Housonomix: Navigating Rate Drops, GTA Market Shifts, and Unlocking Home Equity

📊 Rate Watch: 📈 Unemployment Rises, 📉 Bond Yields Fall, & 🏡 Mortgage Advice for Today's Market

• As can be seen from the graphic above, there is a significant drop in mortgage rates for most types of mortgages except 3Y fixed rates.

• For both new purchases and refinances the 3Y fixed rates, which still are the most popular and suitable mortgage product for most Canadians, have still not dropped by much.

• The media keeps talking of Bank of Canada cuts resulting in mortgage rates dropping. While it is true, it’s also a bit misleading because the biggest drops are in the 5Y fixed rates, which most people are still not taking and we’re not recommending them anyway.

• Now variable rate mortgages have dropped but they’re still clocking about 75 bps higher than what we’d like. With more drops by BoC expected we can expect a more reasonable variable rate before the end of the year.

Real Estate Radar: GTA Home Prices Drop 📉 and Sales Shift 🏡 | July 2024 Market Update

July was the second slowest month in terms of real estate sales this year, coming in with 5,391 home sales across the GTA. January was the slowest with 4,179 home sales but April had ramped up to 7,083 sales and have been falling steadily every month since. Even home prices are down with median home prices down 4% month-on-month and down 2.5% from last year.

Here are the highlights from the July numbers released by TRREB:

• The Greater Toronto Area (GTA) saw a dip in home prices in July 2024, with the benchmark home price decreasing by 1.2% month-over-month to $1,097,300, and the average home price dropping 4.8% to $1,106,617.

• Home sales in the GTA were down 13.2% from June 2024 but saw a slight increase of 2.7% year-over-year, with 5,391 homes sold.

• Here’s a city-specific breakdown:

  • City of Toronto: The average home price was $1,087,436, down 7.4% monthly but up 2.0% annually. The median price decreased by 5.4% month-over-month to $880,000.

  • Brampton: The average home price fell 4.0% year-over-year to $1,010,044, with the benchmark price dropping 7.5% to $996,900.

  • Mississauga: The average home price decreased by 1.4% year-over-year to $1,042,868, while the benchmark price was down 6.0% to $1,037,500.

  • Oshawa: The average home price declined by 6.4% year-over-year to $776,241, and the benchmark price dropped by 5.2% to $835,400.

The GTA housing market remains in buyer's market territory with higher inventory levels, providing more options and potential negotiating power for buyers.

🍁 📊 Maple Pulse: 🏡📈 Mortgage Renewals, Tax Burden Rise, and Builder Incentives: Key Trends in Canada's Housing Market 📊🍁 

Welcome to this edition’s Maple Pulse where we cover key recent happenings that are shaping the Canadian economy and might affect your current or next mortgage. Here’s what we’re tracking:

• Mortgage Renewals and Population Uncertainty Concern Bank of Canada: The BoC’s latest deliberations reveal concerns about inflation risks, mortgage renewals, and population growth uncertainty. The governing council agreed on further rate cuts if inflation aligns with projections. While inflation is expected to hit the 2% target by 2025, unemployment and subdued GDP growth remain challenges. Rising numbers of non-permanent residents and potential mortgage renewal impacts on consumer spending in 2025 and 2026 are key issues.

• Significant Increase in Canadian Tax Burden: Here’s a recent report from the Fraser Institute that caught our eye. The average Canadian family now spends more of its income on taxes (43.0%) than on basic necessities like food, shelter, and clothing combined (35.6%). In contrast, in 1961, only 33.5% of the average family's income went to taxes, while 56.5% was spent on necessities. In 2023, the average Canadian family earned an income of $109,235 and paid $46,988 in taxes (43.0%). Back in 1961, the average family earned $5,000 and paid $1,675 in taxes (33.5%).

• Builders Offer Half-Price Mortgages, No Buyers: Builders are offering mortgage incentives, such as three-year rates at 2.34%, to attract buyers. However, there have been no takers. Richard Mariani of CountryWide explains that buyers prefer using their own lenders or getting a purchase price discount instead. Additionally, mortgage qualifying rules often double the required down payment. These incentives might disappear once market rates drop and the housing market heats up, possibly within a few years.

• 30-Year Insured Mortgages Begin: The government has introduced 30-year mortgage amortizations for first-time homebuyers, aiming to make homeownership more affordable. Effective now, eligible buyers can extend their mortgage term from 25 to 30 years. Qualifying criteria include being a first-time homebuyer and purchasing a newly built home under $1 million. This change increases borrowing power by about 5%, but critics argue it won't significantly impact affordability.

• New Homes Made 'Attainable' with Ready-to-Rent Additions: In response to Canada's housing affordability crisis, developers like Sean Mason are making new homes more "attainable." Mason's project in Bracebridge, Ont., features 36 townhomes, some with rental units that can generate up to $2,500 monthly. This approach aims to ease mortgage costs for buyers. Despite high home prices, projects like these address rental shortages and provide additional income streams for homeowners.

Reverse Mortgages in Canada: Unlocking Home Equity 🏡💰

Reverse mortgages are an increasingly popular option for Canadian homeowners aged 55 and older 🧓👵. These financial products, offered by institutions like HomeEquity Bank and Equitable Bank, allow homeowners to access the equity in their homes without having to sell or move 📉➡️💸.

How It Works 🔄

With a reverse mortgage, you can borrow up to 55% of your home's value, depending on your age, property type, and location 🏠📈. The amount you qualify for increases with age and the appraised value of your home. Unlike traditional mortgages, there are no monthly payments required. Instead, the loan, plus interest, is repaid when you sell your home, move out, or pass away 🌅.

Key Benefits 🌟

1. No Monthly Payments: One of the most significant advantages is the elimination of monthly mortgage payments. This can help improve your cash flow and provide financial relief 📅🚫💸.

2. Tax-Free Funds: The money you receive from a reverse mortgage is tax-free, which means it won’t affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits 🤑.

3. Stay in Your Home: You can continue living in your home and retain ownership, benefiting from the appreciation in property value over time 🏡⬆️.

Important Considerations 📝

1. Interest Accumulation: Interest on the loan accumulates over time, which can significantly reduce the equity left in your home when it’s sold 🏡➡️🔻.

2. Fees and Penalties: There are setup fees, appraisal fees, and potential early repayment penalties to consider. Make sure to get a clear understanding of all costs involved 📋💵.

3. Impact on Inheritance: Since the loan is repaid from the sale of your home, it may reduce the amount left for your heirs. It’s essential to discuss this with your family to avoid surprises later on 👨‍👩‍👧‍👦.

Before deciding on a reverse mortgage, consider consulting with a financial advisor to ensure it's the right fit for your financial goals and situation 💼📝. It's also wise to explore alternatives like home equity lines of credit (HELOCs) or downsizing 🏠🔄🏡.

Reverse mortgages offer a unique way to enjoy the benefits of your home equity while staying in the place you love 🏡❤️. If you're a Canadian homeowner looking to enhance your retirement years, this could be a viable option worth exploring 🌟🔍.

Housing Huffs and Starting Puffs: 🐺💨 & Fresh Starts: 🌱