Las Vegas — For nearly a year now, 32-year-old renter Mason Cunha and his realtor have been struggling to find the right home in Las Vegas at the right price.
“It just doesn’t really make sense right now to buy a home with the interest rates where they are, and with the inventory what it is,” Cunha said.
Vice President Kamala Harris has said that if she wins the general election in November, she plans to work with the private sector to build three million new homes and rental units.
Cunha, a Harris supporter, is in favor of the proposal.
“I think it’s going to definitely help, if you were to double or triple or quadruple the inventory,” Cunha said.
Harris is also proposing outlawing price fixing by corporate landlords and giving first-time homebuyers who have paid their rent on time for two years with up to $25,000 in down payment assistance.
“I would want to review what the qualifications are for that,” said 32-year-old Andrew Lum of Las Vegas, a wedding DJ and married father. “Where is that $25,000 coming from?”
Lum sold his home when his family expanded. He now rents a bigger house but he can’t afford to buy. Lum says his life was better when former President Donald Trump was in office.
“In 2020 we were able to buy a home,” Lum said. “We were able to buy it at an interest rate that was possible. We were able to buy it with, you know, minimal down payments.”
Trump’s plan involves reducing mortgage rates by slashing inflation. Trump has also said he would open limited portions of federal lands to allow for new home construction, a plan the Biden administration is already enacting. As an example, one such 20-acre plot in Las Vegas was recently transferred from the federal government to Clark County, and now it has been designated for affordable housing.
According to the Congressional Research Service, 80.1% of the land in Nevada is owned by the federal government.
Trump has also said that that his promised mass deportations will make more housing available. It is an argument that both Lum and Cunha don’t seem to agree with.
“It just seems a little farfetched to me that all the houses are being purchased by immigrants,” Lum said.
“I think everything that Trump says has to be taken with a really aggressive grain of salt because he is known to inflate the truth,” Cunha said.
Carter Evans has served as a Los Angeles-based correspondent for CBS News since February 2013, reporting across all of the network’s platforms. He joined CBS News with nearly 20 years of journalism experience, covering major national and international stories.
Logan Mohtashami, HousingWire analyst, joins ‘Squawk on the Street’ to discuss what the rise in mortgage rates mean for the consumer, what recent rate moves mean for housing activity, and much more.
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?
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).
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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.
Borrowing to invest can be risky. It can magnify your returns, as well as your losses. The best candidate for leveraged investing is someone with a high risk tolerance, a long time horizon and low investment fees.
Leveraged investing for the short term can be risky, because stock prices can fall several years in a row, even if they rise most of the time.
If you’re a balanced investor buying stocks and bonds, particularly if you pay high investment fees, it can be hard to earn a profit over and above the interest costs.
When you borrow money to invest in stocks, you can deduct the interest on line 22100 of your personal T1 tax return. You can also deduct other expenses or carrying charges on this line, such as fees for investment management or for certain investment advice, or accounting fees if you have income from a business or property.
If your investments produce only capital gains, you cannot deduct your interest. If you are in Quebec, you may be limited provincially from deducting interest that exceeds your investment income for the year.
What is a HELOC?
HELOC stands for home equity line of credit, a type of loan secured by your home—meaning that your home is collateral for the loan. HELOCs provide revolving credit, so you can borrow money as you need it, up to a certain amount—usually a percentage of the value of your home. Most HELOCS have no fixed repayment schedule, although you will have to pay interest monthly. In contrast, a home equity loan is a lump sum with a fixed repayment schedule for the full amount.
Read the full definition in the MoneySense Glossary: What is a HELOC?
HELOC vs. mortgage
You mentioned you borrowed using a home equity line of credit (HELOC), Jackie. Most HELOCs have interest-only payments, so that ensures your payments are all tax-deductible when you borrow to invest in eligible investments. However, HELOCs tend to have higher interest rates than mortgages.
A typical HELOC rate is the prime rate, plus 0.5% or 1%, whereas a variable-rate mortgage may have a discount to the prime rate of 0.5% to 1%. It may make sense to consider converting a tax-deductible HELOC to a mortgage to reduce your cost of borrowing. This would increase your payments, since mortgage payments include principal and interest, so it might slightly increase your cash-flow requirement. However, paying lower interest may make the leverage more beneficial overall.
