A Comment -- General Comments From an Expert (A Commentary)

Ron Butler:  No tax implication on the debt side. But you'd have to do a fresh application. If you want to raise the amount of the mortgages on your rental properties to pay off your owner-occupied property mortgage, you can do so, but it's all a fresh refinance application.

Lauren Haw:  Ron's answer covers it all. People are having to make decisions when they can't afford to keep holding everything. Do I sell my principal residence, which is a tax advantage? Or do I sell the income properties? 

Selling a tenanted property is very challenging. You will not get top dollar for the property because showings are harder, and they may need to assume the tenants. Though it may be easier to sell your principal residence, you then need to find somewhere to live.

If you're looking to buy a property for yourself, it's a good opportunity to look at tenanted properties, as you can get a discount.

Rob Dugan:  Part of the reason they're shorter in Canada has to do with the Bank Act, and how banks are compensated when a contract is broken. For mortgages up to 5 years, banks get full compensation for the forgone interest on that loan. Above 5-year amortization, it goes down to 3 months of interest or something like that. Plus, we don't have a very active 20-30 year money market in Canada compared to the US.

Starting to see longer terms. You can get 7- or 10-year mortgages now. Tend to cost you a bit of a premium in terms of interest rates, as the financial markets aren't well developed around those products yet.

Rob Butler:  There's also absolutely no consumer preference for these long terms, because they are more expensive. For example, there are 10-year terms available, and the uptake on those mortgages was about 3%, a negligible number in Canada.

The 5-year is your lowest cost mortgage. Comparatively, the US 30-year mortgages have almost consistently been 1% higher than the 5-year offerings in Canada. And if consumers are going to stay in an expensive housing market, they want the lowest cost they can get.

Ron Butler:  The current Finance Minister has made it clear recently that all the banks must allow for re-amortization. If a mortgagor is facing the fear and stress of financial hardship, then they should apply to their lender and expect to receive at least a 30-year amortization schedule. It's certainly available to people who can prove real financial hardship.

The bank regulator, Peter Routledge, remains fairly silent on that issue, but rest assured he knows who his boss is.

Lauren Haw:  This is rather a non-answer, but it's always specific to the person. The really important thing is length of time because of transaction costs such as land transfer tax, realtor costs, and moving expenses. If you bought a short-term principal residence, and sold it 3 years later, you're probably going to burn any equity that you've built in transaction costs.

If you're thinking short term, always rent what you need in the moment. In the meanwhile, sock away your savings. If you have a long-term mandate of at least 5-7 years, and potentially longer, then you have to look at the numbers to see if it makes sense. Homes are tax-advantaged in Canada. There are buying opportunities today, but it really depends if you can float it.

Rob Butler:  It's always better for families to own a home than to rent. But regrettably, over the past 15 years of numerous policy errors, it's become almost impossible for young people to own a home in major cities in Canada. Prices are too high, and it's effectively unmanageable without a great deal of parental help.

The universal thing he's heard over his entire career is that every renter wants to own a home. The desire is there. Lots of reasons to do it, but it's becoming almost a financial impossibility.

Bob Dugan:  He reiterates the views of the other panelists. It's a very individual decision and what you can afford. He'd hate to say to someone "you have to own", and then they eat macaroni and cheese for the next 60 years because they can't afford the payments.

Assess what you can afford and, if you can afford home ownership, it's a fabulous way to create wealth over your lifetime. With supply gaps, he thinks prices are going to continue to rise. It's going to be difficult to build the kind of housing that's needed to balance supply and demand. 

Will continue to see an erosion of affordability. Good long-term investment, beyond the short term of 3-5 years. If you have a long-term horizon, it's probably a very good time to buy, but you have to make sure you have the financial ability to do it.

Lauren Haw:  There used to be the adage "Drive until you can afford it." So if you started looking in Toronto, but you wanted bigger, you just kept driving further and further until you could afford the size you wanted.

Yes, people are choosing. Do I want a longer commute or more time with my kids? Location and size have always been the tradeoffs. As Rob said, the desire is still there. People desire a home like the one they grew up in, it's natural. But it's becoming harder and harder. People are having to make the tradeoff to smaller.

