Friday, July 20, 2012

They say rats are the first to abandon a sinking ship: mortgage brokers diversifying out of mortgage business as sales plummet

The big news for those that follow daily real estate sales data is that it appears that not one single sale was recorded on either the East Side of Vancouver or in the toney confines of West Vancouver yesterday for single family houses.


More interestingly large numbers of pre-July 9th sales still seem to be filtering through the system, presumably due to delays with CMHC approval.

On Wednesday we had 98 listings sold. But strip away the sales that took place before July 9th and the abysmal 98 sold listings plunges dramatically to only 35 post July 9th sales!

Yesterday of the 87 sales, only 27 were post July 9th!

What is that old saying?  That rats are the first to abandon a sinking ship?

If you're looking for a harbinger of what lies ahead as real estate stagnates, glance your eye at the mortgage brokerage industry.

In a recent industry news article we are told that some brokers are in the process of extending their reach beyond mortgages." 

It seems the brokerage industry has been anticipating these abysmal numbers quoted above and are preparing for a huge slowdown in the mortgage market...
Some mortgage brokers are now moving to diversify their product offerings as signs of a market slowdown begin to appear.

“Many operators are beginning to add commercial and personal insurance to their product mix,” said Gord McCallum, president and CEO of First Foundation Residential Mortgages in Edmonton. “For some it’s a strategic move; for others it may be a hedge in anticipation of the eventual cooling of the market.”

Six months ago, McCallum’s firm began offering clients home, business and auto insurance as well.

“It is a value-added service we want to offer clients to differentiate our firm from the competition,” he said.

The product offering is additional ammo in the firm’s battle against banks, and relies on employment of a licenced insurance broker to operate the firm’s auto insurance business. Mortgage brokers occupy the top floor of the office while the auto insurance is handled at the ground floor, he said.

“We are fighting fire with fire,” said McCallum. ”Auto insurance is an advantage because banks by law can’t offer general and auto insurance in-branch.
The article makes no bones about the looming reality in the Canadian housing market... tough times are coming.

And by tough times they mean dramatically less sales as the year moves along.

Given how dismal the figures are as the pre-July 9th sales wind down... it's clear that even the brokers know what we are seeing today is nothing compared to what's coming.


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  1. By the time China gets around to re-invigorating its construction industry for one last bump... it will be too late for BC... It would seem the momentum has already taken hold. Six months of this, and we will be down to half the number of "millionaires"

  2. Salespersons are just salespersons, after all.

  3. It's humorous that most Vancouver home owners presume that their home today is still worth the appraised value based on the fantasy levels briefly attained in the bidding wars of spring 2011. The smart money has already cashed in. If you doubt that fact, try this experiment: suggest that Vancouver house prices are falling - to anyone who owns a house. Their reaction will tell you all you need to know about present market conditions.

    1. Yeah, I get that. So many are still pumping the rationalizations. It is pure denial. Give them more time.

      Car meets brick wall.....and then they finally wake up from the slumber. It is so pointless arguing with the bulls. The ego trip and puffed chest behaviour of the big equity gains of the past still have them utterly mesmerized.

      Imagine you are walking down a residential street. You see a home that is ablaze. You shout "Fire!!" to warn everyone and get their attention. People just ignore you. Then one of the neighbors lazily comes to the window and looks out to see the house in flames. "Relax man," he laughs "that's not a problem. The rain will put it out".

      As he walks away you hear him muttering to himself "some people are sooooooo alarmist. They just don't get it"

  4. Hi...thanks for the quote. Just stumbled across the post and would be happy to elaborate on it for you.

    I understand your perspective, especially in Vancouver. That said, last year was the best year for our firm, which is based in Edmonton but did mortgages for people in 57 different markets last year. 2013 continues to be a strong year mortgage-wise for our firm.

    The decision for our firm to diversify into insurance was one that we've wanted to make since 2002 when we started. We saw the natural fit between the two products and services, the value it could offer our clients, and the strategic benefits of being able to offer more convenience to our clients.

    Both insurance and mortgage brokering offer a similar value proposition to the client, so for us and for our clients it was a natural fit.

    Even from a rational standpoint, can you imagine a mortgage broker diversifying out of one very heavily regulated and hyper competitive business right into another one with those same characteristics? Diversification for diversification's sake isn't ever a good business move. It has to make sense first and foremost for our clients, which it does, and for the business....and home and auto insurance offers such small transaction amounts (average of about $200 per policy, vs. $2,500 for a mortgage) that your assertion doesn't really hold water. In fact our business plan assumes a break even date on our insurance business about three years after our start date.

    Our decision to diversify was done from a position of strength and a desire to do right by our client.

    I can't speak for every mortgage broker or brokerage out there, but that's our experience.

    I'll be happy to have a civilized discussion about this but if it degrades into troll territory then I'm not really interested.

    All the best,