Despite the soaring mortgage rates to their highest levels in more than a decade, Canadian home prices are still increasing. The continuous rise in prices has led many prospective homebuyers to question why Canadian home prices refuse to slow down. In this blog post, we will explore the factors that are keeping Canadian home prices buoyant, despite the increasing cost of borrowing money for a mortgage.
According to a report by the Canadian Real Estate Association, average prices of homes being resold continued to rise in May, marking the fourth consecutive month of increase. Since January, the average price of a Canadian house (not adjusted for seasonal variations) has gone up by more than $116,000. Almost all provinces saw a rise in monthly prices, with British Columbia, Ontario and Saskatchewan experiencing the strongest increases. When adjusted for seasonal variations, CREA's Home Price Index rose by 2.1% compared to April, but was still down by 8.6% year-over-year. National home sales also increased by 5.1% in May compared to April, with only three provinces - PEI, B.C. and Ontario - experiencing a rise in sales activity.
According to Shaun Cathcart, a senior economist at CREA, the increase in housing activity this year was expected due to the existing demand. The only uncertainty was the timing, which was resolved this spring. However, the reluctance of current homeowners to sell their properties due to the low fixed rates they secured during the pandemic was an unexpected factor in the 2023 housing market. CREA reported that the months of inventory decreased to 3.1 months in May, which is below the long-term average of five months. Although new listings increased by 6.8% from the previous month, they remain historically low.
Randall Bartlett, Senior Director of Canadian Economics at Desjardins, noted that a growing population, a tight labor market, falling price-to-rent ratios, and the expectation of lower interest rates have all contributed to the high demand for housing in the first five months of 2023.
The Canadian housing market is currently experiencing high demand due to various factors, but the only thing that could potentially cool it down is an increase in interest rates. Although the recent rate hike by the Bank of Canada and the possibility of more hikes in the future may slow down resale activity, the trend of slowing housing starts and the current lack of demand to meet supply will only worsen the affordability crisis, leading to higher home prices and rent.
Until there is significant progress in inflation reaching the Bank of Canada's 2% target, the bank will likely continue to raise rates, with a possible hike in July and further hikes as needed. TD Economics' Rishi Sondhi adds that higher rates may result in weaker sales growth in the latter half of the year, coupled with a softening job market.
As a consumer, understanding the APR (Annual Percentage Rate) is crucial when it comes to your mortgage and other loans. APR is a percentage that represents the total cost of borrowing money over a year, including interest and fees. It is important to understand this rate because it can greatly impact your finances.
Firstly, APR helps you compare loan offers from different lenders. For example, if you are looking at two different mortgage offers with different interest rates and fees, the APR can help you determine which one is more affordable in the long run. It gives you a more accurate picture of the total cost of each loan.
Secondly, knowing your APR can help you budget and plan for your payments. If you only focus on the interest rate, you may not be aware of all the other fees associated with your loan. By understanding the APR, you can calculate exactly how much you will be paying each month and over the life of the loan.
Thirdly, APR can help you avoid hidden fees and charges. Some lenders may advertise low interest rates, but have high fees that are not immediately apparent. By looking at the APR, you can see the total cost of borrowing money and avoid being blindsided by unexpected charges.
Finally, understanding your APR can help you save money in the long run. By choosing a loan with a lower APR, you can save thousands of dollars over the life of the loan. This can free up money for other expenses or investments.
In conclusion, understanding APR is crucial when it comes to your mortgage and other loans. It helps you compare offers, budget for payments, avoid hidden fees, and save money in the long run. Make sure to take the time to understand your APR before signing any loan agreements.
Below is a brief overview of the current status of interest rates:
1. If you have some time left in your mortgage term, you can get in touch with your lender to secure a fixed rate. This could help you avoid any fluctuations in your mortgage payments and provide you with a sense of stability.
2. One option to potentially reduce your monthly payments is to refinance into a longer amortization period. This can provide some financial relief in the short term, but keep in mind that it may result in paying more interest over the life of the loan. It's important to carefully weigh the pros and cons before making a decision.
3. Consider completing a comprehensive financial clean-up and consolidating your debts. Eliminate high-interest loans that may be depleting your finances and reducing your monthly cash flow.
4. Consider taking out a line of credit while the value of your property is still high. This can provide you with financial flexibility for unexpected expenses or to weather any market instability until conditions improve or interest rates decrease.
5. Let's conduct a complimentary financial review together to identify potential areas for saving money.
Schedule a meeting with me.
Remember: One way to achieve financial stability is by prioritizing saving over earning.
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929