ReportWire

Tag: Mortgage News

  • Why are mortgages so expensive in Canada? – MoneySense

    Why are mortgages so expensive in Canada? – MoneySense

    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.

    Penelope Graham

    Source link

  • I want to switch mortgage lenders—do I have to pass the stress test again? – MoneySense

    I want to switch mortgage lenders—do I have to pass the stress test again? – MoneySense

    Speaking at Global Risk Institute summit on Wednesday, Routledge said he was worried that the requirement by lenders to run the “OSFI stress test” is making Canadians feel the regulator is too directly involved in their affairs.

    “If I were that person, I would feel regulated by OSFI. And that’s what we hear from Canadians. And I don’t think that was ever part of its intent.”

    The concern helped lead to OSFI’s announcement last week that starting Nov. 21, it would no longer require a stress test for uninsured mortgages when borrowers are making a straight switch between lenders, meaning they aren’t changing things like their amortization or borrowing amount.

    Only between 2% and 6% of borrowers make such a switch, so while it was something Routledge previously maintained was part of sound underwriting practices, the agency no longer saw it as worth the cost. 

    “It wasn’t a big enough prudential risk to justify that appearance of unfairness,” he said.

    You’re 2 minutes away from getting the best rates.

    Answer a few quick questions to get a personalized quote, whether you’re buying, renewing or refinancing.

    Why OSFI decided to change the stress test

    The removal of the stress test requirement comes as the regulator is also looking at a broader switch away from the B-20 stress test on individual borrowers, to a system that would regulate mortgage risk at a bank portfolio level.

    The regulator will next year be testing the alternative system, which sets limits on how much of a bank’s loan book can be taken up by borrowers with a high loan-to-income ratio. The regulator will then decide whether to add it to the current mortgage rules, or replace the existing stress test.

    While the new system would similarly limit concentration of risk, or even do a bit of a better job, it would also have the benefit of seeming to be less directly applied at the specific borrower level, said Routledge.

    The Canadian Press

    Source link

  • Rates are going down—is now a good time to buy a house in Canada? – MoneySense

    Rates are going down—is now a good time to buy a house in Canada? – MoneySense

    The housing supply issue is improving

    It comes after some of Canada’s largest cities have seen ballooning home listings in recent months from droves of sellers listing their properties, despite demand from potential buyers not keeping up. That includes the Greater Toronto Area, where new listings last month jumped 21.1% year-over-year, with 18,612 properties put on the market. Calgary and Vancouver have seen similar trends, with new listings rising 18.7% and 12.6%, respectively, year-over-year in May. But home sales declined in all three cities. In Toronto, there were 21.7% fewer sales in May year-over-year, the Toronto Regional Real Estate Board reported Wednesday.

    The board said 7,013 homes changed hands in the month compared with 8,960 in May of last year, which coincided with a brief market resurgence. TRREB president Jennifer Pearce said homebuyers were waiting for “clear signs” of declining mortgage rates before going ahead with purchasing a property.

    “Typically when rates go down, prices go up.”

    The effects of the rate cut on the housing market in Canada

    “As borrowing costs decrease over the next 18 months, more buyers are expected to enter the market, including many first-time buyers,” she said in a press release. “This will open up much needed space in a relatively tight rental market.”

    Around 56% of Canadian adults who have been active in the housing market said they have been forced to postpone their property search since the Bank of Canada began raising its key lending rate from near zero in March 2022, according to a Leger survey earlier this year commissioned by Royal LePage. Among those waiting on the sidelines, just over half said they would resume their search if interest rates went down, including one-in-10 who indicated a 25-basis-point drop would be enough for them to jump back in.

    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.

    Canadian home buyers waiting for cuts

    “There certainly is pent-up demand,” said Karen Yolevski, chief operating officer of Royal LePage Real Estate Services, in an interview. “Typically when rates go down, prices go up. So this would be the time where people come off the sidelines, knowing and anticipating that prices are likely to rise.”

