ReportWire

Tag: mortgage afford

  • Why are mortgages so expensive in Canada? – MoneySense

    Why are mortgages so expensive in Canada? – MoneySense

    [ad_1]

    A total of three rate cuts passed down from the Bank of Canada since June have cumulatively lowered the cost of borrowing for Canadians by 75 basis points, from 5% to 4.25%, offering home buyers some much-needed relief in terms of affordability.

    This is according to the latest affordability report compiled by Ratehub.ca, which crunches the minimum annual income required to buy an average home in some of Canada’s major cities. (Ratehub Inc. owns both Ratehub.ca and MoneySense.) The report is based on September 2024 and August 2024 real estate data reported by the Canadian Real Estate Association (CREA). It illustrates how changing mortgage rates, stress test rates and real estate prices are impacting the income needed to buy a home. 

    The September edition (updated monthly, so bookmark this page) shows the required income lowered in 11 of the 13 housing markets studied, as the average five-year fixed mortgage rate dropped to 5.04%, compared to 5.16% in August. As a result, the corresponding average mortgage stress test rate—which tacks on an additional 2% to a borrowers’ contract mortgage rate—fell to 7.04% from the previous 7.16%.

    Let’s take a look at how that’s impacted home buyers across Canada.

    The best places to buy real estate in Canada

    Housing affordability across Canada’s major cities

    Check out the chart below to see how affordability changed between August and September in Canada’s main housing markets, based on the income required to qualify for a mortgage.

    September 2024: How much do you need to earn to buy a home in Canada?

    City Average home price in August Average home price in September Change in home price  Income required in August Income required in September Change in income
    Vancouver $1,195,900 $1,179,700 -$16,200 $224,000 $219,000 -$5,000
    Toronto $1,082,200 $1,068,700 -$13,500 $204,100 $199,800 -$4,300
    Hamilton $840,300 $831,500 -$8,800 $161,800 $158,740 -$3,060
    Victoria $866,700 $864,400 -$2,300 $166,420 $164,450 -$1,970
    Halifax $543,700 $538,100 -$5,600 $109,940 $108,000 -$1,940
    Calgary $586,100 $582,100 -$4,000 $117,360 $115,600 -$1,760
    Ottawa $646,000 $642,800 -$3,200 $127,830 $126,100 -$1,730
    Edmonton $400,200 $399,400 -$800 $84,850 $83,990 -$860
    Winnipeg $361,800 $362,500 $700 $78,140 $77,600 -$540
    Fredericton $311,300 $312,000 $700 $69,310 $68,860 -$450
    Regina $319,700 $320,700 $1,000 $70,780 $70,360 -$420
    Montreal $535,700 $543,400 $7,700 $108,550 $108,900 $350
    St. John’s $354,600 $364,100 $9,500 $76,880 $77,880 $1,000
    Data in the chart is based on a mortgage with 20% down payment, 25-year amortization, $4,000 annual property taxes and $150 monthly heating. Mortgage rates are the average of the Big Five Banks’ 5-year fixed rates in September 2024 and August 2024. Average home prices are from the CREA MLS® Home Price Index (HPI).

    Get free MoneySense financial tips, news & advice in your inbox.

    Canadian cities where affordability improved

    Where in Canada is owning a home becoming more affordable?

    Vancouver: A chilly start to the autumn market

    Vancouver topped the list of cities with most-improved affordability, largely due to the fact that the average home price absorbed a $16,200 drop from August. Make no mistake,—this is still Canada’s most expensive housing market with an average property price tag of $1,179,700. But demand has been quite cool coming out of the summer months. According to the Greater Vancouver Realtors, sales fell 3.8% year-over-year in September, while the supply of new listings rose 12.8%, leading to an easy buyers’ market. As a result, Vancouver home buyers need to earn $5,000 less than they did last month to qualify for a mortgage on the average-priced home, at an income of $219,000.

    Toronto: A month of flat sales

    The city of Toronto came in second, as home prices continue to fall within Ontario’s largest city; the average property sold for $1,068,700, $13,500 less than it did in August, according to the Toronto Regional Real Estate Board. This is largely due to the fact that sales were unchanged from the previous month (though things are improving on an annual basis, coming in 8.6% higher than in 2023). Meanwhile, fresh supply continues to flood the market with new listings, which surged 35.5% year-over-year. Combined with easing mortgage rates, the average Toronto home buyer saw their required income shrink by $4,300, to $199,800.

