You have mustered enough courage – and cash – to become a homeowner. Exciting journey! Showing after showing and finally there is that one property that feels like home. Negotiate, get into a bidding war, go above asking, move the budget, and finally offer accepted….. Congratulations! And before you have a chance to celebrate, you open the paper and read this title.
Mortgage wars backfire
Appraisals are coming in below purchases price on some deals, with the potential to scuttle a transaction, lose a deposit or, at the very least, force buyers to look for other sources to cover the shortfall
Sounds familiar? I sure hope not! That article was published 10 years ago, why should it resemble your situation today? Sadly, I recently found a similar discussion on Reddit, alluding to the fact that the article might be old but the buyers’ woes and worries have persisted over time.
A decade is a long time and it feels even longer (or shall I say more exhilarating) in the digital age as innovations happen at an accelerated pace. In the very same period, Canada has managed to make global headlines on a few different fronts:
- Welcomed 2.5M+ new immigrants to the country
- Doubled the national average home price index
- Established as a global hub for advanced research in AI
- Built a tech product that ranks as one of the best e-commerce platforms for SMEs (Shopify)
Basically, in a country with a thriving AI and tech scene, some of the most mundane questions in a booming real estate market remain unanswered. Disappointing? Yes. Surprising? No.
Let’s not get too much into the “why” as that will undoubtedly turn into a long rant. In short, that’s the outcome of a bad mix of government policy, regulatory/data restrictions, no desire/need for competition, consumer complacency, and a conservative approach towards innovation. Ok, now that I got that off my chest, let’s move on to a more interesting & rosier topic. Where are we going from here and why do I think the future holds more promise?
Open banking
Since UK’s adoption of an open banking policy four years ago, Canada has had too many consultations and not enough action. This policy allows for consumer-driven sharing of financial data with 3rd party providers and it plays a big role in fintech innovation and adoption.
However, we should have an operational framework for open banking in Canada a year from today if the milestones are not pushed back again. This should open the door to further innovations in the mortgage industry, particularly for underwriting and fundraising.
Remote
Let us close our eyes and go back three years…. Would you have believed a fortune teller, with a purple crystal ball, telling you that in future you will do almost everything remotely? I bet not! But forces of nature are strong and we, the resilient human race, learned to adapt.
The new remote reality has hurt many physical jobs but it has also opened immense opportunities across different industries such as real estate. Apart from digital signatures, which is now common practice, many other functions like appraisals or underwriting can be done digitally. I don’t believe anyone would find it absurd when a fully automatic & digital home buying experience becomes the norm in the near future. This development creates a more level playing field for borrowers from under-serviced communities or areas.
The power of ecosystem
Did you know we have more than a thousand fintech firms in Canada? That is not an insignificant number, given the size and structure of the Canadian financial system. Fintech is a very broad term and it is sometimes hard to categorize companies but it is estimated that roughly 100 of those are involved in the mortgage industry. The solutions cover everything from searching & aggregating mortgage rates to automatic valuation of real estate portfolios.
Not all of these companies will survive but they all contribute to the ecosystem, most notably by challenging the status quo and implementing operational efficiencies across the mortgage process. Given the dominance of federal banks in Canada and the reduced regulatory burden on them for fintech partnerships, we expect to see a lot of partnerships and/or acquisitions in this space.
Banks are also facing competition from digital lenders and other entrants in the mortgage industry. With the acquisition of WebsiteBox (a real estate platform-as-a-service product) by Questrade and the launch of QuestMortgage, one is Canada’s largest robo advisors is expanding its offerings to real estate market. Something tells me our “top-ranked robo advisor” will follow suit. These partnerships and mergers will create operational efficiencies covering the entire mortgage spectrum, creating room for even more innovations across the ecosystem.
Do you believe we will come across a similar article in ten years?! At Gnowise, we are optimistic about the future. You can count on us to tackle some challenging real estate problems in Canada, US, and maybe even the Metaverse!