Cooling off a hot housing market -

Cooling off a hot housing market

Many mortgage holders are struggling as rates rise


Nathan Denette / CP

Canadians still appear eager to jump into the country’s hot housing market even as mortgage rates begin to climb, but they would be wise to consider the possibility they could experience, if not buyer’s remorse, at least a borrower’s reality check down the road.

An estimated 375,000 mortgage holders in Canada are already having trouble making their monthly payments, while another 475,000 say they could be in the same boat if lending rates head to 5.25 per cent, according to a study released this week by the Canadian Association of Accredited Mortgage Professionals. That’s about 15 per cent of the country’s 5.5 million mortgage holders. At present, the average five-year rate among Canadian homeowners is 4.02 per cent. Banks have been raising their rates in recent weeks ahead of an expected hike in the prime rate—now at an all-time low of 0.25 percent—by the Bank of Canada next month.

But that hasn’t stopped people from continuing to rush into the market. Housing starts in April were up slightly, driven by a nearly 30 per cent gain in starts for multiple dwellings, which include high-rise condominiums in cities like Toronto. The reason? Rising house prices are pushing people into the cheaper condo market in big centres.

The concern is that a sizable chunk of borrowers—29 per cent—still have variable rate mortgages, some as low as 1.75 per cent. Those people could see their monthly payments soar as rates rise. The good news, says Jim Murphy, the president of CAAMP, is that many Canadians appear to be taking their mortgage responsibilities seriously, with some 13 per cent of borrowers making extra lump sum payments last year.

Experts are also somewhat optimistic. BMO chief economist Sherry Cooper said rising rates, stricter mortgage rules and the arrival of the harmonized sales tax in B.C. and Ontario in July should cool the market later this year. The hope is that cooling happens in time to prevent hundreds of thousands of borrowers from ending up under water.

Filed under:

Cooling off a hot housing market

  1. I have also read about some studies and analyses proving that Canadians are being very responsible with their mortgages. That's a good sign – and a very important fact at the same time. Every open market depends a lot on people's rationality and individual responsibility. However, the last sentence of the article sums it up nicely. But only time will tell…

    • Um, exactly who are responsible Vancouver Jay? I have friends who have recently spent 700K on a semi. If one of them loses a job, they're SOL. Another one bought (on his own!!) a $500K property. Guess what??? Lost his job! There's nothing that says Canadians are more responsible with their money! They're putting very little down and are in a lot of trouble when interest rates rise and their house is worth more than properties all around the world….there's no rationality when it comes to an emotional buy such as a home…nice try.

      • I don't think it's the consumers themselves who are very responsible with their money, I think it has more to do with the Canadian Gov'n. A lot of red tape been put in place to prevent Canadian banks from doing what the American banks did. It's not that we make more money then the Americans, or our houses cost a whole lot less, it's the fact that the bank would not/could not loan to people who did not qualify. And I think that's whats kept us afloat. Is there a cooling period, of course. We'd be pretty blind to think that the prices will just continue to increase, while wages continue to remain at the current levels.

        The Toronto Real Estate market has started to cool down, after it shot up like a mad man in the spring/summer of this year. As a Realtor, I'm hoping it'll pick up again, but with caution, as I would like to keep my job :)

    • I have similar numbers, I agree Canada is different that the US in spending and making credit payments.

  2. Artificially low interest rates for too long a time fueled the subprime boom, excessive borrowing and the financial calamity we're living through now. So the Bank of Canada had a look at the problem and decided that artificially low rates are exactly what we need more of. They looked south of the border, saw the wreckage caused by the real estate bubble and decided that a real estate bubble is exactly what we need here.

  3. We are not seeing a huge housing bubble or rising prices at all in smaller towns. MANY places for sale and prices have stayed lower, substantially lower, with not many buyers, so this hurts our market even more. The HST, the recession, rising interest rates, frightened people…doesn't help our economy much at all!

    • I think they call it subprime???

      • You should maybe look up the definition of "sub-prime"

  4. Very few homeowners or pre homowners are responsible. Mostly the issue stems from not doing an accurate estimation of costs and expenditures before deciding on the appropriate home. Many people live way beyond their means, and homes are certainly no exception.

    I think that tightening the rules on approval of variable rate mortgages will be a step in the right direction.

    • I believe rules have to be changed, not just tightened. It is much harder so a self employed to get a decent mortgage, even with no debt and great credit. The last 2 years of economic tor turmoil showed that when it comes to "ability to pay" self-employed individuals are doing better, due to various sources of income and ability to adjust to changing market conditions faster. I think it is time to review and reevaluate what mortgages work better for Canadians and yes, educate people that getting a bigger home every 2 years and living off credits is not a way to financial freedom…

  5. Market has gone up since 1995 or so, due to inflation. "But to double since than and some areas almost triple", has been due to governmts decreasing
    interest rates to an alltime low and flushing all these new buyers into the market. My question is for what ? Yes I agree to keep the economy going. But for how low of a rate and how long ? "" Well the rate decrease stopped"". I'm not an economist but I think they all just postponed the world's bubble burst, or maybe there would not be a bubble if interest rates stayed put.
    Now we have all these first time buyers panicking in fear of interest rates increasing. For the sake of these buyers I hope not. But we can't just blame everyone else. How about us? Were we carelless on our calculations? I think so. We are all more educated today."right". yes but human greed takes over.

  6. I'm a little late to this discussion, but recent changes to our mortgage rules will start to bring to the surface those who can't afford their homes in the Vancouver Real Estate market once their mortgage terms come due and they can no longer amortize for longer than 30 years.