    In the Greater Toronto Area, the average selling price of a home was down 2.5% year-over-year to $1,165,691 last month. There were 2,701 sales in the City of Toronto, a 17.3% decrease from May 2023, while throughout the rest of the GTA, home sales fell 24.3% to 4,312.

    In general, buyers have been looking for some positive signs,” said Scott Ingram, a sales representative with Century 21 Regal Realty in Toronto. “The sentiment effect of this always punches above the actual dollar and cents. When people are looking for any bit of good news, they’ll take it.”

    The Canadian Press

    Source link

  • Fixed or variable mortgage rate: Which should you choose in 2024? – MoneySense

    Fixed or variable mortgage rate: Which should you choose in 2024? – MoneySense

    It’s been a tough time for home owners (and first-time home buyers), but the Bank of Canada (BoC) has held interest rates steady since July 2023, and the latest economic data is leading experts to suggest that interest rate cuts may be on the horizon. So, what can Canadians expect from interest rates in the months and years ahead, and what does that mean for fixed mortgage rates and variable mortgage rates? We spoke to an economist and a mortgage broker to get a better sense of what’s ahead, and whether a fixed or variable rate is your best option in 2024.

    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.

    What happened with interest rates in 2022 and 2023?

    Rates went up significantly over the past two years, and a lot of it had to do with post-pandemic inflation.

    “Central banks had to react very aggressively to the spike in inflation, and they jacked up interest rates significantly—475 basis points since March 2022,” says Robert Hogue, assistant chief economist at RBC Economics. (One basis point is equal to one hundredth of a percentage point. And 475 BPS means 4.75%.) “This is easily the most aggressive monetary policy we’ve seen in at least a generation.”

    John-Andrew Newman, a mortgage broker in Oakville, Ont., notes that this aggression was essentially a side-effect of the economic impacts of the COVID-19 pandemic. “The COVID environment brought all rates down because the government influenced the interest rate marketplace in a way that was intended to help Canadians manage the effects of various lockdowns,” Newman explains. “They went extreme in one way, which led to inflationary factors peaking after [COVID], and then interest rates started to go up.” 

    Rates climbed quickly to help tame decades-high inflation. “There was almost a whiplash effect [after COVID] as rates went up to the other extreme—and that’s where we are today,” Newman says.

    Many mortgage holders with fixed-rate mortgages secured before the pandemic now face steep payment increases at renewal. Canadian mortgage holders with variable rates are also dealing with higher costs, though the impact has not been the same for everyone—some have seen their payments increase with every hike in the prime rate, while others haven’t. 

    With a variable mortgage with adjustable payments (sometimes referred to as an adjustable-rate mortgage), the mortgage payments fluctuate in response to changes in the lender’s prime rate. Borrowers with this type of mortgage watched their payments increase as interest rates began to rise. 

    However, many variable-rate holders have a mortgage with fixed payments. As interest rates rose, their mortgage payment stayed the same, but the amount of principal paid each month decreased as the amount of interest paid went up. Some of these borrowers have seen their amortizations stretched to point that their payments are almost interest only, Newman says. Some have reached their trigger rate—the point at which the mortgage payment no longer covers the mortgage interest costs.

    This is one of the reasons it’s important to know what type of variable mortgage you have—the former can have a far bigger impact on your budget and cash flow in the short term, and the latter can result in a sudden spike when renewing your mortgage. That increase may be challenging for many mortgage holders to navigate, particularly if they’ve gone into negative amortization (when the monthly mortgage payments aren’t high enough to cover the interest owed on the loan). 

    Erin Pepler

    Source link

  • What does the new Canadian Mortgage Charter mean for home owners? – MoneySense

    What does the new Canadian Mortgage Charter mean for home owners? – MoneySense

    How do interest rates relate to affordability?

    In an effort to subdue runaway inflation, the Bank of Canada (BoC) has raised the benchmark interest rate several times over the last 24 months. This rate affects the interest rates of other financial products. The interest offered on guaranteed investment certificates (GICs) is far higher than usual, for example. This is because the benchmark rate is higher.