Can you port a HELOC?
If you are moving to a new home that you are buying, Jackie, you could consider porting your HELOC to the new property. This way, the debt can be preserved, as well as the tax deductibility.
But picking a fixed mortgage rate can be problematic if you decide to sell your house and are forced to break your mortgage contract in the middle of your term. The penalties associated with breaking a fixed-rate mortgage can be very costly.
Thankfully, many mortgage lenders allow you to avoid penalties by porting your mortgage, which means carrying your existing term and interest rate to your new property.
So, how does porting a mortgage work, and when does it make sense?
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What is porting a mortgage?
Porting a mortgage refers to taking your current mortgage and transferring it to a new property when you move. Your existing mortgage rate and term are transferred along with your current mortgage balance.
To qualify for a mortgage port, you must follow certain rules. For example, you must sell your home and purchase a new one at roughly the same time—usually within 30 to 120 days, depending on the lender. Also, you can’t port more than your current mortgage amount. If you need additional funds to purchase your next home, the new money will be subject to current interest rates and added to the mortgage balance—but more on that later.
Most Canadian mortgage lenders offer portability as an option, but not all do. That’s why it’s important to find out if a prospective lender offers this feature before you take out a new mortgage. After all, you never know when your plans might change and you need to sell your home before your mortgage term ends.
When does it make sense to port a mortgage?
There are two main reasons you would want to port your mortgage instead of breaking your contract and starting fresh. The first is to keep your existing interest rate if it’s lower than current mortgage rates. The second is to avoid breaking your mortgage early and incurring a costly penalty.
“Porting is typically a good idea if your existing fixed mortgage rate is lower than current rates and you’re moving before your mortgage maturity date,” explains Lyle Johnson, a Winnipeg-based mortgage broker. “By keeping your existing mortgage, you avoid the prepayment penalties that would apply if you break your mortgage before its maturity date, while keeping your low fixed rate.”
What about a variable-rate mortgage? Most variable mortgages do not offer a portability feature. (Note, however, that you may have the option to convert to a fixed rate first, and then port.) If you decide to sell your house before your term expires, you’ll likely need to break your contract and obtain a new mortgage for the new property. That said, the penalty for breaking a variable mortgage is usually equal to three months’ interest on your outstanding balance, which is often less than a fixed-rate mortgage penalty.
Mortgage rates are finally starting to come down, which is giving some homeowners a bit of relief. But many looking to buy could still face unaffordable prices and a tight market. Elise Preston has more.
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After the Federal Reserve closed July by maintaining the benchmark Fed funds rate at 5.25% to 5.5%, where it’s been for over a year, investors have been clamoring for a do-over.
The S&P 500 plunged 6% over the first three trading days of August as a raft of downbeat economic data convinced investors that the economy was weakening faster than expected and the Fed had erred in not lowering rates.
Stocks plunged on Monday as a surprise interest rate hike in Japan led to the unwind of a global “carry trade” in which investors had borrowed low-interest yen to invest in risky assets in the U.S. like the “Magnificent Seven” stocks.
As a result of the sharp three-day sell-off, economists now expect the Fed to cut rates by 50 basis points in its September meeting and at least another 50 basis points before the year’s over.
The economy is likely to remain uncertain, but one thing is clear. Lower interest rates will help to revive a struggling housing market, breathing new life into stocks that depend on real estate transactions.
That industry has been hit hard by the slowdown in the housing market, but a turnaround could be near. One stock that could soar in the recovery is Compass (NYSE: COMP), the nation’s No. 1 real estate brokerage by sales volume.
Image source: Getty Images.
Can Compass get back on track?
Compass went public in the spring of 2021 when the real estate market was booming, and mortgage rates were around 3%. However, that boom did not last long, and by the time 2022 rolled around, revenue was sliding, and the stock was flailing.
With the housing market remaining on ice, Compass has focused on realigning its cost structure, investing in technology, and growing its base of agents, which has helped drive revenue higher even in a challenging market.
