3 Articles: Home prices down, Rental Prices Up, Short Term Mortgages Trending as Interest Rates Are Up

Royal LePage Says Average Home Price Down 0.7% Year-Over-Year in Second Quarter

Courtesy of Barrie 360 and Canadian Press Published: Jul 13th, 2023


A report by Royal LePage says the average home price in Canada in the second quarter edged lower compared with a year ago.

The firm’s house price survey says the aggregate price of a home in Canada was down 0.7 per cent year-over-year at $809,200 in the second quarter of this year.

On a quarter-over-quarter basis, the report says the aggregate price, which averages out median values of all housing types, was up 4.0 per cent.

Royal LePage says the real estate market is close to the point where it will have recovered fully from the drop in home prices last year when interest rates began to rise.

The aggregate price in the second quarter was down 5.6 per cent from the peak reached in the first quarter of 2022.

The firm says prices in the fourth quarter this year are now expected to be up 8.5 per cent compared with the fourth quarter of 2022.



Canadian PressPublished: Jul 13th, 2023 11:07amLast Updated: Jul 13th, 2023 2:37pm

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Files from Barrie 360

By Sammy Hudes in Toronto

The average asking price for a rental unit in Canada reached a record $2,042 last month amid continued interest rate hikes and population expansion, according to a new report by Rentals.ca and Urbanation.

The data, which analyzed monthly listings from the Rentals.ca network, showed year-over-year rent inflation for June was 7.5 per cent, below the double-digit growth seen for most of 2022 and early 2023.

Rents also rose 1.4 per cent from May, marking the fastest month-over-month increase for units listed on the website so far this year.

“What the country is experiencing right now is a perfect storm of conditions,” said Shaun Hildebrand, president of Urbanation, a real estate research firm.

“It’s interesting that rents continue to grow this fast despite rental apartment completions in Canada currently running at multi-decade highs. It really shows that the housing industry isn’t producing enough rental supply to satisfy this record level of rental demand.”

The average cost of a one-bedroom unit in June was $1,780, up 10.2 per cent from the same month in 2022.

Hildebrand said demand is being driven by Canada’s rapid population growth, much of which is coming from non-permanent residents such as foreign students who rent, along with near record-low unemployment, rising incomes and “the worst home ownership affordability in over a generation for first-time buyers.”

High interest rates are a “key ingredient” to the lack of housing affordability, said Hildebrand. He predicted the Bank of Canada’s latest rate hike earlier this week would worsen existing barriers to entry for renters looking to buy a home.

“It’ll reduce supply by keeping renters in their units for longer, it’ll convert more would-be first-time buyers into longer term renters,” he said.

“Just as meaningfully, it’ll slow down the supply pipeline of new apartment projects because higher interest rates, obviously, raise the costs of developing.”

Vancouver led the way as Canada’s priciest city for renters, with the average one-bedroom unit listed at $2,945 and a two-bedroom at $3,863, followed by nearby Burnaby, B.C., according to the report.

Toronto ranked third at $2,572 for a one-bedroom and $3,301 for a two-bedroom.

A separate report released Thursday by the Toronto Regional Real Estate Board showed average condominium apartment rents in the Greater Toronto Area continued to outpace the rate of inflation in the second quarter of 2023.

The average one-bedroom condo apartment rent was $2,532 over those three months — up 11.6 per cent compared with 2022. The average two-bedroom rent was up 9.2 per cent over the same period to $3,264.

RBC economist Rachel Battaglia said those regions, along with Halifax, continue to see vacancy rates in the rental market hover around one per cent or lower — well below the three per cent rate that experts consider a sign of a balanced market.

She said Canada’s annual rate of population growth during the second quarter reached its fastest pace since the 1950s.

“We do have a population growing at a pretty astonishing pace,” said Battaglia, noting international immigrants tend to rent for the first five to seven years of living in Canada, adding pressures to the rental market.

“Although there have been some healthy additions to the rental unit stock, it just hasn’t kept pace with demand.”

Over the past two years, average asking rents in Canada have increased by 20 per cent, or an average of $341, according to the Rentals.ca report.

On a monthly basis, rent growth was strongest in June for the smallest and least expensive unit types, with studios and one-bedrooms seeing price listings rise 2.6 and two per cent during the month, respectively.

Each of Canada’s six largest cities experienced double-digit annual rent inflation in June for purpose-built and condominium apartments.

Vancouver and Toronto, the country’s most expensive rental markets, had average asking rents of $3,301 and $2,813, respectively, representing annual growth of 15.7 and 15.4 per cent. Ottawa, the third most expensive of Canada’s largest markets with an average asking rent of $2,146 in June, saw growth of 15.3 per cent.

Calgary overtook Montreal as the fourth most expensive among Canada’s largest cities, with average asking rents for purpose-built and condominium apartments growing 18.4 per cent annually to reach $2,008 — surpassing the $2,000 level for the first time.

“The areas of the country that are experiencing the fastest rates of population increases are the areas that are experiencing the fastest rent increases. I don’t think there’s any coincidence there,” said Hildebrand.

