Rob Bain - Navigating Interest Rates and Property Values

In this episode of The Property Mindset Podcast, Phil Gadd invites back mortgage professional Rob Bain to discuss the pressing issue on every buyer's mind: Should you wait for interest rates to drop, or is now the right time to buy? They delve into current and predicted trends in interest rates and how they will impact fixed and variable mortgages. Phil and Rob analyze Fernie's property value trends and provide practical advice on approaching home buying in this competitive market. Tune in to discover the strategies for making informed decisions, regardless of interest rate fluctuations.

Show Sponsor: First Tracks Real Estate Group - eXp Luxury

Transcript

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Welcome to the property mindset podcast. Where we dive deep into the journeys of successful individuals in the real estate industry. Our guests share personal experiences and valuable insights. Providing practical tips and tools for your own real estate journey. Whether you're an inspiring investor. A seasoned professional, or simply someone who loves real estate. This podcast is for you. So join us on an engaging and informative conversation with some of the brightest minds in the real estate industry.

phil-gadd_2_04-29-2024_130623: 0:32

So welcome back to the Property Mindset Podcast with me Phil Gadd and First Tracks Real Estate Group. Today I'd like to introduce back Rob Bain, mortgage professional. We're going to talk about interest rates and house prices. And should you wait to the interest rates come down, Or should you buy now and i'm sure we're going to get some very interesting results from our conversation. So make sure you listen until the end

rob-bain_1_04-29-2024_130623: 1:04

awesome. Thanks, Phil. Really appreciate you having me on the podcast again. It's always great to be here. Always great to join you to chat about these topics.

phil-gadd_2_04-29-2024_130623: 1:12

Like we jumped into it the other day just off air and on a phone conversation. So I thought it'd be a great topic to give some value to our viewers

rob-bain_1_04-29-2024_130623: 2:09

yeah, for sure. And you know what? It's a huge question out there right now that I think, lots of clients are asking me. I'm sure you're getting it from lots of clients as well. And maybe even some folks are thinking about it, but not sure what to do. So maybe first let's jump a little bit into what we're seeing for rate predictions right now. And of course I follow a lot of articles online trends, those types of things. I'm by no means an expert on predicting interest rates, but there's lots of people out there that are lots of economists, lots of other really smart, well educated individuals in that area. And when I follow them and I watch what what they're saying and look at what they're predicting. We've got the next Bank of Canada rate announcement coming up here on June the 5th, and the following one on July the 24th. Most of those experts are predicting that we're going to see the first Bank of Canada rate cut at one of those two. But if we follow what we know today we're going to see some rate cut action. We're going to see most likely small rate cuts but multiple ones happening over the course of the remainder of 2024. As much as we're excited to see lenders prime rate come down from 7. 2 get back down to what we saw in the past of, maybe 5 percent range or something like that, it's going to take some time, right? That's not going to happen all in one Bank of Canada rate announcement. That's going to be hopefully the progress over the next year or two that we see it get back down to that normal level. So that, of course, directly impacting variable rates out there for all those mortgage folks. They have had some elevated rates for the last year and a half or so since prime rate has increased. So I'm sure that's great news for clients out there with that scenario. Now, the other half of it is, of course, fixed rate mortgages. And the important thing to say here is to not really bundle the two together because they're not exactly the same, right? If variable rates in the Bank of Canada announces a quarter of a percent rate decrease, that doesn't mean that a five year fixed mortgage term is going to go down by a quarter of a percent as well. Are we going to see fixed rates come down if the bank of Canada does multiple rate Decreases over the course of the next year. Yeah, for sure. We'll see it come down, but it's not going to come down at that exact same percent. That that it impacts the variable rates, right? So just, want to, throw that little caveat of information out there as well, just so that everybody realizes the correlation between fixed and variable rates.

