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
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
