Are rates keeping you up at night?

Days of using your home's equity like an ATM machine are long over

The Canadian housing market is in a definite pullback as July marks the fourth straight month of a decline. New buyers have felt the pressure of interest rate hikes since March 2022, and it is anticipated they will go even higher. Today the posted rates currently match the Canada Mortgage and Housing Corp. (CMHC) qualifying rate of

5.25 per cent, something we haven't seen in more than a decade. A five-year fixed mortgage rate now hovers between 4.79 per cent and 5.04 per cent. For many Canadian homeowners, this is the first time they have seen rates this high, many believing they were paying too much when they were haggling for a mortgage rate at 2.50 per cent only two or three years ago. When your mortgage comes up for renewal, will you be able to afford the increased rates?

The expected reversal of the massive pandemic-era gains on house prices is upon us and all lenders are now mandating a full appraisal on every purchase or refinance to confirm property values and ensure they are not inflated. Home buyers are on the defensive after current rate hikes and there is no longer a sense of urgency to buy. Nor is there the appetite or willingness for the bidding wars of earlier in the year. My belief is that we will see a market shift as buyers re-gain pricing power and homeowners realize they either paid too much or now need to come to terms with the fact that their home isn't worth what they thought it was. Economists predict that the Bank of Canada will raise rates an additional one per cent, which will further challenge the already intense affordability stress. If today's buyers do not receive more price concessions from homeowners, we may see an increase in less expensive options like condos and townhome sales.

The hardest hit areas are Toronto and Vancouver. Montreal, Edmonton and Calgary seem to still be doing quite well, sustaining a very modest downward trend. This is not surprising, since Alberta's economy is currently one of the best in Canada, thanks in part to a tremendous turnaround in the energy sector. Calgary is now at the top of the list in comparison to other large Canadian cities for affordability and a solid demand for housing.

However, even with Calgary as our anomaly, it is anticipated that the rest of Canada's property values will slip a further 10 per cent by the end of year — good news to new buyers who have been waiting for a correction. Let's face it, the interest rates have been too low for too long. I know it hurts to say that out loud — but it's true. House prices have soared on the backs of rock-bottom lending rates and people have used their homes as ATM machines to keep refinancing their debt into a higher mortgage to bail them out yet again.

The two decade long “low-rate lending party” has now ended and the banks are thrilled. It's time to buckle up and create that finance budget you have been putting off for 10 years. Inflation today is at 7.5 per cent and in 1983 it was 6.83 per cent. Think about that for a moment. For those of us that were homeowners in the '80s and '90s, you know that the rate hikes are coming.