to the amount of income that someone would need for a mortgage, and RBC had done some analysis specifically on the median household income needed for a home. In Toronto, they had it at 84.8% and 106.4% in Vancouver.

Based on your experience, is this the worst housing affordability that you have seen in your career?