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
Netflix (NFLX) stock slid as much as 9.6% Friday after the company gave a second quarter revenue forecast that missed estimates and announced it would stop reporting quarterly subscriber metrics closely watched by Wall Street.
On Thursday, Netflix guided to second quarter revenue of $9.49 billion, a miss compared to consensus estimates of $9.51 billion.
The company said it will stop reporting quarterly membership numbers starting next year, along with average revenue per member, or ARM.
“As we’ve evolved our pricing and plans from a single to multiple tiers with different price points depending on the country, each incremental paid membership has a very different business impact,” the company said.
Netflix reported first quarter earnings that beat across the board on Thursday, with another 9 million-plus subscribers added in the quarter.
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Subscriber additions of 9.3 million beat expectations of 4.8 million and followed the 13 million net additions the streamer added in the fourth quarter. The company added 1.7 million paying users in Q1 2023.
Revenue beat Bloomberg consensus estimates of $9.27 billion to hit $9.37 billion in the quarter, an increase of 14.8% compared to the same period last year as the streamer leaned on revenue initiatives like its crackdown on password-sharing and ad-supported tier, in addition to the recent price hikes on certain subscription plans.
Netflix’s stock has been on a tear in recent months, with shares currently trading near the high end of its 52-week range. Wall Street analysts had warned that high expectations heading into the print could serve as an inherent risk to the stock price.
Earnings per share (EPS) beat estimates in the quarter, with the company reporting EPS of $5.28, well above consensus expectations of $4.52 and nearly double the $2.88 EPS figure it reported in the year-ago period. Netflix guided to second quarter EPS of $4.68, ahead of consensus calls for $4.54.
Profitability metrics also came in strong, with operating margins sitting at 28.1% for the first quarter compared to 21% in the same period last year.
The company previously guided to full-year 2024 operating margins of 24% after the metric grew to 21% from 18% in 2023. Netflix expects margins to tick down slightly in Q2 to 26.6%.
Free cash flow came in at $2.14 billion in the quarter, above consensus calls of $1.9 billion.
Meanwhile, ARM ticked up 1% year over year — matching the fourth quarter results. Wall Street analysts expect ARM to pick up later this year as both the ad-tier impact and price hike effects take hold.
On the ads front, ad-tier memberships increased 65% quarter over quarter after rising nearly 70% sequentially in Q3 2023 and Q4 2023. The ads plan now accounts for over 40% of all Netflix sign-ups in the markets it’s offered in.
Netflix reported first quarter earnings after the bell on Thursday. REUTERS/Dado Ruvic/File Photo (REUTERS / Reuters)
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
Oil prices initially spiked on Friday due to unconfirmed reports of an Israeli missile strike on Iran.
Prices briefly reached above $90 per barrel before falling back as Iran denied the attack.
Iranian media reported activating their air defense systems, not an Israeli strike.
Oil prices gave up nearly all of early Friday’s gains after an Iranian official told Reuters that there hadn’t been a missile attack against Iran.
Oil surged by as much as $3 per barrel in Asian trade early on Friday after a U.S. official told ABC News today that Israel launched missile strikes against Iran in the early morning hours today. After briefly spiking to above $90 per barrel early on Friday in Asian trade, Brent fell back to $87.10 per barrel in the morning in Europe.
The news was later confirmed by Iranian media, which said the country’s air defense system took down three drones over the city of Isfahan, according to Al Jazeera. Flights to three cities including Tehran and Isfahan were suspended, Iranian media also reported.
Israel’s retaliation for Iran’s missile strikes last week was seen by most as a guarantee of escalation of the Middle East conflict since Iran had warned Tel Aviv that if it retaliates, so will Tehran in its turn and that retaliation would be on a greater scale than the missile strikes from last week. These developments were naturally seen as strongly bullish for oil prices.
However, hours after unconfirmed reports of an Israeli attack first emerged, Reuters quoted an Iranian official as saying that there was no missile strike carried out against Iran. The explosions that were heard in the large Iranian city of Isfahan were the result of the activation of the air defense systems of Iran, the official told Reuters.
Overall, Iran appears to downplay the event, with most official comments and news reports not mentioning Israel, Reuters notes.
The International Atomic Energy Agency (IAEA) said that “there is no damage to Iran’s nuclear sites,” confirming Iranian reports on the matter.
The Isfahan province is home to Iran’s nuclear site for uranium enrichment.
“Brent briefly soared back above $90 before reversing lower after Iranian media downplayed a retaliatory strike by Israel,” Saxo Bank said in a Friday note.
The $5 a barrel trading range in oil prices over the past week has been driven by traders attempting to “quantify the level of risk premium needed to reflect heightened tensions but with no impact on supply,” the bank said, adding “Expect prices to bid ahead of the weekend.”
At the time of writing Brent was trading at $87.34 and WTI at $83.14.