phil-gadd_2_04-29-2024_130623: 4:35

Yeah, that's interesting. Because, what I get a lot is, oh, we're going to wait for rates to come down. And people are thinking, oh money is going to be cheaper for me to borrow when the rates come down. Now is that actually going to be the case

rob-bain_1_04-29-2024_130623: 4:50

exactly. 100 percent right. And I've got a great scenario to to compare what it looks like now to what it potentially will look like in the future. And then also a 3rd 1 in there. That's a blend of the 2 however, 11 piece. I think we should cover off a little bit before that. And, perhaps this is an area that maybe you can speak a little bit to Since you're knowledgeable in the Fernie market and, the trends as far as house prices and property values go like right now what do you think we're going to see for those property value prices say over the next year of time?

phil-gadd_2_04-29-2024_130623: 5:22

For March, the average house price in Fernie was almost 850, 000. Lots of homes selling way above a million dollars. Properties are becoming more expensive in Fernie as the data is telling us for what happens in the future depend on different factors. We have got some bigger rental housing projects coming online. We've already had one online. Just recently we've got another 150 units coming online by the end of the year. Will that have an impact on the Fernie market? The higher end of the Fernie market Is booming right now, like I say properties Over seven seven properties sold for over nine hundred thousand in march and And three of those were over 1. 5 million.

rob-bain_1_04-29-2024_130623: 6:10

Yeah, for sure. And I know, some clients have that question as well. When I'm talking to them, about mortgage scenarios, they're like that's what I saw on the news is that, property values are going to be decreasing. And as hopeful that that happens, I think for affordability, I think it's, Again, pretty unlikely that property values are going to decrease enough, if you look at any of the data over the past, six months or a year I don't see where in, the Fernie market, it's coming down,

phil-gadd_2_04-29-2024_130623: 6:38

Yeah, I think it's across canada, we have A supply issue, it's been well documented that Canada needs to build a crazy amount of new homes just to meet demand. To your point, I don't think property values are going to be coming down significantly anytime soon

rob-bain_1_04-29-2024_130623: 6:58

then that's, when you talk about basic economics, right? When there's a lot of demand and not a lot of supply prices go up, right? Yeah, so the scenario here Maybe we'll throw that slide up. We can take a look at that. So there's three different scenarios that I have built into here. So this is what we're talking right now, today's conditions. I just used a mortgage amount of half a million dollars. So 500, 000 mortgage current rates. 4. 99%. That's some of our top lenders out right out there right now have a 4. 995 year fixed. Just looking at that kind of base model to see what the payment amount is on that. So at those numbers, a 25 year mortgage gives you a monthly payment amount of 2, 905. Now, if we look at scenario two, we could say that's in one year's time changes that I put into play there. We've got the rates coming down a half a percent. I think a half a percent change for a five year fixed in one year's time. Could happen. It's I personally think it's a little bit of a stretch for how much rates are going to be impacted, especially for a fixed rate. But just to throw that scenario out there now, you'll notice the mortgage amount, though, I increased by 50, 000 just to show that, those property values I don't think are going to go down and I don't think you're going to stay the same. So if that house that you can buy today and have a 500, 000 mortgage on it. In one year's time, perhaps it's value has increased by 50, 000. So you need a slightly larger mortgage to purchase that same home. So the mortgage payment on that lower rate, 50, 000 higher mortgage payments, actually about 135 more per month for the mortgage amount itself to make that same payment. Now, the third scenario is a little bit of a blend between the two. This is what I see as a more likely outcome mortgage amount staying that same 550, 000. So we're saying the property values went up in 1 year's time Rate I put at 4. 79. So in the middle of the 4. 49 and the 4. 99. So if rates don't come down as much as predicted and your actual payment for that ends up at 3, 133. So we're talking about a 230 per month, different mortgage payment there. Some folks they look at those mortgage payments and wow, that's, a couple hundred bucks, whatever over the course of a month that's not. A big difference to me, and I'll agree that's not. But when we look at the other numbers showing on here between those calculations, the one that really, should be of more interest to them is what that actual balance is going to be after that five year term. So on the first one, we have a remaining balance of four hundred and forty two thousand and change. So that's your mortgage balance after the first five years. So started out with a five hundred thousand dollar mortgage made those required standard payments and the balance remaining at the end was four hundred and forty two. If we look at the second scenario, five hundred and fifty thousand dollar mortgage, the balance remaining is four hundred and eighty two thousand eight hundred. So we're talking forty thousand dollar. Larger mortgage balance after those five years, why you might ask? The mortgage amount started at 50, 000 higher to begin with because the property value was higher and it costs more to buy it. Sure. The rate was lower, but you're still paying more for that mortgage over that timeframe. And then same with the third scenario, slightly higher than that as well. If that price of the house goes up, yeah, your mortgage is going to go up and you're going to be paying more and you're going to have a larger balance after the five years,