    Hamilton: Hovering below the historical average

    Rounding out the top three cities is Hamilton, which has long been a popular Southern Ontario real estate destination, without the million-dollar price tag that characterizes neighbouring Toronto. The average home price in Hamilton in September came to $831,500, a decrease of $8,800 from August. The Association of Hamilton-Burlington reports that while sales were brisk in September, they continue to lag 2023 levels by 4% year-to-date and remain 28% below the long-term average. Meanwhile, new listings and inventory levels continue to rise, now sitting at a cumulative five months. That’s all cooled home prices, and as a result, Hamilton home buyers need to earn $158,740 to buy a home, $3,060 less than they did in August.

    [ad_2]

    Penelope Graham

    Source link

  • The after-effect of market lows: a drop in fixed mortgage rates – MoneySense

    The after-effect of market lows: a drop in fixed mortgage rates – MoneySense

    [ad_1]

    Bond yields have a “positive correlation” with fixed mortgage rates. That means when bond yields go up, so do fixed-rate mortgages, and vice versa. And since Canadian five-year government bond yields have dropped to 2.9%, as of Tuesday, mortgage rates are expected to come down, too. 

    What are bonds?

    Bonds are a form of debt security. Governments and corporations issue bonds to borrow money from investors. The amount borrowed is referred to as the bond’s face value or par value.

    Interest is paid on the face value to reward investors for lending their money. The rate may be fixed—constant over the duration of the bond—or variable, changing over time in response to changes in a benchmark interest rate such as the prime rate.

    Bonds are commonly referred to as fixed-income securities regardless of whether their interest rates are fixed or variable. 

    Read “What are bonds?” from the MoneySense Glossary.   

    The effect on bonds

    According to Ratehub.ca (Ratehub Inc. owns both Ratehub.ca and MoneySense), fixed mortgage rates are on their way down. 

    “Bond markets have dropped in response to yesterday’s massive stock sell-off, and are now at 2.97%, a low not seen since June 2023, and also marking a 20-basis point drop in the span of a week,” says mortgage expert Penelope Graham of Ratehub.ca. “That will certainly prompt additional discounts for fixed mortgage rates, on top of the lower rates we’ve seen hit the market in recent weeks.”

    The effect on mortgage rates

    Bond yields have been trickling down for a bit now. With the recent Bank of Canada (BoC) interest rate cuts on June 5 and July 24, yields have hovered around 3.3%, which hinted at a drop in fixed mortgage rates. And yesterday’s investor sell-off indicated lack of confidence from investors. So, where do mortgage rates sit?

    “Right now, the lowest insured five-year fixed mortgage rate is 4.29%, which is the lowest a five-year term has been since last May,” says Graham. “With further decreases expected, it’s a good idea for mortgage shoppers and renewers to look into their rate hold options, which would guarantee them today’s lows for up to 120 days.”

    Check this table to see how mortgage rates are reacting.

    powered by

    Will things be more affordable? Maybe, for now

    As for the market, some investors are relieved to see stock prices drop, namely those of technology companies, including the Magnificent 7, which have had a mixed bag of earnings this quarter. It’s not only made fixed mortgages, but also some sought-after stocks, more affordable.

    Read more about fixed mortgage rates:



    About Lisa Hannam


    About Lisa Hannam

    Lisa Hannam is the editor-in-chief at MoneySense.ca. She is an award-winning editor with over 20 years of experience in service journalism.

    [ad_2]

    Lisa Hannam

    Source link

  • Should you get a 30-year mortgage?  – MoneySense

    Should you get a 30-year mortgage?  – MoneySense

    [ad_1]

    What to see the difference in a 25-year versus 30 year mortgage? Tap the filter icon on the far right to expand the data fields. Change the amortization to 25-year or 30-year mortgage (second from the right, second row).

    powered by

    The pros and cons of a 30-year mortgage

    Signing up for a 30-year mortgage allows a buyer to stretch their mortgage payments over a longer period of time. “You’re spreading your debt over five extra years [compared to 25-year mortgages]. That usually gets you a higher purchase price or mortgage amount that’s needed in the big markets,” explains Verceles.

    On a home selling for $699,117 (the average Canadian home price as of May 2024), a buyer who puts 20% down and takes out a 30-year mortgage at a five-year fixed rate of 4.99% will pay $2,982 a month on their mortgage. (You can run the calculations yourself using a mortgage payment calculator.) Another buyer with the same down payment and mortgage terms but a 25-year amortization would shell out $3,250—that’s $268 more than the first buyer every month, or an extra $3,216 a year. 

    At first glance, the 30-year mortgage seems like the better choice—except that the buyer would end up paying a total of $514,068 in interest over the life of the mortgage, assuming rates did not change. The 25-year mortgage buyer, on the other hand, would pay $415,615 in total interest—a difference of $98,415 on the same mortgage principal. 