Revenue increased 14% to $1.7 billion in the second quarter, and Compass’s number of principal agents rose 24% to nearly 17,000 as it’s luring new agents with an attractive technology platform and a steady marketing push. After two years of declines in total transactions, the business has returned to growth, a sign that the industry is starting to turn around.
Compass is also targeting positive free cash flow this year and is making progress in profitability as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped from $30.1 million to $77.4 million in the seasonally strong second quarter.
The real estate brokerage industry is in flux after a lawsuit against the National Association of Realtors forced brokerages to amend their business model with more disclosures and information that makes it clear that traditional 3% commissions are negotiable. As a part of the settlement agreement, Compass agreed to pay $57.5 million.
Compass has also assuaged concerns that the agreement would dramatically change the industry, noting in May that in the initial weeks after the settlement, 99% of new listings included offers to pay the buyers agent, and 96% included commission offers of 2% or more. Compass believes the settlement will have little impact on professional full-time agents.
What lower interest rates would mean for Compass
The housing market will probably never return to the heady early days of the pandemic when Americans in cities were plucking up second homes and suburban plots with yards, and mortgage rates fell to less than 3%.
However, there is substantial pent-up demand from homebuyers looking for falling rates to effectively lower prices by bringing down monthly payments and from potential home sellers who may not want to give up their low mortgage rates when current rates are so high.
In June, existing home sales fell to a seasonally adjusted annual rate of 3.89 million, down from a peak of 6.6 million in 2021, a decline of 41%. Reversing that loss would mean a surge in existing home sales of 70%.
Compass doesn’t need that to happen, but even getting back to pre-pandemic levels would mean a 50% increase from current existing home sales, and that should make a significant difference on the bottom line. CEO Robert Reffkin told investors this spring, “We believe when rates come down it will create a massive surge in transactions,” and he predicted lower rates would mean hundreds of millions in adjusted EBITDA and free cash flow, assuming normalized annual home sales of 5.4 million-5.6 million homes.
The business is already moving in the right direction, with revenue up double digits, and growth is likely to accelerate substantially as mortgage rates come down and the housing market picks up again.
Compass stock has already more than doubled from its low last November, trending with hopes of a recovery in the housing market and stabilization in its own business. Down 79%, Compass doesn’t have to recoup those losses to be a winner. The stock could double by only retracing a quarter of those losses.
If the Fed cooperates and the housing market shows signs of life, a double for the real estate brokerage stock from here certainly seems within reach.
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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.
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.
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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.
Mortgage rates tumbled on Friday to their lowest since April 2023 after a weak jobs report sent bond yields sharply lower and boosted Wall Street’s expectations for an interest rate cut from the Federal Reserve at its September meeting.
The average rate for a 30-year fixed mortgage dropped 0.22 percentage points to 6.4%, according to Mortgage News Daily. That’s the lowest average rate for the most commonly held home loan since April 2023, according to data from Freddie Mac.
“The market is moving ahead of the Fed, bringing down longer-term rates including those for mortgages, which should lead to both more home purchases and a pickup in refinance activity,” Mike Fratantoni, chief economist, with the Mortgage Bankers Association, said in a report.
On Friday morning, the Labor Department reported that hiring abruptly slowed in July, with employers adding far fewer jobs than economists had expected, while the unemployment rate jumped to its highest point since late 2021. The significant miss sent stocks tumbling as well as yields on the 10-year U.S. Treasury, which mortgage rates closely follow.
The sharp decline in mortgage rates could offer some relief to house hunters, as many have been priced out of the market given the double whammy of high borrowing costs and home prices that reached a record in June. Mortgage rates could fall even lower in the coming weeks, said NAR Chief Economist Lawrence Yun in a statement.
Yun pointed to a 1 percentage-point decline in the 10-year bond yield, which dropped to 3.8% on Friday from 4.8% a few months ago. If mortgage rates fell by the same amount, borrowers would need $300 less for the monthly payment on a typical home loan, he said.
“Homebuyers who were priced out a few months ago should re-check whether they can enter the homebuying market if they have secure jobs,” he added.
Meanwhile, economists are now suggesting the Federal Reserve may need to cut rates more deeply than had been expected given the slowing labor market. Some Wall Street economists on Friday predicted the Fed could cut its benchmark rate by 0.5 percentage points at its September meeting, compared with prior forecasts for a 0.25 percentage point cut.
