Building on your knowledge base is beneficial for every real estate agent, and there’s now way you’re going to come out of your licensing course knowing absolutely everything. Newer realtors can do well for themselves to expand on their bases with the right mix of speed and thoroughness, but the second part of that is always going to be more important. Mortgage credit is when a new homeowners can use a certificate to receive a tax credit on a percentage of the interest paid on their mortgage for that tax year.

That’s only a brief overview of what mortgage credit involves, but it’s among the many things that realtors can appraise first-time homebuyers of when they’re close to making the purchase of their first home. This sort of information shared can do wonders for presenting you as the insightful realtor these folks will work with both now and in the future if need be, so it makes sense to be as helpful as possible. And if you’re a newish realtor who needs to build up that clientele in the first place then our online real estate lead generation system here at Real Estate Leads may make a big difference.

But back on topic, the fact that mortgage credit in Canada continues to stay relatively flat despite median home prices going up is noteworthy for a number of reasons, and that’s what we will look at with this week’s entry here.

Deleveraging vs Increased Borrowing

Among Canadian households, the majority are split between those deleveraging and others who aren’t dissuaded from continued borrowing to whatever extent needed to buy a home(s). Data from the Bank of Canada indicates that for February of this year outstanding mortgage credit was virtually flat. And what is even more noteworthy is that prior to the past two months mortgage credit hasn’t progressed upwards this slowly in well over 10 years.

Then we add to that the fact that nearly 2.1 Trillion dollars is owed in mortgage debt by Canadians, and having that type of debt total but having it moving at such a slow pace is unusual. The outstanding balance of $2.09 trillion for February was pretty much what we saw from March to April and where we are right now – virtually flat from the month previous and a repeat of the period before it. This was also the 2nd consecutive month with nearly non-existent growth. You’d need to back 12 years to 2011 to find such stunted growth.

At the same time annual growth has returned to more stable levels, but it’s still on the high side. The 12-month change in outstanding mortgage credit is 5.9% ($116.3 billion) higher than it was for 2022. This rate exceeds inflation – and that’s noteworthy for its own set of reasons – but again it is the lowest rate reported since March 2020. Growth was accelerating back in March 2020, but 3 years on its decelerating, albeit slowly and inconsistently.

Slowest 90-Day Period Since 2001 Recession

Industry experts have made vocal notes of just how much borrowing has slowed in recent months. The 3-month annualized rate of growth for February was just 0.3%. If such a rate was to continue at the same level of growth for a whole year, it would end being ever-so-slightly above flat. Since 2001 we haven’t seen mortgage credit fall to this level since the recession of that year and those same experts expect annual growth data to keep grinding lower in the near-term. House prices may be rising, but the decrease continues despite going against the way that should work.

As a summary, what we believe we’re seeing here is a contradiction of the standard workings where as home prices rise, credit growth typically accelerates. That’s not happening now, or perhaps anymore. Purchasing volume is low to the extent that it is struggling to keep up with the number of borrowers paying off their debt. Even if inventory starts to loosen, higher interest rates have taken the strength out of the easy money from years previous will counter a lot of the benefit that might come from that in normal circumstances.

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A whole lot has been made of the predicament some homeowners with variable-rate mortgages are in these days, and it is definitely not a situation where a mountain is being made out of a molehill. There are homeowners who are having to accept 3-digit or more increases to their monthly mortgage payments, but at the same time there are others who are taking advantage of their lender bank’s ability to be flexible. Certainly any time it relates to your family’s shelter it will make sense to be creative any time there’s opportunity for it as it relates to continuing to afford the home you’ve purchased.

Borrowers are navigating a massive surge in interest rates, and most realtors will have had at least one discussion of this sort with first-time homebuyers. Few if any of them if any that aren’t buying homes without taking on a mortgage of some sort, so it certainly is a relevant topic. Some of those same realtors may be dealing with the ongoing chill of the market, even though it has picked up somewhat from where we were with the Fall of 2022.

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Moving back on track with the topic, let’s continue to look at this flexibility and what exactly some mortgage holders are doing to roll with the punches right now.

Add to Principal

What these owners with variable-rate mortgages are doing is tacking unpaid interest onto their mortgage’s principal, and doing that instead of paying the full amount each month. Some others are just paying interest only. What would be the advantage in that?

We know that borrowers are trying to navigate a massive surge in mortgage rates that has resulted in higher costs while house prices have fallen. Definitely not a good mix, and it’s especially a problem here in Canada where a significant portion of total mortgage debt is floating rate. This means that homeowners are regularly faced with the reality of borrowing costs that are way higher than expected.

And one that’s not nearly the same problem in the US because of the greater ease you have with negotiating a 30-year mortgage that has a fixed rate there. So with banks allowing borrowers to add unpaid interest onto their loan’s principal or stop paying down the principal each month, the banks are actively preventing defaults and any forced home sales.