    Unfortunately for home owners in Canada, the benchmark rate also affects mortgage interest rates. Home owners with variable-rate mortgages, whose interest rates fluctuate with the benchmark rate, have grappled with sharp increases to their mortgage payments over the past few years. But even those with fixed-rate mortgages must contend with higher interest rates when their mortgages come up for renewal.

    “In the face of a rapid global increase in interest rates, many Canadians are feeling the squeeze, particularly when it comes to affording a home to rent or own,” Deputy Prime Minister and Minister of Finance Chrystia Freeland said in a press release. The Canadian Mortgage Charter is one measure intended to provide relief.

    What is the Canadian Mortgage Charter?

    The Canadian Mortgage Charter is a document that lays out expectations for banks and other lending institutions about how they will behave in their relationships with “vulnerable borrowers.” The guidelines stem from a document published by the Financial Consumer Agency of Canada (FCAC) in July 2023, but the charter is a concise and public-facing document. It outlines six things Canadian borrowers can expect of their banks:

    1. Allowing temporary extensions of the amortization period for mortgage holders at risk
    2. Waiving fees and costs that would have otherwise been charged for relief measures
    3. Not requiring insured mortgage holders to requalify under the insured minimum qualifying rate when switching lenders at mortgage renewal
    4. Contacting home owners four to six months in advance of their mortgage renewal to inform them of their renewal options
    5. Giving home owners at risk the ability to make lump sum payments to avoid negative amortization or sell their principal residence without any prepayment penalties
    6. Not charging interest on interest in the event that mortgage relief measures result in a temporary period of negative amortization

    Of these guidelines, numbers three and four are actually new. The charter is the first time lending institutions have been asked not to require mortgage holders to requalify if switching lenders, and the first time they’ve been asked to reach out to borrowers in the months leading up to mortgage renewal.

    Compare the best mortgage rates in Canada.

    Get a personalized quote in 2 minutes.

    You will be leaving MoneySense. Just close the tab to return.

    What does this mean for Canadian mortgage holders?

    The Canadian Mortgage Charter is intended to encourage banks to identify at-risk borrowers and offer them mortgage relief measures so that fewer people experience extreme financial hardship or lose their homes.

    The Canadian Mortgage Charter is not a law. Rather, it’s a set of expectations, much like the changes to mortgages, bank account fees, junk fees and dispute resolution proposed by the government earlier this year. And just like with those measures, the only recourse for borrowers if a lender doesn’t heed the government’s request is to make a complaint on the FCAC website. It’s unclear what, if any, consequence there is for non-compliance.

    In additional to the new charter, the Fall Economic Statement announced billions of dollars in financing to accelerate housing construction, plus plans to crack down on short-term rentals “so that homes can be used for Canadians to live in.”

    Keph Senett

    Source link

  • Toronto housing bubble: Is it ready to pop? – MoneySense

    Toronto housing bubble: Is it ready to pop? – MoneySense

    As an example, someone who considered themselves fortunate to secure a 5-year variable rate mortgage at 0.9% in early 2022 may have seen their interest rate soar to 5.4%, leading to a significantly higher required payment. For some, this situation is painful, and for others, it becomes unmanageable. In extreme cases, selling the home they purchased just a few years ago, because they can no longer afford it, may be their only recourse. 

    Source: Michael Pe, CFA

    Furthermore, demand from foreign buyers has also been curtailed by the Canadian government’s recent ban on non-Canadians purchasing property. Resident investors, who have significantly contributed to home price inflation, are also likely to be affected by higher interest rates and diminishing cash flow. 

    When will the Toronto real estate bubble burst? While pinpointing the exact timing of Toronto’s potential real estate correction remains challenging, signs of deflation may already be underway. The TRREB has its benchmark prices, designed to estimate the value of a typical home in the area without distortion from outliers. In October, the real estate board reported the benchmark at $1,103,600, indicating a 2.1% dip from September’s $1,127,000. 

    The prospect of a prolonged period of increased interest rates, driven by the Bank of Canada’s cautious stance amid inflation concerns, alongside reduced affordability, restrictions on foreign buyers, and decreased local investor activity due to higher interest rates, suggests the potential for further market deflation.