Rob Butler:  We are seeing pushback on sub-450 sq. foot condos. Those micro-condos are just too small.

The truth is we have a tremendous problem with pricing. If you go back only a short 25 years, the average person in Ontario could buy a home for roughly 3x their income. Today, we're looking at between 9-11x. There's no question that the flaw is in the pricing.

Bob Dugan:  Homes getting smaller is a necessity in certain markets. CMHC has done work in Toronto and Vancouver showing that 80% of the price of a home is the land it sits on. The only way to reduce the burden of that land price is to create more people per square foot. We need more density.

Toronto and Vancouver are relatively affordable in an international context, compared to places like Tokyo. But those centres are on trend to become more like those international cities. People may have to accept smaller living spaces, or rent instead of buy. Costs are going to drive those decisions for people.

Bit of a pullback last couple of days in the NASDAQ, but no one can really complain, as it's gone parabolic the last 19 months. Market now is just reacting to the fact that the NASDAQ went straight up, plus rumours and news coming out every day about the US election.

The bottom line for him is strong earnings, interest rates probably coming down, and inflation looking like it's been tamed. All good ingredients for a strong market for the rest of the year.

He's thinking that it's clear that interest rates are going to be cut across the globe. US has not started to cut yet. No one expects the Fed to cut in July, though that could happen. Expects interest rates to be cut in Canada, and for many months to come. 

Canada's rate could come down by 1.5% over the next 12-18 months. So when your GIC at 5% comes due, you're not going to get 5% anymore. So he expects that money to flow to markets and other risk assets. If you're only getting 3.5-3.75% on your bond or GIC, that's not so attractive after fees, taxes and inflation.

Expects good earnings. We just started Q2 earnings, and some companies have reported, especially the big banks. All looked pretty good.

Finally showing some life. Yesterday, it might have been up double digits for the year, seeing a bit of pullback today. Oil prices have remained strong, gold has ticked up with uncertainties. RY is at an all-time high. NA has recovered from worries about the CWB acquisition. Not too much to worry about in Canada.

Everyone's hoping that, as interest rates get cut, some of the dividend stalwarts will be back in favour. Of course, the Canadian market is filled with a lot of Canadian dividend stocks.

Is it playing catchup? He doesn't know. It's not as good an index as the S&P 500, because companies in the TSX are not as good businesses. But there are always going to be sectors and factors that can push the TSX index up. It's underperformed for many years, so maybe it'll have its day.

In his opinion, financials are rallying because inflation has come down, interest rates will be cut, and that's going to be a big relief for the Canadian economy. There will be fewer worries about bankruptcies, or mortgages coming due that have to be renewed at higher interest rates. Optically, that's bad for some of the banks' net income, but it's terrific for confidence, more lending, and business activity in Canada.

People were pricing in a pretty nasty recession, and that's reversing, so the banks are recovering.

It depends whether the shares are purchased by the company at a reasonable valuation, or whether they're overpaying to boost EPS in the short term. A company like CNQ, for example, has a very good track record of buying back its stock at fair prices.

Doesn't love share buybacks in very cyclical businesses. MG, for example, bought back a huge number of shares at a much higher price, and it's probably regretting that now.

Very positive on the sector in general. Set up to do quite well for second half of the year. Names like BTE and CNQ should do well going forward.

An area that could start to do well in the second half of the year and beyond. When you think of how to trade the sector, it really comes back to timing the homebuilders. The homebuilder sector had been under pressure for the last year and a bit, because of higher interest rates.

If we start to see more of a break in interest rates, really good for homebuilders. Starting to see those stocks start to move up in the US. In general, once the homebuilders start to go, the price of lumber and lumber stocks start to follow after that. BOC has signalled cutting; the Fed's getting ready to embark on a rate-cutting cycle.

TSX has outperformed the US market so far in July, mainly driven by metals such as gold, silver and copper. Canada will continue to cut interest rates faster at this point, and this creates tailwinds for Canadian stocks in the second half. So she's a bit more bullish and optimistic on the Canadian equity market for the second half, if pace of rate cuts continues.