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1 in 4 homeowners say rising mortgage rates could push them to sell: survey – Global News

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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.

Read more:

How much will home prices drop as interest rates rise? Depends where you live

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.


Click to play video: 'The housing market begins to soften'



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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.

Read more:

Here’s how the mortgage stress test works

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.


Click to play video: '1 in 4 homeowners say rising mortgage rates could push them to sell: survey'



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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.


Click to play video: 'The economy can handle further interest rate hikes, Bank of Canada governor says'



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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.

Read more:

Fixed or variable? How to pick a mortgage as interest rates rise

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


Click to play video: 'Sticker Shock: Canada’s housing inflation keeping prospective buyers on the sidelines'



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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

© 2022 Global News, a division of Corus Entertainment Inc.

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Metro Vancouver house prices plunge as interest rate rises – Business in Vancouver

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“Buyers, your time is now,” real estate agent says as home prices fall across the region | Photo: Chung Chow

A forecast from TD Bank that B.C. average home prices will fall by 8.1 per cent by next year appears too optimistic in Metro Vancouver as June sale prices dropped for the third straight month.

The June composite benchmark price for all residential properties in Greater Vancouver was $1,235,900, down 2 per cent from May and a 2.2 per cent decrease over the past three months, reports the Real Estate Board of Greater Vancouver.

Detached house prices are seeing the largest dollar decline, down an average of $37,000 per month since March to a June benchmark price of $2,058,600.

On the bellwether Vancouver West Side market, the median price for a detached house plunged $194,000 from May to $3,063,500 in June.

“We’re seeing downward pressure on home prices as we enter summer due to declining home buyer activity, not increased supply,” said Daniel John, REBGV Chairman.

Total residential sales in Greater Vancouver totalled 2,444 in June 2022, a 35 per cent decrease from June 2021, and a 16.2 per cent decrease from the 2,918 homes sold in May 2022.

The Fraser Valley Real Estate Board (FVREB) processed 1,281 sales in June, down 5.8 per cent compared to May and a 43 per cent plunge compared to June of last year.

“In just two months our market overall has shifted into balance, mainly due to a softening of demand for single-family detached homes,” said FVREB president Sandra Benz, who noted the effect of rising mortgage rates.

Fraser Valley detached house price dropped 3.5 per cent, or $57,855, month-to-month to a June benchmark of $1,653, 000 reports the Fraser Valley Real Estate Board.

The Bank of Canada, which has increased its trend-setting interest rate 75 basis points since March, is expected to jack the rate from 50 to 75 basis points on July 6 to fight inflation.

This will trigger a further decline in home sales and prices, according to TD Bank. In a June 30 report, TD forecast that B.C. will see among the sharpest corrections, with average home prices falling by 8.1 per cent into 2023.

The price drops and increased supply should be welcome by homebuyers, according to real estate agents.

“In most areas of Metro Vancouver and especially at higher price points, it is a buyer’s market now,” said Kevin Skipworth, managing partner with Dexter Associates Real Estate in Vancouver.

He pointed to the city of Vancouver strata sector as especially enticing due to increased supply and falling prices. The benchmark price of a townhouse in the city dropped nearly 2 per cent in June from a month earlier and condo prices fell 2.3 per cent month-to-month, with the biggest decline in the trendy West Side.

“Vancouver’s West Side has seen townhouses and condos go up to five-month’s supply from three months last year,” Skipworth said. “What a switch and an opportunity compared to a year ago. Buyers, your time is now.”

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