Has the tide turned in Canada's mortgage market?
Two interest rate cuts by the Bank of Canada have finally arrived – but homebuyers are showing little sign of flocking back into the housing market just yet.
National home sales retreated in July, according to the Canadian Real Estate Association (CREA), although time will tell whether the central bank’s second cut – which arrived at the end of that month – will have a significant impact on convincing borrowers to step off the sidelines.
Still, every little counts when it comes to interest rate cuts, according to Ottawa-based broker Chris Allard, of Smart Debt Mortgages, who told Canadian Mortgage Professional buyer prospects were already improving.
Those falling rates have allowed some would-be buyers to set their sights on a more ambitious purchase than they might have envisaged during the past couple of years, according to Allard. “If they could only qualify for a stacked condo, maybe now they qualify for that super-bottom-end townhouse,” he said, “or if they were at the top end of a townhouse, maybe now they’re inching into that lower-priced single. For a lot of people, it’s making the difference.”
Is now the right time to purchase?
Conventional wisdom would dictate that buyers should hold fire on moving ahead with a home purchase now, especially with the prospect of further rate cuts on the horizon.
Fixed rates have fallen precipitously in recent weeks, while dovish language by the Bank of Canada in its last policy rate announcement suggested the central bank is preparing to bring its own benchmark rate even lower before the end of the year.
But Allard said purchasing now could offer buyers a way of avoiding the higher prices, and greater competition, that may emerge if rates continue to tick downwards. “A lot of the conversation ends up becoming, ‘Is it better to buy now? Should we keep waiting for rates to continue going down?’ And I think for many, it’s probably better to buy now because you’re getting the better rates – but there’s not a ton of people yet flooding the market,” he said.
“I think there’s an interesting time slot here where it might make sense for certain potential buyers to buy because if they continue to wait, yes – rates will go down. Yes, they might qualify for more, but maybe that house that they were going to buy for $700,000 is now $720,000. They’re buying the same house, just paying more for it at a lower rate. It’s really all the same thing, but they’ll be doing that with more competition if they wait a little longer.”
In Allard’s Ottawa market, certain property types are still seeing multiple offers, even though the temperature has cooled substantially since the days of record-low rates and feverish competition of the COVID-19 pandemic.
In general, though, the environment is much more favourable to buyers than it was then – a climate that might not last for much longer. “For the most part, it means that people are able to [bid] without a multiple-offer situation. It’s a lot more comfortable to buy,” he said. “You can put a financing condition, do some adequate due diligence. It’s much, much better for the buyer.”
Are variable rates set to grow in popularity?
When it comes to the fixed-vs-variable debate, meanwhile, Allard noted growing appetite for variable rates among borrowers who are comfortable with the risk factor, betting that rates will continue to fall and the spread between both options will narrow further.
The two Bank cuts, though, have done little to change the general current preference of borrowers for shorter-term fixed rates. “The primary reason for that is that a lot of people are tight from a cashflow standpoint,” Allard said.
“And so even though there’s an opportunity for maybe variable costing less over time, they’re saying, ‘You know what, the reality is: I qualify for the house that I want to buy on a fixed rate, and my cashflow is just more comfortable today with a fixed rate, so I’m going to go that route.’”
Source CMP
By Fergal McAlinden
