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As millions of mortgages approach renewal, what will Canada's real estate market look like?



With a significant number of COVID-era mortgages nearing their renewal dates, homeowners and potential buyers across Canada are keeping a watchful eye on the real estate market, wondering if the country is on the verge of a buyer's market.


Understanding a Homebuyer's Market

In essence, a homebuyer's market is akin to a shopper's paradise in real estate. It's characterized by "For Sale" signs lingering longer on lawns, and prices leaning favorably towards buyers. This shift doesn't happen overnight; it's a result of an imbalance between the number of homes for sale and the number of buyers in the market. As the supply surpasses demand, buyers gain the upper hand, becoming more discerning and taking their time when making purchasing decisions.


Major cities like Toronto and Vancouver seem to be approaching this buyer's market status, with real estate supply outpacing demand. A recent report from the Royal Bank of Canada highlights the favorable conditions for buyers in Ontario markets such as Hamilton, Niagara, Barrie, and Kingston. The Canadian Real Estate Association (CREA) supports this trend, noting a 10-year low in the sales-to-new-listings ratio, a key indicator of a buyer's market.


However, caution is advised, as these trends may not be uniform across the country. To assess whether Canada is truly transitioning into a buyer's market, prospective homebuyers and mortgage renewers should look for signs such as higher inventory levels, a drop in median sale prices, and an increase in the average number of days homes spend on the market.


The Impact of Mortgage Renewals on the Housing Market

The COVID-era brought historically low interest rates, resulting in reduced monthly mortgage payments for many homeowners. However, as the pandemic wanes, the financial landscape is changing, marked by interest rates climbing at a pace not seen in over 40 years.


Data from the Canada Mortgage and Housing Corporation (CMHC) reveals that about one in three borrowers experienced an increase in monthly mortgage rates since the interest rate hikes began in March 2022. This is particularly true for those with variable-rate mortgages, where rates fluctuate based on the Bank of Canada's policy rate.


As of the first half of 2023, over 290,000 mortgage holders renewed their agreements at higher rates, hinting at a potential trend. Looking ahead to 2024 and 2025, a staggering 2.2 million mortgages are due for renewal—nearly half of all Canadian mortgages, many signed at rock-bottom rates.


The CMHC estimates that average monthly mortgage payments could increase by 30 to 40 percent as mortgages come up for renewal. This translates to Canadians needing an additional $15 billion within their household budgets to afford housing costs.


Higher mortgage payments may lead distressed homeowners to sell their properties in search of more affordable housing, potentially increasing housing inventory. This, in turn, could shift the market dynamics towards a buyer's market.


Advice for Prospective Homebuyers

In these uncertain times, prospective homebuyers are advised to approach the market with caution and patience. Monitoring indicators such as inventory levels, average sale prices, and time on the market can help anticipate shifts in market conditions.


As mortgage renewals approach, it's crucial to budget wisely, considering the possibility of interest rate hikes and understanding financial limits. In a market where conditions are evolving, informed and strategic decisions are key for both current homeowners and those entering the real estate landscape.


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