The long and short of this is that lenders have become more flexible and realizing it benefits them in the long-term to do what they can to accommodate good-paying borrowers and keep them in the homes they’re buying over the long haul.

Paying Off

This flexibility is working out well in the big picture, despite Canadian home prices enduring a 16% slump and borrowing costs having nearly doubled. Mortgages are in arrears though, and this means that loans that are 3 or more months behind on payments still only work out to under 0.20% of outstanding loans as of this time.

How the lack of distressed sales relates to providing a ‘floor’ for the housing market is this; the major shortage of new listing from February forward this year has created the tightest national market since April 2022, and prices in more in-demand metro markets are beginning to rebound as the scarcity of housing supply becomes an even more emphatic reality of those cities.

Banks are taking the approach that they’re willing to overlook people being evasive with their payments to some extent, with a belief that just looping it onto the balance isn’t such a bad thing despite it depressing inventory further as homeowners who might otherwise have no choice but to sell find ways to hold on to their homes.

This flexibility is helping both sides of the system avoid bigger problems along the way. Losing the home is the worst-case scenario for the owner, and then there’s the way too much inventory hitting the market all at once could sink property values further. This would result in it being harder for the banks to get their money back in the event of a default, and especially if the scenario had them needing to sell the houses themselves.

The last thing to mention with this entry and in relation to those unpaid amounts is that if they are added to the principal instead this results in ‘negative amortization’ where the loan effectively grows despite borrowers making regular payments. As consumers take longer to repay the debt, the new expectation is that many of those mortgages to be amortized over more than thirty years.

We can understand that the profits that come with longer amortization periods on mortgages mean that banks are expected to show flexibility to customers when the economic circumstances demand it, and that’s exactly what’s happening right now.

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One of the things you can pretty much count on from one year to the next with the housing market in Canada is that sales will always pick up in Spring. People have wondered why that is, but it may be as simple as folks being enamored with the warmer and sunnier weather and imagining what it might be like to have a backyard or rooftop patio for the upcoming summer season. The cyclical nature of that factors into sellers sell homes and from the buyer end it’s more prospective homeowners who are buying homes rather than investors at this time.

Real Estate Agents will have expectations based around the trend too, and anytime those expectations don’t come to be then there may be something of a disappointment with how many homes that realtor is selling or how many new clients they’re putting in homes. Real Estate is an unpredictable business at the best of times, and even if you considered the overheated market of ’20 to ’22 to be one of those best of times.

But even when a downturn of any sort is the reality our online real estate lead generation system here at Real Estate Leads is an excellent way to help realtors weather the doldrums in the real estate business that do come from time to time. And that’s just what we may be in the beginning of right now for Spring 2023 as home sales are not picking up the way they used to at this time of the year.

That’s what we’ll dig deeper into with our blog entry here this week based on a report from the Royal Bank of Canada.

Interest Rate Influences

It is Canada’s largest bank, and it is expecting a slow start to the spring housing market based on the prediction that higher interest rates will continue to dissuade many buyers even though there’s been a considerable drop in prices.

The reality is a 16% drop in the benchmark home price over the last year, but the $704K CAD average is still darn close to 30% higher than it was at this time in 2020. The consensus is that in order to get home affordability back ‘in check’ as much as that is possible conceptually is to have prices may have to fall further or mortgage rates will need to see a drop.

Insufficient supply is also definitely a factor. There really isn’t as much in the way of home inventory on the market that’s available for these would-be homeowners to buy. Newly-listed properties were down 8% in February compared with the month before, and at the same time the inventory of available homes dipped to the lowest it’s been in the last 4+ months according to the CREA.

Then there’s also been a noticeable slowdown in consumer activity and business investment that is made in response to the higher interest rates. Something that was bound to happen one way or another when the Bank of Canada moved fast and pronouncedly when bumping up its overnight lending rate from 0.25 to 4.5%

Uncertainty from Slowdown

It would seem that buyers of all sorts remain apprehensive because the slowdown is still here and continuing, even if it has weakened. It certainly is being seen in volumes, and when you ask around in the business the one term you hear over and over again is buyer uncertainty. It’s going to be an undermining factor all through this spring real estate season it seems, and a lot of this goes back to early March when the Canadian central bank kept its key rate untouched for the first time in a year.

The stated logic for that is that policymakers need time to assess how consumers are adjusting to higher borrowing costs, and that part of it does make sense. Mortgage rates from both RBC and TD are in the vicinity of 5.5% for borrowers who want to lock in their costs for 5 years. Variable mortgages will be more expensive than that, for obvious reasons and that is another deterrent for anyone who feels that’s the only realistic way for them to go with taking on a mortgage.