On Wednesday, the Fed held its benchmark interest rate steady, as expected, but Chair Jerome Powell signaled the central bank could begin cutting borrowing costs in September so long as inflation continues to abate. But he also flagged that Fed officials are closely watching the labor market for signs of weakness, which he said could indicate the need for cuts.
Given the weaker-than-expected jobs numbers on Friday, Wall Street analysts are now predicting several additional rate cuts throughout 2024, as well as potentially deeper reductions than earlier forecast.
“We now expect 25 bp cuts at each of the remaining three meetings this year and will be watching for signs that a larger 50 bp move could be on the cards, although that would be dependent on the economy and labour market weakening at a faster pace than we forecast,” Capital Economics said in a Friday report.
Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.
Maryland family closes on dream home with a 3.4% mortgage rate — paying $1K a month less than the market rate
With house prices and mortgage rates hovering at painful highs, many Americans have tossed aside their dreams of homeownership — but are they missing a trick?
The Sutton family in Northeast Maryland recently secured their dream home with a mortgage rate of around 3.4% — which was roughly half the average 30-year fixed mortgage rate at the time of purchase.
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How did they beat the home buying odds? They used something called an assumable mortgage — a special type of home loan where the buyer essentially takes over the seller’s mortgage.
The young family shared their story with NBC News. By going down the assumable mortgage route, the Suttons not only managed to avoid the stress and fees associated with qualifying for a conventional mortgage, but they also saved themselves about $1,000 to $1,500 a month by taking on the low interest rate.
Here’s how assumable mortgages work and how to determine if one might be right for you.
What is an assumable mortgage?
An assumable mortgage is a type of home loan where a qualified buyer can take over (or assume) a seller’s mortgage terms, including the existing balance, repayment period and interest rate.
These loans can be appealing for both buyers and sellers, particularly those, like the Suttons, looking to capitalize on lower mortgage rates of the past. But they do also have their limitations and are bound by strict regulations.
Christopher Sutton admitting he’d “never heard of” assumable mortgages before his realtor suggested one is unsurprising.
Assumable mortgages are a relatively niche product today, but they were immensely popular back in the 1980s, when mortgage rates lingered in double-digit territory for years and many lenders (including conventional banks) accepted the practice.
Since then, the majority of lenders have restructured their loan terms (in line with regulatory and market developments) to prohibit the practice. Today, conventional loans are no longer eligible for assumption. They must be paid in full — and a new one issued — whenever a property is sold or transferred to a new owner.
There are three exceptions, where home loans are assumable:
FHA loans: These loans are backed by the Federal Housing Administration and are popular with first-time buyers and those with lower incomes who may not qualify for a conventional loan. Like conventional loans, borrowers still have to qualify under all FHA terms, including credit and employment standards.
USDA loans: These loans are intended for low-income borrowers in rural areas. They’re backed by the U.S. Department of Agriculture and don’t require any down payment.
VA loans: These loans are offered to active or retired members of the U.S. military.
The Suttons assumed an FHA loan in order to secure their dream home in Maryland.
Read more: ‘You didn’t want to risk it’: 80-year-old woman from South Carolina is looking for the safest place for her family’s $250,000 savings. Dave Ramsey responds
Things to be wary of
To successfully assume someone else’s mortgage, you need to cover all of the equity already built up in the house. So, if the seller bought the home for $200,000 and paid off $50,000 in principal, the buyer would have to bring $50,000 to the table (a bit like a down payment) and qualify to assume the remaining mortgage.
This worked out for the Suttons because the previous owner of the house had only made about 18 months of mortgage payments before relocating to Florida for work, meaning they had not built up a ton of equity that the Suttons would have to match.
“It was just one more of those stars that had to align for this to work,” the family’s realtor, John Gatsoulas from REMAX, told NBC News.
It’s also important to consider the property value before assuming a mortgage. If the home has appreciated significantly since the seller first bought it, the original home loan that you assume may not cover your costs.
