Homebuyers would be wise to give themselves as much time as they possibly can to close their purchases.
“The days of the quick-close purchase are gone. Unless you are an all-cash buyer, forget about it,” Mortgage Architects’ President Dustan Woodhouse said. “Whipping up a mortgage is not like whipping up a latte. No matter how wonderful your credit is and how solid your income is, and neatly stacked and titled your documents are, it doesn’t matter because we have had systemic problems due to the sheer, relentless volume for two-plus years.”
Mortgage underwriters have been buckling under the weight of seemingly never-ending applications, and that was before the COVID-19 pandemic gave way to a near-zero interest rate environment in which the market went haywire. In Woodhouse’s estimation, peak months over the last decade were replete with delayed mortgage funding -- and that’s just the purchase market. The refinance and switch or renewal markets have been backlogged too since time immemorial.
“The mortgage market is ever-growing because you have around 200,000-plus new dwellings added to the market every year in Canada, so every five years you have a million new dwellings, the majority of which are mortgaged,” Woodhouse said. “Every one of those 200,000 homes with a mortgage on them this year will be additional 200,000 renewals or switches that need to be processed five years from now, although more than half of them will break their mortgages early and will be in the system in three or four years.”
Booking a home appraisal, without which lenders cannot fund mortgages, is a tall order, and in rural areas, wait times are as long as a month. Mortgage underwriters, appraisers and lawyers, who register mortgages and title changes, have the most technically challenging jobs in the entire process, and while, for example, lending institutions have gone on hiring sprees, it takes at least a year for an underwriter to confidently perform their duties. It also doesn’t help that lenders poach each other’s underwriters with ferocious frequency, not to mention efficiency.
Real Estate Lawyers Are Busier Than Ever
Then there are the law firms. Real estate lawyer Bob Aaron, of Aaron & Aaron, had a client who purchased a pre-construction unit last year that needed to close eight weeks later. He went with TD Bank, but they were so backlogged the client surreptitiously closed the transaction in cash -- a fact he had to elide from the financial institution for fear that it might renege the funding commitment.
“The same thing happened to the same client this year on another purchase,” Aaron said. “I think a lot of it is incompetence because they have new people there to fill the demand and, in many cases, they don’t know what they are doing.”
Normally, the entire home purchase process takes two to three weeks, but as Woodhouse stated, those days are gone. Aaron agrees and says the underwriting aspect alone now takes weeks, and while a client in good financial stead or whose income isn’t convoluted by multiplicative sources, like stock investments or rental income, might catch a few more breaks, he advises homebuyers to give themselves as much time as possible because lightning is more likely to strike twice than they are to close a purchase in two weeks.
Recall that in the wake of the pandemic, then-outgoing Canada Mortgage and Housing Corporation President and CEO Evan Siddall predicted that real estate valuations would plummet, however, the opposite occurred. It is easy to understand, then, what Aaron means when he says the old rules don’t apply anymore because the housing market, not to mention all the brass tacks involved behind the scenes, has become unpredictable.
“There are no rules anymore. What used to happen in the past doesn’t apply now; things just keep changing. Nobody knows what’s going to happen as a result of interest rate increases, the underwriting process, prices in market—even the federal budget will have huge effect on the assignment market. We’re in unchartered waters,” Aaron said.
Never a Free Moment
To elucidate to frenzied state of the real estate market, the first quarter of the year in the real estate industry is typically tranquil before giving way to a chaotic spring, but, as Aaron says, the old rules have been thrown out the window.
Lenders’ funding guidelines are determined by investors whose capital ultimately fund mortgages, and that further complicates matters because there’s no one-size-fits-all policy.
“What is going to happen in the spring market? I’ll tell you what not to do: a quick-close purchase contract with two or three weeks to complete,” Woodhouse said. “If you need a mortgage, you will be very hard-pressed to get it from the lender you want it from that quickly. You may get financing but it may not be the financing you were expecting.”