The CIBC has the highest share of domestic residential mortgages and HELOCS in Canada with 54% of those net loans. RBC is second with 51% of them, but the significant stat here is that around 78% of RBC’s Canadian housing exposure remains uninsured. The uninsured portfolio has a low loan-to-value ratio of 50 per cent, however, which should in theory put in place a buffer that should absorb some of these house-price declines.

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Here we are into April now and that means the first Q of 2023 is done and we’re into the one that begins with springtime. As it relates to real estate the spring months typically come along with an uptick in activity in the real estate market and it’s not secret that homes are more appealing when seen in nicer weather. That may explain a small part of it, but there’s much more what goes into buyer prerogatives as they connect to more people buying real estate in April, May, and early June.

Realtors won’t necessarily need to know why more sellers are inclined to sell at this time, and why more buyers are inclined to buy. They’ll just like to foresee the expected uptick in business that comes and especially with prospective homebuyers who know their best choice is to work with a realtor in order to find the home that suits them best and gives them the best value for their money. The spring real estate market again is good for that.

In the event a realtor doesn’t see that some boost in business and new clientele inflow then our online real estate lead generation system here at Real Estate Leads is always a good choice. It puts the power of Internet Market to work for you for digging up legitimate prospective clients who may be looking to work with a real estate agent, and you have the opportunity to be first in touch with them. It’s immensely beneficial for any realtor looking for a big competitive advantage.

Back to topic, seeing as how we are now nearly 2 weeks into spring officially let’s look at spring market insights across Canada as our entry for this week.

Halifax, NS

Greater Halifax Area real estate is a perfect sample for fundamental microeconomic supply and demand imbalance. 31% less available residential inventory compared to 2021 but more than double the inventory of 2022 results in a strong seller’s market that is in large part a continuation of the aberrational market that was seen for spring of 2022.

The lack of available inventory is absorbed based on local buyer activity mixed with continued demand from buyers who come from out of province, and it is occurring at quite a strong pace. A list-to-sale ratio of 106.8% backs that up, and it is resulting in market appreciation remaining between 11 and 12% for the trailing year.

Spring 2022 had a lowest MOI of just under 0.4%, and right now the market is around 1.28 so it is very much a seller’s market but the belief is that there is still room for buyers to navigate to their advantage too.

Ottawa

Ottawa is increasingly becoming a balanced market and this is working to spur consumer confidence and the rate hike pause promised by the BoC is helping in this regard too. Pricing and listing preparation will be even more important as multiple offers on some property types become the norm again and certain neighborhoods continue to contribute the higher median home values because of their desirability. and price points while there may be more of a balanced demand for others.

This level of high demand will mean prices continue to go up at a modest pace and the belief is that we will see increased demand for lower-priced properties as budgets are tightened and buyers are forced into new realizations with what they have in the way of being able to afford a home purchase. This will raise prices and tighten the gap between the entry market products and the more standard townhome and single-family freehold.

The consensus is also that Ottawa is still very affordable in comparison and has much more affordability tied into quality of life when talking about living in the suburbs.

Toronto

Expectations for the recovery of Toronto’s real estate market have been exceeded, and they have rebounded nicely from the drop seen between October to December 2022. Many buyers had homes priced in the same way they would have in years previous but languishing on the market. This has changed now, and buyer confidence and seller willingness are starting to meet each other more again.

The Bank of Canada raising interest rates by 25 basis points was a change point, as it boosted buyer optimism and also coincided with an end to the rate hike cycle. Intensifying competition meant sellers began receiving the types of prices for their homes that they were looking for

Unless there are unexpected rate announcements heightened buyer activity should continue, and sellers will likely see multiple offers on their properties. Employing the under-listing strategy may be a smart play for sellers as it can promote more bidding and help owners maximize the return on a sale of a property.

Winnipeg

Winnipeg’s real estate market is always more of the slow-and-steady variety, but we should not that property values have gone up very reliably, for 47 of the last 50 years to be exact. What’s notable here for early 2023 is that the condominium market in Winnipeg is getting hot, and that the relative affordability in the city is attracting buyers from other provinces and this is infusing a lot of money into the market where many buyers are perfectly happy to pay asking price or more for a property.

Winnipeg’s growth rate 5% higher than both the provincial and national averages, according to the 2021 Census. This type of population growth is occurring at the same time as a market with a proven track record for stability and affordable housing, and the result of that is we will likely continue to see a market that is better for sellers at this time.

Nearly 50% of sales last week in Winnipeg were concluded after multiple offers received. Sellers are getting agreeable terms and conditions, and homes are selling quickly.

Calgary / Edmonton

The real estate market in Edmonton is distinct and has responded differently during and after the pandemic compared to other Canadian housing markets. The inflationary pressures did not apply in the same way, and this has resulted in stable and reasonable buying conditions. This is in somewhat stark contrast to the multiple offer situations and condition-free purchases seen in other cities.