How SKYIRE is Helping More Canadians Attain Home Ownership
The housing sector in Canada is facing more changes soon; changes that will make it much more difficult for millions of people who want to own their own home.
Interest rates increased the first time in seven years. While this tiny change will have little impact on housing demand because it raises monthly payments only a small amount, many economists see this interest rate hike a s a precursor to the central bank’s preamble to move ahead with further rate increases this fall.
Another more far-reaching policy change was also introduced last month when Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), unveiled a proposed new rule that will impact many Canadian home buyers.
OSFI said it plans to require home buyers who do not need mortgage insurance – those with down payments greater than 20 per cent of the purchase price – to prove they could still afford their mortgages if interest rates were two percentage points higher than the rate they are offered by their bank.
Uninsured home buyers (those not requiring CMHC because they have a down payment of 20 percent or greater), make up the larger portion of all real estate sales in Canada, and the more stringent stress testing requirement will have a major impact.
If interest rates rise a further 25 basis points – a quarter of a percentage point – to 1 per cent this fall, and if OSFI goes ahead with its proposed change, Canadian Imperial Bank of Commerce economist Benjamin Tal forecasts the rate of growth of new mortgage lending in Canada would drop from roughly 6 per cent annually to about 3 per cent, which means the value of new mortgage lending could fall by up to $40-billion a year from about $80-billion, he said.
If OSFI proceeds with this policy decision, it will take a massive impact and take a significant portion of buyers out of the real estate market.
If this news makes you feel like the deck is getting stacked against you ever being able to own your own home, it’s an understandable reaction. Fortunately, the real estate industry is providing some practical solutions to help you.
Under the SKYIRE name, North American Home Finance Inc., a financing and home mortgage company, offers home buyers and investors exclusive financing options that make real estate ownership attainable, quicker and at less cost. SKYIRE believes home ownership should be a choice, not a privilege, offers and empowers those who want a home and to help them succeed – even in today’s real estate market. Their tagline sums it up “Making HomeOwnership Possible”.
George Lawton, CEO, North American Home Finance Inc. , says SKYIRE is driven to help people achieve home ownership for two very practical reasons.
The first is the size of the market. In Canada and the U.S., 28 percent of people who have work and have an income do not own their own homes. That’s a large market of over 100 million people.
The second, seemingly altruistic reason is very important to everyone at SKYIRE.
“Inflation works against people who don’t have their own home,” says Lawton. “Most don’t really appreciate inflation because it works slowly over time, but if we can have a positive effect on a family by helping them to own a property for the next twenty to thirty years, they will find inflation working in their favour and helping them accumulate an asset base. Upon retirement, that means they could live mortgage free, or their asset’s equity could be turned into an annuity or other financial instrument. The difference is simply getting their name on title vs. continuing to rent.”
“If we can help more people have this positive result, that would be excellent. It drives us forward because when we know others are getting value, when people are really going to benefit, we work harder, and challenges don’t stop us. And ultimately we’re more successful as well.”
SKYIRE’s business model is interesting. It’s based on how real estate is dealt with in the small nation of Singapore. To understand how it works, you first need to know almost all G20 countries have some form of an insurance company that backstop the banks to help them manage short-term deposits so they can provide money for long term mortgages and manage their liquidity issues. Before CMHC, Fanny May or Freddy Mac existed, banks were not the largest lenders for mortgages. Rather, they were among the smallest. Trust companies and insurance companies were the major lenders.
Since the 50s, banks started growing, and they empowered the middle class to enter home ownership which continued to increase until the late 80s. By 2006, many felt the upper limits of home ownership had been reached due to what Lawton refers to as the Nash Equilibrium as detailed in the movie “A Beautiful Mind” starring Russel Crow as Nash. The game theory states an optimal outcome of a game is one where no player has an incentive to deviate from their chosen strategy after considering an opponent’s choice.
In Canada, banks provide the loans, CMHC provides the mortgage insurance, and mostly private housing developers building and selling homes for a profit. Because each sector in Canada is operating out of its own silo, each is trying to maximize profits and this “Nash equilibrium” is where things now stand making it difficult to increase the percentage of home ownership.
Meanwhile, in Singapore – a small country about the size of Greater Victoria, but with a population ten times larger – the Housing Development Board was created in the 60s to control everything in real estate from planning to development to financing. It was a for-profit developer, and a mortgage financing provider, and a mortgage insurer. Singapore combined all three functions under one roof, and by doing that, they could rearrange profit and manage the structures so it was profitable overall, and they could maximize the total number of home owners, which was their ultimate goal.
SKYIER is working to change this three-silo way of doing business. They have formed partnerships to plan, develop and build homes, they are providing novel approaches to accessing home ownership with as little as one percent down through their HomePlan, and they are providing loans through their HomeIndex Mortgages to cover the difference from five of more percent down to twenty percent down, thus helping their customers avoid CMHC default insurance fees and to access better lending rates.
By combining these three real estate sectors, SKYIRE can accomplish three things: They can create a profitable company that will grow, they can offer their services to many more people who feel locked out of home ownership, and they can shift profitability within their business structure to reduce your mortgage interest to make sure your monthly payment is lower.
Everybody wins because SKYIRE’s brand promise is their interest rates will be the lowest of any lender in the country.
In a time when Canada’s policy makers seem hell-bent to move the goal of home ownership out of reach, it’s nice to know innovative realtors and entrepreneurs are stepping up to make the goal more attainable.