    In Canada, a 30-year mortgage is not insurable through the CMHC, meaning a minimum 20% down payment is required, unless it is for a new build as outlined above. Even with the new change around 30-year mortgages, this can make it more difficult to purchase the home that you want. A 15% down payment on a $748,450 house is $112,268. At 20%, the down payment jumps to $149,690—meaning you will need to access $37,422 more.

    Plus, Verceles says, mortgage lenders tend to give borrowers slightly better rates for mortgages covered through CMHC insurance, because the lender isn’t the one shouldering the risks of a default. Usually, those savings can amount to a quarter of a percent in interest, according to Verceles.

    Pros

    • Ability to stretch mortgage payments over a longer period of time
    • Access to a higher purchase price or mortgage amount

    Cons

    • More interest paid over the term of the mortgage compared to shorter terms
    • Not insurable through the CMHC, which could mean paying a higher interest rate
    • A minimum 20% down payment is required
    You’re 2 minutes away from getting the best mortgage rates in CanadaAnswer a few quick questions to get a personalized rate quote*You will be leaving MoneySense. Just close the tab to return.

    Can you get a mortgage of more than 30 years?

    In some countries, such as Japan, mortgages with terms of 35, 40 and even 100 years are not unheard of. The long term mortgages are intended to be paid over multiple generations. Canada’s major lenders once offered 40-year mortgages, but that ended when the North American housing bubble burst in 2008. Shortly after that meltdown, Canada’s Department of Finance decreased the maximum amortization to 35 years, then later reduced it to 30 years.

    “They don’t want people to leverage themselves too far,” Verceles explains. (Some alternative lenders still offer 35- and even 40-year mortgages, albeit with steeper interest rates than a shorter mortgage from a bank.)

    Widespread concern about housing affordability in Canada have made the idea of longer amortization periods more attractive to homebuyers, but Verceles says he isn’t sure whether the Canadian government will loosen rules to allow 30-plus-year amortizations again. But given the importance of real estate to Canada’s economy, it’s possible that the federal government may to ease the financial burden of homebuyers by letting them spread out their payments over a longer period of time.

    [ad_2]

    Brennan Doherty

    Source link

  • How much income do I need to qualify for a mortgage in Canada? – MoneySense

    How much income do I need to qualify for a mortgage in Canada? – MoneySense

    [ad_1]

    Fredericton: Home prices poised to rise with rate cuts

    Fredericton marks the third and final city where the additional required income to purchase a home remains below $1,000. The average home price there rose $2,600 on a monthly basis to $292,900, which pushed the minimum income up by $430, to $68,170. According to CREA, Fredericton home sales declined 15.2% over the course of the month.

    This reflects real estate trends in New Brunswick as a whole, as home prices have steadily increased over the past three months. This is mainly due to shrinking supply, as new listings remain 12.1% below the five-year average for March. However, sales and supply could be poised to perk up should interest rate cuts materialize later this summer.

    You’re 2 minutes away from getting the best mortgage rates in CanadaAnswer a few quick questions to get a personalized rate quote*You will be leaving MoneySense. Just close the tab to return.

    The least affordable places to buy in Canada

    Toronto, Hamilton and Vancouver sit at the bottom of the list.

    Toronto: The toughest place to buy a home in March

    It should come as no surprise that Toronto home buyers are the most financially squeezed; home prices there escalated sharply over the pandemic’s lockdown years, and remained elevated at an average of $1,113,600 in March, up $19,700 from February. That resulted in the average buyer needing an annual income $3,400 higher than they did in February, making it now $217,500.

    While home sales have chilled slightly at the start of the year, the Toronto Regional Real Estate Board (TRREB) says enough competition remains in the market to push prices higher, and that this will only tighten further as interest rates start to decline.

    Source: Ratehub

    Hamilton: Another challenging Golden Horseshoe market

    The City of Hamilton—which boomed in popularity in recent years as a real estate destination—came in second in terms of worsening affordability. The average home price does remain under the $1-million mark, making it a much more affordable option when compared to neighbouring Toronto. But that gap is narrowing sharply, up by $14,600 in March to an average of $850,500. In terms of income, a Hamilton buyer needs to earn $169,640 annually, an increase of $2,540.

    Vancouver: Softening sales, but demand still drives prices

    The City of Vancouver remains Canada’s most expensive housing market, with an average price of $1,196,800 in March, up $13,500 from the previous month. As a result, a buyer there must earn $232,620 in order to qualify for the required mortgage, an increase of $2,270 compared to February.

    [ad_2]

    Penelope Graham

    Source link