Housonomix - 24 May '24: 🚀 Actual Impact of Higher Rates & Rental Market Surges: What You Need to Know! 🏡📈

🚀 📉Rate Watch: Stable Rates… Peace and Quiet 💡

As always, we kicks things off with Rate Watch where we bring you the latest updates on mortgage rates. As you can see rates have been fairly stable over the last couple of weeks with one notable exception. Read on to find out what and why:

• Insured (starting) rates

  • 🏠 For purchases with less than 20% downpayment, the 3-year fixed rate remains stable at 5.09%, showing no change from the previous biweekly rate.

  • 📈 The 5-year variable rate for insured mortgages also remains steady at 6.09%, with no biweekly changes.

• Uninsured (starting) rates

  • 🏡 For refinances or for purchases over $1 million, the 3-year fixed rate is holding steady at 5.09%, unchanged from the previous period.

  • 🚀 The 5-year variable rate for uninsured mortgages has seen a notable increase of 0.40%, now standing at 6.49%. This is because TD’s uninsured promo rates reverting from the lows of earlier this month.

• Flexible lenders (starting) rates

  • 🔄 Lenders offering flexible income and credit requirements have a 2-year fixed rate of 6.49%, with no change noted biweekly.

• Private lenders' (starting) rates

  • 📊 For those with minimal or no income and credit requirements, and interest-only payments, the first mortgage rate (up to 80% LTV) is at 8.26%, showing no biweekly change.

Stay informed and make sure you're getting the best possible rates for your mortgage needs. 📈💼 For more detailed insights and personalized advice, don't hesitate to contact us or visit our website.

📊 Real Estate Radar: May 2024 Update on the Canadian Rental Market 🏘️

In this edition of Real Estate Radar, we’re focusing on the Canadian Rental Market, as we do from time to time. This time around we find significant fluctuations in rental prices across the country. Here's a detailed look at the latest trends and changes in various regions.

Rents Overview

• 📈 Average asking rents for all residential property types in Canada reached $2,188 per month in April, marking a 9.3% increase from the previous year.

• 🏙️ Ontario’s major cities starting with Toronto took spots 3 to 9 in the list of cities with highest rents in Canada. Spots 1 and 2 are Vancouver and Burnaby respectivetly, in BC in case anyone’s wondering.

• 📉Toronto’s average rents for a 1 bed came in at $2,459 which actually showed a decline of 2.7% over last year, while a 2 bed unit’s rent at $3,224 also declined by about 2 % over last year

• 📈Scarborough experienced a 5.1% year-over-year increase in rents for one-bedroom units.

• 📈Kingston’s rents are on steroids. The 1 bed unit’s average rent shot up by 8.3% to an average of $1,790 while the 2 bed unit’s average rent went up by a whopping 10.3% to $2,261. Investors, you seeing this?

Provincial Trends

• 📉 Ontario observed a decrease in asking rents, down 0.3% monthly and 0.7% annually, bringing the average to $2,404.

• 📈 Saskatchewan led the nation in rent growth with an 18.4% increase, although it still has the lowest average rents at $1,300.

• 📈 British Columbia maintains the highest average rents by province at $2,507, with modest annual growth of 1.6%.

Market Dynamics

• 📈 Studio apartments in purpose-built rentals saw the fastest growth, with a 17.2% increase in average rents to $1,575.

• 📉 Condo studios saw a slight decrease of 0.6% in average rents, now at $1,844.

• 📈 Larger units, particularly three-bedroom condos, showed significant rent increases, especially in Alberta and Saskatchewan, where rents for three-bedroom apartments increased by 20.6% and 24.5% respectively.

Shared Accommodations

• 📈 The roommate rental market saw changes, with Alberta leading in growth. Roommate rents in Alberta increased by 11% to $879.

• 📈 Ontario's roommate rents rose 5% to $1,079.

• 📉 Toronto and Vancouver saw slight declines in roommate rents, yet they remain among the highest in the country.

Overall, the Canadian rental market is experiencing mixed trends of increasing rents in some areas and declining rents in others, reflecting a dynamic and evolving landscape.

🍁 Maple Pulse: 🏡📈 Navigating Canada's Real Estate Shifts: Higher Rates, Down Payment Dilemmas, and Policy Twists

Welcome to this edition of Maple Pulse! In this section, we explore the latest housing and related economic news and trends. In this edition we’re looking at the actual impact of the current high mortgage rates, government policies severely impacting home buying and more repurcussions over the government’s recent tax changes. Read on:

• 5-Year Mortgage Holders in Canada Facing Rising Rates: Despite the Bank of Canada's aggressive interest rate hikes since 2022, typical 5-year mortgage holders have enjoyed stability, paying an average of just 2.97% interest as of March 2024. This is largely due to many locking in low rates during the COVID-era. However, this protection is temporary, with a significant portion of these mortgages set to renew at current market rates—around 5%—in the next two years. As a result, homeowners should brace for higher monthly payments, with 50% of 5-year mortgages due for renewal by 2026. (Ron’s take: An increase in interest rates from 3% to 5%, which is an increase of 66.7% is a lot. But the thing to remember here is this does NOT translate into a 66.7% increase in your monthly mortgage payments. For a $500,000 mortgage, a 3% interest at 25 yr amortization would be around $2,366 per month. At 5% it goes up to $2,908 which is about 23% higher. Bottomline: It’s painful, but it’s not as catastrophic as some headlines make it out to be.) 

