Canada’s housing market – why it is 'surprisingly resilient'

What's behind stronger-than-expected activity of late?

Canada’s housing market – why it is 'surprisingly resilient'

As Canada’s housing market continues to gather pace, how is activity shaping up compared with mortgage professionals’ expectations for the year to date?

The market has seen a surprising amount of resilience in the face of economic headwinds and higher borrowing costs, according to a top mortgage executive, although it’s far from certain that will continue throughout the rest of the year.

Jesse Abrams (pictured top), co-founder and chief executive officer of the Homewise brokerage, told Canadian Mortgage Professional that the previous three months had featured a sizeable number of first-time homebuyers seeking preapprovals to purchase a home despite variable interest rates being significantly elevated over the same time last year.

“We didn’t expect this because the rate increases that we saw should have created a lot more of a timid nature from a buyer perspective,” he said. “While variable rates increased, fixed rates have been decreasing, and they haven’t really been scaring away buyers because I think we now know that interest rates probably won’t be going up [for the foreseeable future].

“So I think the name of the game is surprising resilience, and I want to temper any excitement that anyone has just because it seems like an odd situation right now and maybe it’s a calm before a storm that could be coming.”

Are there challenges ahead for Canada’s housing market?

Those surging rates have seen monthly borrowing costs spike for Canadians on variable-rate mortgages with adjustable payments, while many observers have also highlighted the possibility of a shock for borrowers having to contend with much higher rates upon renewal.

There’s been no sign of crisis in the market to date – but that’s partly due to lenders arranging longer amortizations for impacted borrowers, a solution that Abrams said was little more than an imperfect short-term arrangement.

“We’ve seen people talk about amortizations of 80 years, 90 years, just to make sure [borrowers] can meet their monthly payments,” he said. “I mentioned that we haven’t really felt the pain yet... because there have been a lot of soft-landing measures put in place to make sure that current mortgage owners and current homeowners are not put in a bad situation today.

“Now, when they renew in one to three years and their mortgage payments go up 30%, 40%, 50%, 60% potentially, as interest rates don’t really budge that much – that'll create a pretty big issue, especially because a lot of these people who are extending their amortizations right now are not actually paying off their mortgage. They’re just paying off the interest payment.

“So it’s an interesting time and it’s hard to guess what’s going to happen next, just because it’s pretty unexpected, what’s happening right now, just purely from a demand perspective.”

How did homebuying activity fare in April?

The Canadian Real Estate Association (CREA) revealed that national home sales jumped by 11.3% in April with 38,164 units sold on a seasonally adjusted basis as supply levels remained at a two-decade low.

The actual average home price also continued to tick up across the country after plummeting during the market cooldown of the past year. At $716,000, that was 3.9% lower than April 2022 – but up $103,500 since the beginning of this year.

 While that level of activity is much cooler than the scorching pace set by the market at the height of the COVID-19 pandemic, Abrams said it’s higher than many in the industry expected – and called on authorities to address that long-standing inventory crisis.

“Supply is way too low and this is where all of the government forces, the insurers, the Bank of Canada, everyone involved should try to encourage ways to get more properties on the market to increase supply,” he said.

“It’s not the demand that we saw at the height of the market last year in February or the couple of years before, when the market was really crazy. But it’s more demand than I think a lot of people in the industry expected right now.”

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