So, if you assume a mortgage for $350,000, but the house is now worth $500,000, you’ll need to pay the $150,000 difference out of pocket. You may be able to secure financing to cover that cost, but second mortgages are typically expensive, hard to qualify for and not really suitable for families, like the Suttons, seeking assumable mortgages for their affordability.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Bryan Tucker began looking for a starter home in the Washington, D.C., suburbs earlier this year. He soon decided it wasn’t worth it.
In Arlington, Va., where he was looking, he found that most options he was interested in were priced over $1 million and way out of his budget. So he decided to renew his apartment lease another year.
“I have looked,” said Tucker, a 27-year-old project manager in the tech industry. “The only options that are really affordable for me for the next year are condos.”
Would-be buyers like Tucker are staying in the rental market longer as the housing market remains out of reach for many. Apartment owners have noted on recent earnings calls that the share of renters moving out to buy homes is at record lows.
Multifamily and single-family rental REITs across the country have reported strong appetite for new and renewal leases as home ownership remains unaffordable for many. (John Tlumacki/The Boston Globe via Getty Images) (Boston Globe via Getty Images)
“The monthly cost of owning a home today is 61% more than leasing an apartment,” Richard Campo, CEO Camden Property Trust (CPT), a Houston-based owner of 58,000 apartment homes, said on the company’s first quarter earnings call in early May. “This is not going to change anytime soon.”
Mortgage rates are currently hovering around 7%, continuing to make borrowing expensive for potential buyers. Higher rates have also convinced many current homeowners to delay moving since they financed their homes at lower rates. That’s kept a lid on supply and helped drive home prices sky high.
Home prices hit fresh records in March, according to the latest data available from Case-Shiller. Economists at Bank of America expect home prices to grow 4% this year.
Camden said that just 9.4% of move-outs in the first quarter were due to its residents buying a home — the lowest in history.
Similarly, AvalonBay Communities (AVB), a REIT that owns nearly 80,000 apartment units, reported in its first quarter report that the share of people moving out to buy a home hit a record low, namely because of high costs of homeownership.
“Demand for [rentals] also continues to benefit from the differential in the cost of owning a home versus renting,” Ben Schall, CEO and president at AvalonBay, said in late April to investors and analysts.
“This is true across most of the country but particularly pronounced in our markets, given the level of home prices, resulting in it being more than $2,000 per month more expensive to own versus rent a home,” he added.
A recent report from Redfin suggests renters are more likely to stay put for the long run than they were a decade ago. According to the company’s analysis of renter tenure data from the Census Bureau, almost 17% of renters stayed in their home for a decade or more in 2022, up from 14% 10 years ago. The trend was similar for those who lived in their homes for five to nine years — the percentage of renters doing so rose to 16% from 14%.
“The rate environment is not looking good. That’s something that might keep the trend sticky, because mortgage rates are high and it’s not looking like they’re changing anytime soon,” Sheharyar Bokhari, Redfin senior economist, told Yahoo Finance in an interview.
At its June policy meeting, the Federal Reserve held its benchmark rate — which affects the direction of mortgage rates — steady and projected just one rate cut this year, down from a previous forecast of three.
To be sure, renting an apartment has become less affordable too. The median asking rent has increased 23% over the past five years, according to Redfin data.
That has buyers like Tucker weighing their options. He found that he could reasonably afford a $1,600 to $2,000 mortgage payment, assuming he put 20% down — not too far off from what he spends in monthly payments for rent.
“I’m fine with [renting] for now, but for the long term, eventually I would like to get a house,” Tucker said. “If that involves moving elsewhere, then I’m prepared to do that.”
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.
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.
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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.”
Most U.S. homebuyers taking out a mortgage opt for a 30-year fixed-rate option — but they may not realize how unusual that offering is.
“The 30-year fixed-rate mortgage is a uniquely American construct,” said Greg McBride, chief financial analyst for Bankrate.
True to its name, a 30-year fixed-rate mortgage spreads out repayment over 30 years, with an interest rate that remains the same for the life of the loan.
As long as you do not refinance or sell your house, the rate you get at the start of your mortgage won’t change, said Jacob Channel, a senior economist at LendingTree. “You’ll have the exact same rate, regardless of what the broader market is doing,” Channel said.
In 2022, 89% of homebuyers applied for a 30-year mortgage, according to government data analyzed by Homebuyer.com.
