Impact of Bank of Canada Rate Cuts 📉 and GTA Market Trends 🏘️: What You Need to Know

Rate Watch: Impact of Bank of Canada’s rate cut 📈🏠

As we normally do, we’ll kick things off with an interest rate update. We have the current interest rate range for most mortgage types, and most commonly used term in the graphic above.

To get your customized interest rate please reach out to us at www.ronmortgages.com 

We’ll address some of the more common questions we’ve received from clients and referral partners since Bank of Canada’s rate cut announcement last week:

1. Immediate Fixed rate changes - Fixed rates, particularly by chartered banks, haven’t budged by all that much following BoC’s announcement. There are a couple of reasons for this

   • Bond Yields fell preceding and in anticipation of the rate cuts. And bond yields are the main driver of fixed interest rates.

   • Chartered banks are not cutting rates to offset mounting losses from higher deliquencies and unrecovered loans. There are other reasons of course, but these are the main two.

2. Variable vs Fixed: Yes, we’re getting close to the stage where variables will become a viable option for some clients. But right now, the spread between fixed and variables is still about 115 bps which to us is too wide to recommend variables to most people. To narrow the spread we’ll need 4 to 5 further cuts from Bank of Canada, which could take a while. But the downward trajectory of rates is definitely a positive and can make variables attractive soon.

3. Further Bank of Canada moves: We can expect further cuts from the Bank this year. How many and by how much remains to be seen. The Bank will be watching very closely how the econonmy and particularly housing reacts to their current rate cut. The next decision on July 24 will show if the Bank is going to go aggressively with further cuts or if they’ll be cautious and hold to let this one play out for longer.

The only thing we can be reasonably certain now is that interest rates have peaked and the stranglehold of high interest rates should start easing soon. We’ll be tracking all this, as always and keeping you informed. If you’d like to know more, please do reach out to us at www.ronmortgages.com 

📊 Real Estate Radar: May 2024 Weak Sales Activity in the GTA 🏘️

May’s real estate sales and average price data for the GTA reveals a market with significantly weak sales activity. Sales across all property types are down 21.7% compared to May 2023, despite an average price drop of about 2.5% during the same period.

Key Insights:

• 📉 Sales Decline (Year-over-Year): Sales are down over 20% year-over-year across all property types.

• 📈 Price Increase (Month-on-Month): There’s been a slight month-on-month uptick in average sales prices of about 0.8% from April 2024, indicating some buyer strength in the market.

Inventory Surge:

• 📊 Active Listings: Active listings surged by a whopping 83.3% year-over-year.

• 🏘️ New Listings: New listings increased by 21.1% year-over-year.

Market Conditions:

• 🛒 Buyer’s Market: The increase in listings alongside decreased demand has led to a buyer’s market. However, transactions remain subdued due to low affordability.

• 💰 Affordability Challenges: High mortgage rates and inflation are impacting wages, keeping many buyers away. House prices haven’t fallen enough to significantly improve affordability.

According to one Bloomberg study, to get affordability in Canada back to Pre-Pandemic levels:

• Home prices need to fall by 33%

• (And/Or) Incomes have to go up 55%

• (And/Or) Mortgage rates have to drop by 350 bps

Needless to say, that’s going to take a while, even after Bank of Canada’s 25 bps rate cut from earlier this month.

In the meanwhile, buyers will do well to start looking at the higher inventory and putting in aggressive bids on their dream properties, using shorter term or maybe even variable rate mortgages (we can help at www.ronmortgages.com).

And for sellers, as long as they’re pricing their properties with today’s reality in mind, rather than the heydeys of 2021, there is still enough demand to get buyers in.

Despite the current market conditions, opportunities exist for both buyers and sellers who approach the market strategically. Stay tuned for further updates and detailed analysis in our next edition!

🎉 🌟💼Success Spotlight: Mortgage Funded For Investor clients 🏗️💰 🎉

🍁 Maple Pulse: 🏡📈 Canadian Real Estate and Economy: High Home Prices, Mortgage Delinquencies, Rate Cuts, Tax Hikes, and Interest Rate Divergence 💰📊

Welcome to Maple Pulse where we explore the latest challenges and developments in Canada's real estate market. In this edition we’re focusing on high home prices, mortgage delinquencies, shifting interest rates and lots more.

• Canadian Home Prices “Need” To Be High To Pay For Retirements PM: Prime Minister Justin Trudeau stated that high home prices are crucial for retirement savings, highlighting the challenge for young Canadians to afford homes. With median home prices doubling and down payments now requiring over 20 years of saving, the government’s stance suggests future generations will bear the financial burden for retirees. Trudeau acknowledged the disparity in retirement savings between homeowners and lifelong renters, emphasizing the need for home value retention for financial security in old age. (Ron’s take: If housing has to be affordable, then prices particularly in the GTA have to come down. That’s the reality that no politician will ever acknowledge. Keeping prices high requires the younger generation to pay for it, which they can’t afford to anymore.)