phil-gadd_2_04-29-2024_130623: 10:38

That's the thing. And that's why it's always recommended that you go and speak to the professionals, get some expert involved on your team when you're looking to. to get into purchasing property because if you're not looking at the bigger picture can have quite significant results at the end of the term of the mortgage So it's always, critical to make sure you're talking to someone like yourself and making sure you're looking at the bigger picture, not just thinking, Oh, I'm going to wait until rates come down because it's going to be cheaper. Yes. It may be cheaper for you on a monthly basis, but yeah, you're right. Property prices are not going down in the Fernie market. If we look at the graphs I do every month, I think 21 to 22 up 13%. This is from memory. 22 to 23, 13, 14%, 23 to 24. Currently it's up around, it's up at the high 20, 29%. So at the moment, as of January to March, the average house price in Fernie, is high 20 percent higher than it was in 2023. And will that remain the course of 2024? Right at this point, moment in time, the average house price is considerably higher than it was last year.

rob-bain_1_04-29-2024_130623: 12:04

all great points. And the best piece of advice that I give, clients when they ask these questions is, it's hard to say when the perfect time is to buy a home. It's tough to time that market just like it is with an investment and really everybody's situation is unique, right? It depends on where they're at with their overall finances. Are they ready to buy that first home? Are they ready to sell and buy their next home or whatever their scenario is? Don't base it solely on rates because you only get a rate for three years, five years, whatever term you pick. Clients are so focused on that interest rate, but there's still 20 more years of mortgage interest rate and we can't possibly know what the future is going to bring to, to hit that rate and to make it better or worse. It's one of those things where, like you say, house prices, if we look back way back, 2030, 40 years property values, over that time frame definitely have come up, right? Just like everything, everything, goes up in cost. That's the basic inflation. Principle and economies, right? The value of money changes over time. We know that we know those numbers are going to increase. The best thing to do is, evaluate your situation. Talk to an expert. I'm here to help. I'd love to chat to you if your client, if you're looking at, getting a mortgage, if your mortgage is coming up for renewal or you want to do a refinance, it's the exact same scenario. I'm here to answer those questions. I'm here to help you understand your mortgage options. No pressure. I always give honest advice. Sometimes that means that I don't help the client and they go to their bank where their mortgage is at, because that's the best scenario for them. And that's fine.

phil-gadd_2_04-29-2024_130623: 13:37

So yeah, I think that's the the moral of the story here is what's the saying Marry the home, date the rate or something like that. Is that right?

rob-bain_1_04-29-2024_130623: 13:46

Yeah I've seen that that quote and that, that's exactly what it is though. Because you're going to have the house for, 10, 20, 30 years, however long you want to have it for but the rate you only get that for a certain period of time.

phil-gadd_2_04-29-2024_130623: 13:57

Yeah, that's it. And if it's a long term investment it's worthwhile, getting all the expert advice you can from people like myself, from people like Rob, and Rob's details will be below this video. So if you want to reach out directly to him go ahead. He's helped many of my clients with great success. Ultimately you need to tell us what your motivation is. We can't help until we understand that completely. And then once we do, we can help you to the best of our ability. Yeah, that's fantastic, Rob. Thanks again for coming online and chatting with us again. I really appreciate it. Lots of great value as always. And like I said, anyone wanting to reach out to Rob all these details will be below this video podcast notes, depending on what platform you're listening to.

rob-bain_1_04-29-2024_130623: 14:43

Awesome. Thank you so much, Phil.