The 30-year fixed-rate mortgage can exist in the U.S. due to the country’s deep financial markets, experts say.
“If we did not have the dominance of the fixed-rate mortgage in the U.S. residential mortgage market, we would see a much higher level of stress among existing homeowners,” McBride said.
The secondary market for mortgage-backed securities in the U.S. is the “whole reason” for the existence of the 30-year fixed-rate mortgage, McBride explained.
About half of all mortgages originated in the U.S. will end up packaged into a mortgage-backed security and sold to bond investors, he said.
While mortgage-backed securities were at the heart of the financial crisis and Great Recession, improvements have been made to avoid the risk. Lenders, for example, strengthened mortgage origination processes and improved underwriting standards and collateral assessment, and there are now other guardrails that did not exist over a decade ago.
Mortgage-backed securities are attractive to investors in the U.S. and across the globe because their government sponsorship makes them safe investments over long periods of time. They also provide a fixed payout, said Daryl Fairweather, chief economist at Redfin, a real estate brokerage site.
The rate on the 30-year fixed-rate mortgage tracks closely to 10-year Treasurys because “U.S. real estate is almost as good an investment as a U.S. Treasury bond,” she said.
However, mortgage-backed securities are “only part of the story,” according to Enrique Martínez García, an economic policy advisor of the Federal Reserve Bank of Dallas.
“There are two institutions in the U.S. mortgage market that are very specific to the U.S.: Fannie Mae and Freddie Mac,” Martínez García said.
The insurance Fannie and Freddie provide is essential to why lenders are willing to take on the risk associated with interest rate movements, Martínez García explained.
“In most other countries, [that risk] gets passed through to the households, the buyers,” he said.
Even in countries where fixed-rate mortgages are prevalent, they usually span shorter periods of time because such countries lack both the path towards securitization and institutions that take on the long-term risk, Martínez García said.
“That’s what’s missing in many other countries,” he said.
While homebuyers in other countries can typically get long-term mortgages or fixed-rate loans, the U.S. is unusual in its combination of those attributes.
In Canada, for example, homeowners might get a mortgage that spans 25 years, but they are expected to refinance every five years or so, Channel said.
In the U.K., homeowners might get fixed-rate mortgages, but such loans only span up to five years.
“Every few years, you’re nonetheless doing something that causes your rate to change,” Channel said.
The difference between fixed and variable mortgage rates lies in who bears the risk of fluctuating rates, Martínez García said. With fixed-rate loans, financial institutions bear the risk. With variable-rate loans, consumers do.
LOS ANGELES (AP) — The average rate on a 30-year mortgage climbed this week to its highest level in more than five months, pushing up borrowing costs for prospective homebuyers in what’s typically the housing market’s busiest stretch of the year.
The rate rose to 7.22% from 7.17% last week, mortgage buyer Freddie Mac said Thursday.
A year ago, the rate averaged 6.39%.
When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers.
That limits how much homebuyers can afford at a time when a relatively limited number of homes on the market coupled with heightened competition for the most affordable properties has kept prices marching higher.
Nestled in Markham, Vinegar Hill is encompassed by Highway 7 to the north, Highway 407 to the south, and streets situated just west and east of Main Street South, with the Rouge River serving as its natural border. The neighbourhood is a sought-after residential destination known for its picturesque settings and historical charm. In 2023, its benchmark home price was $1,126,400—which was 44% higher than in 2022, 72% higher than in 2020, and 40% higher than in 2018.
The community’s name is thought to have connections to either a cider mill located on the east side of the river valley or barrel makers who filled their barrels with vinegar to assess their straightness as they rolled down Markham Road. Slightly more than half (53%) of households in the area have children. Despite its desirability, Vinegar Hill has a relatively low accessibility score of 1.8—which is still higher than the other two top neighbourhoods in York.
Located in the northeast part of King Township, Pottageville stands out for its distinctive topography and environmental importance. It’s situated atop the elevated ridges of the Oak Ridges Moraine and within the Ontario Greenbelt corridor, and it features an abundance of ranch-style bungalows and older homes. Coming in second among our top three neighbourhoods in York, Pottageville had a benchmark home price of $1,657,917 in 2023, and a value score of 3.3. The benchmark price was 55% higher than in 2022, 27% higher than in 2020, and 113% higher than in 2018. With above-average levels of household income, education and home ownership, Pottageville has a perfect neighbourhood economics score.