• Ontario’s Mortgage Delinquencies Exceed $1 Billion: Ontario’s mortgage delinquencies hit over $1 billion for the first time in Q1 2024 more than double the pre pandemic levels, says Equifax. High renewal rates, inflation, and a 6.7% unemployment rate contribute to the strain. 1.26 million Canadians have also missed at least one credit payment of some kind. Although the Bank of Canada cut rates, relief remains limited. Many Ontarians are exploring alternative lenders and provinces for better affordability amidst growing consumer debt. (Ron’s take: Rate cuts’ effects take time to make an impact. And Bank of Canada has only started. There are steps that can be taken to restructure your mortgage so that the burden of a renewal or even regular payments can be mitigated. Please reach out to discuss more.)

• Variable-Rate Mortgage Holders Save After Rate Cut Depending on Where They Are: Variable-rate mortgage holders in Toronto and Vancouver save an average of $1,860 and $1,994 annually due to the recent Bank of Canada rate cut, according to Zoocasa. In contrast, Regina residents save less than half of that. Economists predict up to three more cuts by year-end, potentially saving borrowers over $500 monthly. This rate relief could motivate more buyers, increasing sales activity and potentially driving up home prices. (Ron’s take: Variables might be an option to consider for a potential refinance for existing mortgage holders whose current rates are close to or above 6%. That’s if the pre-payment penalty is low. For new purchases, it’s best to hold off for a bit longer.)

• Capital Gains Inclusion Rate Hike Impacts More Than Just the Rich: The proposed increase in the capital gains inclusion rate affects more than just the wealthy. While aimed at the rich, the hike impacts average Canadians with rental properties, small businesses, and pensions. Under Trudeau’s government, recent tax increases and policy changes have already burdened high earners, driving some to emigrate. Critics say the inclusion rate hike is a revenue-generating measure rather than a fairness policy, potentially discouraging economic success and productivity in Canada. (Ron’s take: It was always clear that the govt’s tax hike measure is about generating more revenue than their claim of a fairer tax system. The repeated claim of only 0.13% of Canadians being impacted by this hike is simply not true.)

• Interest Rate Policies in Canada and U.S. Set to Diverge: As the U.S. Federal Reserve held its key interest rate steady while the Bank of Canada recently cut its rate to 4.75%, there’s potential volatility in the horizon for the Canadian dollar. With Canada’s economy more sensitive to interest rates due to shorter mortgage terms and dependence on commodities, the divergence could make U.S. imports costlier and fuel inflation. Experts anticipate more Canadian rate cuts, but if the Fed delays its cuts, significant economic impacts could arise, highlighting the differing economic landscapes of the two nations. (Ron’s take: Canada cannot afford a weaker Canadian dollar. That creates a whole host of even bigger problems, including more inflation causing massive problems to businesses and the economy, and ultimately all Canadians. This is yet another reason why the Bank of Canada will keep being very watchful on the pace of rate cuts and they may not come as fast as people expect.)

🏡📈 Mortgage Mastery: Understanding the Role of Property Appraisals in the Mortgage Process 🔍📋

In Ontario, property appraisals are a critical component of the mortgage process. Whether you're a first-time homebuyer or looking to refinance, understanding the role of an appraisal can help you navigate your mortgage journey more effectively.

A property appraisal is an unbiased, professional assessment of a property's market value. This evaluation is conducted by a licensed appraiser and is essential for both lenders and borrowers. For lenders, the appraisal ensures that the loan amount is appropriate for the property's worth, mitigating risk. For borrowers, it confirms that they are paying a fair price for their new home.

Types of Appraisals 📋

• Full Appraisal 🏠

  • A comprehensive inspection of both the interior and exterior of the property.

  • Involves detailed analysis of comparable sales and current market trends.

• Drive-By Appraisal 🚗

  • A less detailed appraisal where the appraiser only examines the exterior of the property.

  • Typically used for refinancing or low-risk loans.

• Desktop Appraisal 💻

  • Conducted entirely from the appraiser's desk using data and technology.

  • Often used for properties in urban areas with extensive market data available.

During an appraisal, various factors are considered, including the property's location, size, condition, and comparable sales in the area. The appraiser will inspect the home, noting any improvements or necessary repairs. This thorough evaluation helps establish an accurate market value.

In Ontario, lenders typically require an appraisal before approving a mortgage. If the appraisal value is lower than the purchase price, it could affect your loan approval or require a larger down payment. Therefore, understanding this process and working with your mortgage agent can help you better prepare for potential outcomes.

Navigating property appraisals with insight and preparation can significantly enhance your mortgage experience, ensuring a smoother path to homeownership.

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