Many borrowers are still grappling with mortgage costs that have soared over the last year
While the Bank of Canada’s seeming willingness to pause interest rate hikes for now has given some welcome relief to many borrowers in the Canadian mortgage market, these are still challenging times for homeowners and buyers.
Rates have spiked over the past year, affordability is still a significant obstacle to many would-be buyers, and inflation remains at an elevated level despite having ticked downwards in recent months.
Against that backdrop, one of the main questions borrowers are asking is whether their current mortgage arrangement can weather the turbulence ahead, or if it might be better to switch to another option, according to Matt Morrish (pictured), a British Columbia-based financial advisor at BlueShore Financial.
He told Canadian Mortgage Professional that with rates projected to start moving downwards again in the next year or so, many clients were weighing up whether they were able to ride out the economic storm until then.
“The main questions are revolving around what are expectations are for the rest of this year for mortgage rates,” he said. “Obviously, we don’t make the decisions, but we can certainly make educated predictions on where rates are going to go. It does seem like we’ve probably reached our peak, but coming out of 2022, we’ve seen what can happen, and so could rates go up again? Absolutely.
“But it does seem like maybe this is where we’ll plateau, and the expectation really is that rates will start to go down at the end of this year or early 2024. And I think that’s where a lot of people are trying to gauge what they can do now and if they just need to hold on a little bit longer, and then what are their options today to reduce the cost of their debt? And is it worth doing now, or 12 months from now?”
Read this article to know the mortgage rate forecast for 2024-2025 here.
The eternal question: fixed or variable?
As ever, the question of whether mortgage holders should opt for a fixed- or variable-rate product depends on their own circumstances, although Morrish said he was advising a majority of clients on variable rates not to convert into a fixed one.
That’s unless rate hikes have caused a great deal of stress and the borrower would prefer to lock in a greater degree of cost certainty in future, he said. “But overall in general, I think you might want to just start waiting it out.”
Activity in Canada’s housing market had already shot through the roof at the onset of the COVID-19 pandemic – and on November 26, 2020, the governor of the Bank of Canada delivered the words that seemed to light the touchpaper for further borrowing.https://t.co/zfaRyLFdGR
— Canadian Mortgage Professional Magazine (@CMPmagazine) February 3, 2023
Is the market getting calmer after the BoC’s latest announcement?
The news that the Bank of Canada appears to have reached the end of its cycle of rate hikes could add a modicum of calm to the housing market and economy – but plenty of borrowers are still reeling from the impact of those higher rates, according to Morrish.
“I think it’s definitely a welcome reprieve for anyone who has either a variable-rate mortgage or a home equity line of credit [HELOC],” he said. “However, I think at this point, we’ve already seen that a lot of people with these [loans] have had their payments increase substantially.
“And for those who’ve been able to weather the cashflow – sure, they’re paying more and that’s not ideal, but they’re probably going to be OK. But there is a group of people where this has put a real strain on their cashflow and tested their monthly ins and outs.”
That will cause a heightened risk of those individuals having to sell their home if they can’t find other sources of cashflow relief, Morrish said, in a climate that has swung away from a seller’s market. “So I think you’ll find two pockets where yes, there’ll be some stability, but you might have a little bit of volatility with those people who are maybe forced to sell,” he added.
While the market has remained cool at the beginning of the year, Morrish noted that preapprovals have seen a notable uptick in activity of late as buyers look to move ahead quickly when a purchase becomes possible.
“Preapprovals are still a great idea, but they’re waiting for more inventory and the right property as well as a good price,” he said. “So having that preapproval in place just makes that process smoother.”
What trends are you noticing in the opening months of 2023? Let us know in the comments section below.