• Saving for a Down Payment Nearly Impossible in Canada's Major Markets: In high-demand regions like Toronto and Vancouver, saving for a down payment is a daunting task. According to the CMHC, it takes well over a decade to save the minimum down payment on an average home in these cities, even with a $100,000 annual income and saving 10% of it tax-free. For example, saving for a $766,917 condo in Toronto would take over seven years. Additionally, within five years, home prices could surpass the government's $999,999 insurance limit, necessitating a 20% down payment instead of 7.5%, making the goal even more unattainable. (Ron’s take: Catch-22 situtation of the government’s own making because of lack of housing initiatives and an out of sync immigration policy. Any policy changes to ease this situation, such as indexing the insurance limit to home prices, will drive up home prices.)

• Trudeau Backs Away from Tax Threat on Apartment Owners: Prime Minister Justin Trudeau's government has withdrawn a proposed tax change that targeted real estate investment trusts (REITs) following industry pushback. The finance department announced on May 8 that no changes to REIT tax treatment are being considered. This decision removes a major concern for Canadian apartment REITs, which have faced uncertainty since a 2022 power-sharing deal with the NDP aimed at addressing the "financialization of the housing market." The proposed tax changes would have made REITs less attractive to investors, complicating efforts to develop new housing. The government acknowledged REITs' role in providing critical rental housing investment. (Ron’s take: Any policies which encourage, or at the very least given the track record of governments - not discourage housing is welcome.)

• Canada's Standard of Living on Track for Worst Decline in 40 Years: Canada's GDP per capita has been declining at 0.4% annually since 2020, the worst rate among 50 developed economies. A Fraser Institute study highlights that from 2019 to the end of 2023, inflation-adjusted GDP per person fell by 3%, marking one of the deepest and longest declines since 1985. This ongoing slump threatens to surpass downturns from the late 1980s and the financial crisis. Factors contributing to this decline include insufficient adaptation to a tech-driven global economy and reliance on government-driven investment and job growth, as noted by economic experts.

• Capital Gains Tax Change Targets Boomers More Than the Rich: Canada's 2024 budget proposal to raise the capital gains tax inclusion rate from 50% to 66.7% primarily impacts Boomers rather than the wealthy. Despite claims that only the wealthiest Canadians will be affected, data from Statistics Canada shows a broader impact. The policy targets one-time windfalls, such as the sale of a business or inherited property, which many Boomers are experiencing as they retire. This change coincides with the "silver tsunami," where a significant number of small business owners will retire and transfer assets.

We hope these insights help you navigate Canada's evolving real estate market. Stay tuned for our next issue with more updates and expert analysis.

🏡 Mortgage Mastery: Income Qualification

Mortgage Mastery is where we try and simplify mortgage terms, processes, requiremens for easy understanding. In this edition, we’re covering Income Qualification. Understanding income verification requirements is crucial for mortgage approval in Canada. Here's a breakdown of what you need to know:

• Proof of Income 📝

  • Lenders require proof of income to assess your ability to repay the mortgage.

  • Common documents include pay stubs, employment letters, and T4 slips.

• Employment Verification 💼

  • A letter from your employer confirming your position, salary, and length of employment is typically required.

  • For those self-employed, lenders may ask for Notices of Assessment from the CRA for the past two years.

• Debt-to-Income Ratio 📊

  • Lenders calculate your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios.

  • GDS should not exceed 39% of your gross income, while TDS should be 44% or less.

• Additional Income Sources 💵

  • Income from bonuses, overtime, and rental properties can be included if they are consistent and documented.

  • Ensure you provide comprehensive documentation for all additional income sources.

• Documentation Consistency 📂

  • Ensure all documents are current and accurately reflect your income and employment status.

  • Any discrepancies can delay the mortgage approval process.

As you can see there’s a lot of subjectivity and nuance that goes into getting someone’s income qualified. Understanding these income verification requirements will help streamline your mortgage approval process and increase your chances of securing the best possible terms. Reach out to us at www.ronmortgages.com for any questions regarding your income’s suitability for a mortgage.

 😄🏡 Perspectives and Wisdom: Seeing Your Home Through Different Eyes 👀