“Areas like Calgary, Toronto and more specifically, markets like Scarborough and Brampton which tend to attract a high percentage of new immigrants, are seeing rent increases that are at really the top of the list.”

Barrie ranked 15th out of 35 cities surveyed, with a one-bedroom unit listed at $1,943 in June, a drop of nearly five per cent from May, though up 9 per cent year-over-year. A two-bedroom apartment averaged $2,456, down 1.1 per cent in June compared to the month previous and a drop of 3.3 per cent year-over-year.

This report by The Canadian Press was first published July 13, 2023.



Courtesy of Barrie 360 and Canadian PressPublished: Jul 14th, 2023

Rosa Saba, The Canadian Press

Rapidly rising interest rates have transformed mortgage preferences as borrowers increasingly opt for shorter−term fixed−rate contracts. 

The trend is happening as homebuyers look to find a balance between predictability and the ability to respond to hopefully lower rates in the years ahead, say experts.

“People just want stability,” said Victor Tran of Ratesdotca.

It’s a sharp reversal from the variable rates most were opting for at the beginning of last year. But after 10 interest−rate hikes in less than a year and a half, the latest this Wednesday, most are shying away from being vulnerable to more rate hikes.

“Now, everything has changed. I would say, out of 10 clients I’ve signed, maybe one would choose variable,” said Tran.

It’s a trend that started picking up momentum as soon as rates started to rise last year. In January 2022, variable−rate mortgages made up 56.9 per cent of new and renewed mortgages, the Canada Mortgage and Housing Corporation said in a May report.

By January this year, variable−rate mortgages had already fallen to 16.7 per cent, while fixed−rate mortgages with terms of more than one year but less than five years made up a 64 per cent of new and renewed mortgages, showing a continued upward trend. 

While five−year terms used to be more popular for fixed−rate mortgages, people are now opting for shorter terms, often three years, in case rates fall, said Tran.

“People feel it’s kind of a sweet spot.”

The shift has come as the rapid rise in interest rates has exposed some of the risks of variable−rate mortgages, said Sherry Cooper, chief economist at Dominion Lending Centres.

Many opted for variable rates as they tended to have more attractive rates and people didn’t expect rates to rise significantly, but now, anyone with a variable−rate mortgage has been under intense pressure as the Bank of Canada’s key policy rate has climbed from 0.25 per cent at the beginning of 2022 to five per cent this week as the central bank seeks to quell high inflation. 

Five per cent is also a lot higher than the central bank’s rate pre−pandemic, which was at 1.75 per cent heading into March 2020.

People with fixed−rate mortgages who have locked in their rate and monthly payments for up to five years are also under pressure once their contracts come up for renewal. But in the meantime, at least they can prepare for what’s coming, said Cooper.

There are two kinds of variable−rate mortgages, each with its benefits and drawbacks. More popular are fixed−payment deals, where the interest rate fluctuates, but the monthly payment doesn’t, said Cooper. As rates rise, a higher and higher share of the monthly payment goes toward interest instead of the capital cost of the home, and as a result the amortization period −− the length of time it would take to pay off the mortgage at the current rate −− gets stretched. 

These kinds of mortgages have not held up well under a rapid succession of rate hikes, said Cooper. 

“Variable, fixed−payment borrowers, many of them have hit their trigger point, which meant that their monthly payment wasn’t even covering the interest on their loans, let alone any principal,” said Cooper. 

When those mortgages come up for renewal, lenders will likely look to bring the amortization period back closer to the original contract, said Tran, significantly increasing the monthly payments for the mortgage holder. 

For anyone who got a mortgage at true rock bottom −− the central bank lowered its policy rate to 0.25 per cent in the throes of the pandemic −− the shock of this “black swan” tightening cycle has been particularly significant, Cooper said. 

“Initially, some people did make lump sum payments to reduce the negative amortization,” she noted, which can help reduce the shock on variable−rate mortgages. 

Cooper doesn’t expect a big increase in mortgage defaults, noting that credit card debt is where cracks are really starting to emerge. However, she said there will be more pressure at the edges of the mortgage market too.

But she also sees more people opting for shorter fixed−term contracts. Few are opting for full five−year terms, which peaked in recent popularity in October 2020 at 49 per cent and were languishing at 13 per cent as of January, according to CMHC’s report. 

“Fixed rates have become very popular again, and for obvious reasons,” Cooper said. “Yet they’re not going to the full five−year because … people seem to be expecting that interest rates are going to decline fairly soon.”

But rates aren’t likely to go back to recent low levels, said Cooper, and will probably remain elevated in the near term. 

“I think that interest rates are not likely to decline until maybe late next year, and maybe not even till 2025,” she said. “Because the Bank of Canada isn’t going to start cutting rates until … we’ve achieved, on a sustainable basis, the two per cent target.”

On Wednesday, the Bank of Canada’s Tiff Macklem said the bank doesn’t expect inflation to return to its target until mid−2025. 

Mortgage holders and homebuyers are still in the stages of adapting to a major shift in how policymakers and Canadians overall think of interest rates, said Cooper. 

“It’s a true sea change in attitude and thinking.” 

Patricia Dent

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