It also has an above-average number of families with children, representing 56% of households. With easy access to the Greenbelt Route, a province-wide bike trail, it’s the perfect area for bikers. Pottageville may only have a general store, a gas station and a few small businesses, but there’s ample recreational space centred around Pottageville Community Park, which features a playground, a baseball diamond, tennis courts and soccer fields. There’s a train station a 10-minute drive away, making it easy to commute to Toronto, but the neighbourhood still only has an accessibility score of 0.4.
Concord benefits from excellent commuter highway access, with both Highway 407 and Highway 7 passing through. In 2023, Concord’s benchmark home price was $742,158, which was 2% lower than in 2022, but 9% higher than in 2020 and 54% higher than in 2018. The area has the second-highest value score (3.6) of our top three York neighbourhoods, and it does well on neighbourhood economics as well, scoring 4.6.
Concord residents often spend their time enjoying recreational and leisure activities. One popular destination is Vaughan Mills shopping centre, with its many retail stores, entertainment options and family-friendly attractions. Locals can also explore Concord’s natural beauty while visiting Boyd Conservation Area or Black Creek Pioneer Village. Many families live in modest brick detached homes and townhomes with single-car garages, which are popular in the area.
What happened in the York Region real estate market?
In 2023, York Region’s home prices fell less than those in other regions of the GTA. In January, the benchmark home price was $1,285,583, and by December, it had dropped 0.4% to $1,281,020. But with mortgage rates as high as they were last year, the market was never able to gain much momentum.
“Last year, as banks tightened their borrowing criteria, we saw a decrease in sales while average prices remained relatively flat or decreased just a little,” says Kirby Chan, a local eXp real estate agent. “It was tough,” he says, because even though prices came down a bit, interest rates were so high that mortgage affordability suffered.
Buyer uncertainty played a big role in slowing down home sales, as many people were hesitant to enter the market amid the anticipation of rising interest rates. The number of home sales in York stayed above 1,000 during the spring and summer, but trickled off in July. In December, there were only 612 sales.
What’s next for real estate in York Region?
January started off with a boost in home sales, suggesting the market is rebounding. Home sales were up about 27% from December and about 42% from January 2023.
“Buyers are coming out now into the market, and there’s a positive outlook on how the market is going to look this year,” says Chan. “But if buyers wait until interest rates come down, then prices will go up and their buying power will go down.”
York Region buyers could face more competition than last year, as would-be Toronto buyers are attracted by the area’s comparable affordability. “With the city of Toronto increasing property taxes soon, I think there’s a good possibility this will drive more buyers into York Region and areas like Markham, Richmond Hill and Vaughan,” says Chan.
Assuming mortgage rates go down and buyer confidence returns, Chan expects this year to be a strong one for York Region real estate. “Sales-wise and price-wise, I think we’re going to have a record year in 2024. Last year, the government raised interest rates to cool everything down, and so there were fewer sales. That means there’s a lot of buyers out there waiting, and this pent-up demand is going to push prices even higher.”
HOUSTON, Texas — The real estate market is still a tough sell for first-time home buyers.
The country is experiencing the highest mortgage rates and home prices in a generation, and a lot of people are having a hard time saving up for a down payment.
Local real estate expert Tricia Turner said the pandemic is behind us, but there are still lagging factors from lockdowns impacting the market. Many young people moved in with their parents, and now those relatives are ready for their kids to relaunch.
Turner also explained that there’s other assistance available for first-time home buyers, even if they don’t have family members who can help them with money for a down payment.
You can watch Turner’s full interview in the video player above.
For updates on this story, follow Briana Conner on Facebook, X and Instagram.
John Dickerson reports on a new pause of the Texas immigration law SB4, when the Federal Reserve could lower interest rates, and the manhunt for a prisoner who escaped an Idaho hospital after a shootout.
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As a result of the latest rate hold, the prime rate in Canada will remain at 7.2%. This might not seem like big news, but this is what lenders, from the Big Five Banks to other financial institutions, use to underpin their variable borrowing product pricing.
