Canadian real estate is kind of like Chucky in Child’s Play. No matter how you try to kill him, the little rascal keeps coming back.
The housing balloon, bubble or whatever you want to call it, finally popped last year, but next Monday, we could see its comeback accelerate. That’s when the Canadian Real Estate Association releases its April resale data. If you’re a real estate watcher, you’ll want to pop some corn for this one. April national home sales and prices could shift into high gear.
If that happens, sweat beads might form on those home shoppers feeling urgency. National average home values had never had a 25-per-cent correction – until this year. If you blinked, you probably missed it. That’s a problem for the countless Canadians planning to buy during this dip. So what do you do if you’re one of them and the boat has already left the dock?
If you’re well-qualified and can afford to buy, swim to it
In Canada Mortgage and Housing Corp.’s latest mortgage consumer survey, 26 per cent of homeowners purchased sooner than they expected to beat rising rates. Another 5 per cent had to delay their purchases because of rate-related affordability concerns.
It’s tough to say, but a corresponding number could be similarly motivated to buy before prices rise further to avoid higher monthly payments, higher down payments and higher lifetime interest costs.
As of March 31, average home prices were already 12 per cent off the bottom, according to the Canadian Real Estate Association. That boosted theoretical mortgage payments by $376 a month (almost 12 per cent) for folks buying the average home with the leading five-year fixed rate and the minimum down payment.
If average prices rise another 5 per cent, that will tack on an additional $174 a month – or 5 per cent. Other things equal, the more that buyers flood into markets with scant listings, the more that payment risk will be a thing.
The historic drop in values and the prospect of falling rates, which could boost demand further, is why FOMO, that cliché acronym meaning fear of missing out, is making a comeback.
Is FOMO merely a siren waiting to lure in buyers with a short-term price spike – to mortgage payments many can’t afford? Or is it a valuable instinct that’ll save this year’s buyers from paying even more, as it did in summer of 2020?
I’m no Soothsayer Sally, but one thing is clear. Canada’s short-term to medium-term housing fundamentals are legit. Record household formation, deficient housing supply, income growth, improving sentiment, and the prospect of falling rates are brewing a bullish concoction.
Rising unemployment and stricter mortgage rules will dilute some of that buying interest – thank you, banking regulator – but demand should remain potent enough to keep values at least going sideways till the economic downturn passes.
I hate to say this, with the Bank of Canada trying to deflate the economy and mortgage regulators trying to bolster financial stability, but real estate proponents have a saying: The best time to buy is any time. Well, to those buyers who are well-qualified and risk-tolerant, it is now officially any time.
Waiting for rates to drop
Rate cut cycles are like floating down the Niagara River in a barrel. Everything’s nice and calm and then kerplop, you go off the edge.
The time is approaching when recession or some global event pushes mortgage rates off the edge. We just don’t know how long rates will drift until we get there.
At the moment, fixed rates are consolidating near multiweek lows. Consolidation like this usually precedes a big move in one direction or the other. I’ll take the under.
In the MortgageLogic.news rate survey, the only tweaks to leading rates this week were a few five- to 10-basis-point changes to default-insured mortgage offerings. (A basis point is one hundredth of a percentage point.)
The lowest uninsured rates saw zero changes since my last report.
Regarding variable rates, markets still expect the Bank of Canada’s next move to be a cut. Accurate or not, derivatives pricing in the bond market still implies the first prime rate drop will come by December.
Rates are as of May 11, 2023, from providers that advertise rates online and lend in at least nine provinces. Insured rates apply to those buying with less than a 20 per cent down payment, or those switching a pre-existing insured mortgage to a new lender. Uninsured rates apply to refinances and purchases over $1-million and may include applicable lender rate premiums. For providers whose rates vary by province, their highest rate is shown.
Robert McLister is an interest rate analyst, mortgage strategist and editor of MortgageLogic.news. You can follow him on Twitter at @RobMcLister.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
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