A market cooldown is underway – and brokers are essential in current climate, says Ontario mortgage professional
As the impact of interest rate hikes slammed the brakes on Canada’s housing market in recent weeks, big year-over-year declines in sales activity were revealed across many of the country’s hottest cities for real estate.
Sales across the country were down 12% in April compared with the previous month, with the average home price declining to $746,000 in the second straight month that figure has fallen.
That’s sparked speculation that the housing market is in for a sustained period of correction during the remainder of 2022, although many mortgage professionals have been at pains to point out that the feverish activity and low-rate environment of the past two years were part of an anomalous period that was never going to last.
Indeed, the fact that a significant percentage of would-be buyers were still unable to purchase a home during the pandemic – and are still in the market for a property as a result – means that activity is likely to remain robust, according to one Ontario-based broker, although he also indicated that homeowners could face a challenging climate when the time for renewal arrives.
“There is definitely a great number of people who have not been able to buy a property in the past couple of years who are ready to move,” Nicolas Vimard, broker at Easy House Loan, told Canadian Mortgage Professional. “This will help support the market for the foreseeable future.
“This may be further down the road, but when homeowners’ mortgages come to maturity and they have to renew at a higher rate, this will be interesting. The vast majority of mortgagors have taken advantage of the low rates in the past two to three years but look out for when these come for renewal.”
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Vimard emphasized that most Canadians who were planning to purchase property this spring were likely preapproved in the winter at a much lower rate – meaning that the impact of recent Bank of Canada rate hikes may not yet have been revealed.
“These 120-day preapprovals at a significantly lower rate will soon be history, and homeowners will find it very challenging to qualify,” he said, noting that the role of the broker would become even more essential in helping clients find alternative financing and solutions.
“We’re constantly in touch with several realtors, and they have noticed a small slowdown,” he said. “There are not as many competitive offers on a property – but, having said that, some properties still receive multiple offers.”
Rates on both the variable and fixed sides are rising, although clients who choose to lock into the greater security offered by a fixed rate must contend with a spread that’s still sizeable.
Fixed rates have been steadily climbing upwards since the fall, with the Bank of Canada also introducing consecutive increases to its trendsetting interest rate this year and setting the stage for further increases down the line.
For anyone out there with problems around their mrtgage rates rising, it may be time to look at buying mortgage points to get those monthly payments down.
Vimard said that several clients currently on a variable rate had called his brokerage and asked if they should convert their mortgage into a fixed one, but that there were pitfalls to both. “People tend to forget that if you have two years left in your term, if you want to convert, you have to look at the two-year term and not at the five-year,” he said.
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“We definitely feel some level of anxiety over the steep rate increase in the last couple of weeks. Two months ago, the five-year fixed was below 3% and presently, it’s at 4.09%.”
Of course, the point has been reiterated time and again by mortgage professionals amid the rising-rate environment that the value of brokers reveals itself most clearly in times of market upheaval.
That’s been the case not only in recent weeks as rates have crept upwards, but equally during an eventful pandemic era that has witnessed qualifying criteria changes, frenzied market competition and steep affordability concerns for many buyers.
“Real estate has been a hot topic in the past couple of months and even the past two years along with the pandemic,” Vimard said. “There have been several new rules and regulations: the ban on foreign buyers, the First Time Home Buyer assistance program, and more. [Buyers should] make sure to use the service of a mortgage broker to help navigate these turbulent waters.”