That the BoC would stick to the status quo was widely expected by market analysts and economists. A lower-than-expected January 2024 inflation reading of 2.9% took further pressure off the central bank, allowing it to continue its wait-and-see approach on rates. And, while the year-end gross domestic product (GDP) report came in hot, with a 1% uptick in the fourth quarter of 2023, overall lacklustre economic performance has made a firm case for ending the rate hike cycle.
However, the Bank provided no hints as to how long this holding pattern will last. In its announcement, while acknowledging that inflation has solidly declined from its June 2022 peak of 8.1%, the consumer price index (CPI) remains stubbornly above its 2% average with the core measures in the 3% to 3.5% range. (The core measures strip out the most volatile items, like housing and food costs.)
In its announcement accompanying the rate decision, the BoC’s Governing Council—the panel of economists who set the nation’s monetary policy—made it clear that until sustainable progress is made with the CPI, the Bank of Canada interest rate won’t be going anywhere.
“The Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation,” states the Bank’s rate announcement release. “[The] Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour.”
This fifth consecutive hold means key interest rates haven’t changed since September 2023. While that’s led to welcome stability for some, others are feeling the stagnancy. Here’s what the latest rate direction means for Canadians, depending on their financial interests.
What the BoC rate hold means for mortgage borrowers
Canadians with variable-rate mortgage terms are the most impacted group affected by the Bank of Canada interest rate hold. Their mortgage payments are based on the prime rate in Canada, as an extension of the overnight lending rate.
How the Bank of Canada’s interest rate affects you
These borrowers in Canada have been walloped by the rate hiking cycle that took place between March 2022 and July 2023. Those with adjustable-rate variable mortgages—which have payments that fluctuate alongside the Bank’s rate moves—had payments soar by as much as 70%, according to the Bank’s own research. Those Canadians with fixed payment schedules, meanwhile, have seen the portion of their payment that goes toward their principal whittle smaller with every rate increase, with some Canadian borrowers even entering negative amortization on their mortgages.
For all variable-rate borrowers, today’s rate stability offers some welcome relief, though they’re likely disappointed that the BoC didn’t offer a timeline as to when the rate will eventually decrease. And, Canadians shopping for the best mortgage rate, including those looking to renew, are also likely frustrated by the lack of movement. While variable rates remain frozen at last summer’s levels, fixed mortgage rates have seen some slight easing in recent months due to lowering bond yields.
Homebuilding permits across the Golden State fell last year, but not as fast as across the U.S.
California developers filed permits for 111,221 homes last year, 6 percent fewer than in 2022, the Orange County Register reported, citing figures from the National Association of Home Builders.
At the same time, builders in 49 states and the District of Columbia pulled 1.26 million permits, 11 percent fewer than the year before. Nine states had increases.
California ranked third among states for the number of permits filed last year.
Of those, 57,959 were for single-family houses, an 8 percent decline from 2022. Multifamily permits across the state totaled 53,262, a 3 percent decline; in the Inland Empire, however, multifamily permits shot up 89 percent.
California permits equaled 2.8 per 1,000 residents, the lowest ratio since 2020, according to the Register. It’s also above the average 2.2 permits per 1,000 residents pace since 2008.
The Great Recession changed how builders build: from 1990 to 2007, California permitting averaged 4 per 1,000 residents.
Across the nation, builders filed 851,268 single-family home permits, a 6 percent decline. Six states were up for the year. They filed 508,107 multifamily permits, down 19 percent, with 15 states reporting an increase in filings.
The overall decrease in permits was generally attributed to an uncertain economy, higher mortgage rates and fears that too many apartments were being built, according to the Register.
Within the Golden State, Northern California saw a 10 percent drop in building permits last year, compared to a 6 percent drop in Southern California.
In Los Angeles and Orange County, builders pulled 30,691 permits last year, 6 percent fewer than in 2022. Of those, 11,810 permits were for single-family homes, a 7 percent increase. Some 18,881 permits were for multifamily, a 13 percent decrease.
In the Inland Empire, builders pulled 19,710 permits, up 21 percent from 2022. Of those, 11,924 were for single-family homes, down 2 percent. Some 7,786 permits were for multifamily — an increase of 89 percent.