    When will housing prices hit bottom?

    Prices are dropping in Toronto, and in Canada as a whole. However, it’s uncertain whether prices will continue to decline or not. The Canada Mortgage and Housing Corporation (CMHC) forecasted home prices to increase in 2024. And according to recent stats from real estate firm Wahl’s 2023 GTA Housing Snapshot Report, underbidding has been rising over the past five months (81% in October). To me, the growth underbidding indicates there are less buyers and lower prices.

    Optimists may argue we’ve seen this environment before, with affordability as the ongoing issue. They may contend that the lack of housing supply and the resilience of the housing market will continue to drive up home values. However, certain conditions such as astronomical inflation and rapid interest rate increases have not been seen in decades. This present landscape contains a new set of headlines, setting the stage for potential falling home prices.

    While it’s impossible to definitively predict if and when the Toronto real estate market will experience a downturn, it’s evident that skyrocketing prices have created an affordability problem for many. 

    Simultaneously, though, it disproportionately benefited others, such as property investors. Despite current conditions suggesting diminishing housing demand, including that of investors, policy makers in Canada, including Toronto, must address and moderate this type of demand in the future. Even after interest rates come down. 

    Michael Pe, CFA

    Source link

  • Is Canada in a recession? A look at the state of our economy – MoneySense

    Is Canada in a recession? A look at the state of our economy – MoneySense

    When will the Bank of Canada lower interest rates?

    Soon, said Donald, soon. She went on to suggest the BoC will cut interest rates in early 2024. “Probably in Q1 or Q2, and we’re ahead of the pack on that one. The [U.S. Federal Reserve] could be cutting interest rates by mid-year.” Those of us looking to buy a home or renew their mortgage will be very happy to see a change in mortgage rates in Canada.

    Photo of Bill Morneau by Joseph Michael Photography

    What about fiscal policy? 

    Morneau was the PMAC conference’s lunchtime keynote speaker. When asked about the state of the economy, he said: “I wasn’t surprised by the continued strong performance in the U.S. economy. And that, I think, is at least a positive indicator.” He added that a recession will drag on in both Canada and the United States, and that the government is feeling pressured to take action on spending and keep up with services.

    “What the government needs to do is to make sure that, fiscally, it’s acting in a prudent fashion,” Morneau said. “From my perspective, I don’t think it’s time for introducing new programs. I think it’s time to carefully open the world’s expenditures.”

    Do Canadians have enough savings?

    That depends. Not just on who you ask, but also the numbers you look at, said Donald. “One of the reasons why we have not yet experienced a recession in the United States, and why it’s been slow in Canada, is because apparently there was excess savings everywhere,” she said. “Here’s the dirty little secret: we actually have no idea how much excess savings is in the system.” The ranges in reports go from $0 to USD$1.5 trillion, and that’s because there are no historical models for what’s happening right now, and none applicable to the current state of the economy.

    There are Canadians concerned about their current finances and having enough savings, as well as the ability to save for retirement. Low-risk investments like guaranteed investment certificates (GICs) and high-interest savings accounts are looking pretty favourable with their higher-than-typical rate of return (say, compared to when the BoC rates are lower).

    Next steps in fixing the economy and inflation

    Repairing the economy isn’t about savings or defining a recession. “The excess savings story actually masks the forest for the trees, because we’re talking about the largest transfer of government spending that we have seen in a post-war period in Canada and the United States,” said Donald. 

    The government typically spends money during hard times, including recessions, to move the economy back into a good state. But government debt is high, and Canadians and Americans feel “worse off.” “For the first time in my career, we were looking at the 10-year yield, and we’re trying to figure out what’s going on in the bond market,” said Donald. 

    Typically, during a recession in Canada, inflation would fall because Canadians would spend less money. But in today’s global market, taming inflation isn’t just about consumer behaviour, but also about weather, war and other geopolitical issues. “It’s actually coming from a myriad of factors. But moving forward, we know that the drivers and the ways that we calculate inflation are shifting.”

    Lisa Hannam

    Source link