Rising interest rates are pushing more homeowners to a place where they can no longer afford their mortgage payments, according to a new debt survey from Manulife Bank of Canada.
The online survey, conducted between April 14 and April 20, found that 18 per cent of homeowners polled are already at a stage where they can’t afford their homes.
Nearly one in four homeowners said they will have to sell their home if interest rates go up further. The Bank of Canada’s overnight rate indeed rose by half a percentage point to 1.5 per cent on June 2, six weeks after the poll was taken.
More than one in five Canadians expect rising interest rates to have a “significant negative impact” on their overall mortgage, debt and financial situation, the survey found.
Lysa Fitzgerald, Manulife Bank’s vice-president of sales, tells Global News that three hikes seen so far this year can already have a “significant impact” on a household’s monthly cash flow.
A family who might’ve been budgeting $2,600 a month on a variable rate mortgage at the start of the year, when rates were at the 0.25 per cent floor seen through most of the COVID-19 pandemic, would now be paying roughly $400 more a month since rates have risen 125 basis points, Fitzgerald says.
“The last two or three years, we’ve experienced very low interest rates. And many Canadians took advantage of being able to qualify for higher mortgages and took those,” she explains.
“And now (they) are finding themselves in a situation as rates are rising, can they really afford that?”
Isn’t this why we have a mortgage stress test?
Interest rates are not likely to hold at the 1.5 per cent mark for long, either. The Bank of Canada remains on a rate-hike path as it tries to tame inflation, which is now at a 31-year high at 6.8 per cent.
If Manulife’s survey is accurate, there could be a wave of new listings coming onto the market in June following the latest rate hike as worried homeowners seek to downsize or exit the market.
But John Pasalis, president of Toronto-based mortgage brokerage Realosophy, says there hasn’t been a flood of homes onto the market so far this month — he describes overall listing volume as “soft” right now as market activity moderates.
4:47 The housing market begins to soften
The housing market begins to soften
Pasalis says that homeowners should be insulated from a rapid rise in interest rates thanks to the federal mortgage stress test — “in theory.”
The mortgage stress test sees the vast majority of homebuyers — some credit unions or private lenders could be exempt, Pasalis notes — qualify for a mortgage rate of either 5.25 per cent or two percentage points higher than their actual rate, whichever is higher.
This helps ensure that their household income can afford higher monthly mortgage rates when interest rates do rise.
But for Canadians who rushed into the housing market during the pandemic on the promise of low mortgage rates at or below two per cent, the time to renew is fast approaching with rates around four per cent now the norm — potentially doubling their monthly payments.
“The mortgage stress test will certainly help some households. But for some households who are going to see their mortgage payment more than double over the next three or four years, they’re not going to be in a position to handle those additional payments, combined with the fact that many of the other costs in their lives, due to inflation, have gone up,” Pasalis says.
0:46 1 in 4 homeowners say rising mortgage rates could push them to sell: survey
1 in 4 homeowners say rising mortgage rates could push them to sell: survey
Close to half of indebted Canadians say debt is impacting their mental health, the Manulife survey showed, and almost 50 per cent of those surveyed say they would struggle to handle surprise expenses.
Leah Zlatkin, a mortgage broker and expert at lowestrates.ca, says even in the lean years, most household budgets should be able to accommodate even large jumps in the Bank of Canada’s interest rates.
1:45 The economy can handle further interest rate hikes, Bank of Canada governor says
The economy can handle further interest rate hikes, Bank of Canada governor says
She cites the mortgage stress test and the interest rate cycle as two measures of confidence for Canadian homebuyers worried about how high their monthly payments will go.
“This is kind of like a hill. You might be looking from the bottom of the hill, looking up right now and thinking to yourself, ‘Wow, I don’t know how high interest rates are going to go,’ but there is always a point at which the hill starts going back down,” she says.
“Trust in that you did qualify at a stress test and know that the crescendo of the hill is coming and soon things will go back the other way and you’ll feel a little bit of relief.”
Do homebuyers know what they’re getting into?
For first-time homebuyers who jumped into real estate during the pandemic, seeing rates rise for the first time could be a wake-up call and might even lead to some “buyer’s remorse,” as Manulife dubbed it in the survey results.
Zlatkin says there’s a “huge range of understanding” in Canada when it comes to the mortgage process. Some buyers, even those on the higher side of the income scale, might not know the difference between a fixed-rate or variable mortgage and how different models can affect the size of a monthly payment or length of time to pay back the loan.
Prospective homebuyers who are applying for a mortgage would be wise to ask advisors about what they should expect for the next three to five years, Zlatkin says. She puts the onus on brokers like her to break down the components of a mortgage agreement to their clients.
“We need to be very careful and cognizant that we’re asking the right questions as consumers to the people we’re working with for our mortgage. And we also need to be very concerned as professionals that we’re explaining all of the details to our client base,” she says.
Pasalis also says it’s not a surprise the typical homebuyer might be caught off guard by today’s surging rates, given the messaging from the central bank early in the pandemic that interest rates would stay at those rock bottom levels for a while.
“Our message to Canadians is that interest rates are very low and they’re going to be there for a long time,” Bank of Canada governor Tiff Macklem said in a speech in July 2020. At the time, the bank was maintaining its 0.25 per cent rate due to the “extreme uncertainty” of the COVID-19 pandemic.
“People make financial decisions based on what our leaders are telling us,” Pasalis says.
“I think part of the blame is on households, but at the end of the day, I don’t think those were promises that our policymakers should have been making to the first-time buyers.”
— with files from Global News’s Anne Gaviola and The Canadian Press
2:07 Sticker Shock: Canada’s housing inflation keeping prospective buyers on the sidelines
Sticker Shock: Canada’s housing inflation keeping prospective buyers on the sidelines – May 26, 2022
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
