Housonomix: Lower Mortgage Rates, Falling Home Prices & Mortgage Strategies - Your Full Market Rundown

Rate Watch - Tracking Rate Reductions: What Recent Cuts Mean for Mortgages

As always, we’ll start with Rate Watch covering what’s happening with mortgage rates and what we’re working with for our mortgage clients.

• Mortgage interest rates are dropping, not like a rock, but more like a falling feather. We’ve been able to negotiate 3-year (insured) fixed rates lower than 4.5% for some of our clients earlier this month.

• Although Bank of Canada rate cuts have been priced in by the market, the reality is that lenders are slowly lowering mortgage rates following every Bank of Canada announcement.

• You can see the full range of current rates in the graphic above, but the good news is that even 3-year uninsured mortgages (for above $1 million purchase price) are now starting close to mid 4%.

• The next major catalyst that’ll move rates is the widely anticipated US Fed’s first rate cut later this month.

• We’re starting to have conversations with our clients about variable mortgages now. We’re still not recommending this product widely as entry rates are still too high, but for clients who can qualify and understand the pros and cons of variable mortgages, we’ve begun to talk about this product.

• As we’ve been saying recently, if your renewal is coming up, please do not accept your lender’s initial offer. This is because what lenders are willing to offer on a case-by-case basis is much better. For renewals, and for any other mortgage needs, please reach out to us at www.ronmortgages.com 

Real Estate Radar - August 2024 update: Prices Fall as Listings Climb

It’s still bearish territory for the real estate market, at least according to the numbers. Here are the details based on August 2024 real estate price and sales data put out by TRREB:

• Home prices in the Greater Toronto Area (GTA) continued to decline in August 2024, with benchmark, average, and median prices all hitting their lowest levels since January 2024. The benchmark price fell 1.4% month-over-month, while the average price dropped 2.9% compared to July.

• A surge in listings has contributed to downward price pressure, with 22,653 homes listed in August 2024, marking a 46% increase from the previous year. Despite this, the sales-to-new-listings ratio slightly improved to 39.7%, indicating demand is beginning to catch up with supply.

• The City of Toronto saw a 2.3% increase in its average home price year-over-year, bucking the trend in other GTA cities like Brampton and Oshawa, where prices declined on an annual basis. However, Toronto’s average price still fell 5.4% month-over-month.

• The GTA’s property market continues to be influenced by recent Bank of Canada rate cuts, which have brought some optimism but have yet to drive a significant price rebound. Further rate cuts projected for late 2024 could encourage more buyers to re-enter the market.

• Buyers in the current market benefit from higher inventory levels, providing more options and negotiating power. Sellers, however, face longer times on the market and may need to adjust pricing strategies as the average property now takes 44 days to sell.

Maple Pulse: Developer Insolvencies, Condo Market Struggles Amidst High Interest Rates

Here are the major Real Estate and Economy news of the last few weeks that we’d like to highlight.

• Bank of Canada Lowers Policy Rate to 4.25% Amid Slowing Inflation

  On September 4, 2024, the Bank of Canada reduced its overnight policy rate by 25 basis points to 4.25%. This decision follows easing inflation, which dropped to 2.5% in July, though shelter costs remain a significant contributor. Canada's economy grew by 2.1% in Q2, but labor market and economic activity have slowed. The Bank remains committed to monitoring inflation and guiding future monetary policy decisions accordingly.

• Toronto Condo Sales Drop Nearly 15% as High Rates Dampen Market: Toronto condo sales fell by 14.8% year-over-year in August 2024, with prices dropping 6%, driven by high interest rates that have sidelined first-time buyers and investors. Suburban condo sales fell 4.4%. Despite recent interest rate cuts, affordability remains a challenge, though experts expect demand to recover gradually. The overall market saw homes linger on the market longer, with listings up 46.2%, while prices for all property types edged lower amid increased buyer negotiating power.

• Ontario Sees Record Number of Developers in Receivership in 2024

  More than 25 Ontario housing developers have gone into receivership this year, the highest number in recent years. High interest rates, soaring construction costs, and labor shortages have caused projects to collapse, leaving preconstruction buyers in limbo. Many face losing deposits or having their agreements terminated. With consumer confidence low and fewer presales, experts predict the preconstruction market won't recover for at least five to seven years, worsening Ontario's housing supply gap.

• FINTRAC Targets $130 Billion in Money Laundering Through Canadian Real Estate: FINTRAC, Canada’s financial watchdog, released a new guide to combat money laundering in the real estate sector, which sees an estimated $130 billion in suspicious transactions annually. The guide outlines red flags like the use of "straw buyers" and unlicensed lenders to obscure ownership. Money from illegal activities is often funneled through property transactions, with tactics like "shadow flipping" and tax evasion. FINTRAC aims to tighten oversight, as banks and other entities face scrutiny for underreporting large cash transactions.

• Interest Payments Consume Largest Share of Canadians' Incomes Since 1992: Canadians are spending 9.59% of their disposable incomes on interest payments, the highest level since 1992, according to Statistics Canada. This sharp increase reflects the impact of rapid interest rate hikes since 2022. While household income growth remains strong at 7.6%, the rising debt burden, especially for mortgage holders, is slowing consumer spending. In the second quarter of 2024, interest payments rose 14% year-over-year, while Canadians continue to face record-high debt service ratios despite some improvement in overall indebtedness.

• Seniors Staying Put, Limiting Housing Supply for Toronto Millennials: As Toronto seniors opt to age in place rather than downsize, housing turnover remains slow, worsening the shortage of family-sized homes for millennials, according to a City of Toronto report. Rising property costs and emotional attachments prevent many older homeowners from selling. Millennials, struggling with high prices and limited stock, are increasingly considering alternative housing options or moving out of the city. With developers prioritizing high-density units, family-friendly housing remains scarce, exacerbating affordability challenges and fueling a millennial exodus from Toronto.

Mortgage Mastery - Second Mortgages: What You Need to Know

In this edition’s Mortgage Mastery, we’re covering the basics of second mortgages as we’ve been getting questions about this from our clients. For detailed information and specific options please do reach out to us directly. We also have more information on our website here.

• What is a Second Mortgage?
  A second mortgage is an additional loan secured against your home, allowing you to access your home equity without refinancing your first mortgage. It typically comes with higher interest rates but offers flexibility in loan terms and uses.

• Ontario Regulations
  In Ontario, second mortgages are subject to regulations under the Financial Services Regulatory Authority of Ontario (FSRA). Lenders must follow specific guidelines to ensure borrowers can meet their repayment obligations. Private lenders often provide second mortgages, but their rates and terms vary widely.

• Why Consider a Second Mortgage?
  Homeowners might seek a second mortgage for debt consolidation, home renovations, or to fund investments. It can be a practical option if you’ve built up substantial home equity and need access to capital without selling your property.

• Market Trends
  In recent years, the demand for second mortgages has grown as home values have risen across Ontario. However, with fluctuating interest rates, it’s important to shop around for competitive terms and understand the potential risks, especially with private lenders.

• Key Considerations
  Be aware of the higher interest rates, shorter loan terms, and the impact on your total debt load. Second mortgages also place your home at risk if you cannot make payments, so it's essential to evaluate your financial situation thoroughly.

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