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• September 01, 2021

Canada’s Current Housing Market: What It Means For You

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The last 18 months have been a whirlwind of chaos from the pandemic, to the housing market, and even to organizing your home office. It can go without saying we’re all ready for what the rest of 2021 and 2022 have in store for us. As the global economy starts to recover, one aspect to focus on is Canada’s updated mortgage stress test and the economic outlook of Canada. With the Bank of Canada’s (BoC) key overnight rate sitting at 0.25% and the adjustment in their quantitative easing program, Canada’s GDP growth is forecasted to be 4.5% in 2022 and is currently on pace to pre-pandemic economic levels. Finally, we’re getting back to normal and at Pineapple, we want to share this valuable information from TD Economics with you so you can become a more informed investor and buyer.

The Stress Test Effect 

So what does this all mean for you, a first-time homebuyer or even for the change-up buyer? To start, Canada’s scorching hot housing market is starting to cool off, and that’s a good thing as it was running at unsustainable growth levels, tighter stress test measures have started to put things back into equilibrium removing the upward pressure we have seen the last eighteen months. So what exactly is a mortgage stress test? In Canada, all mortgages are subject to a mortgage stress test which is carried out by the bank to ensure that a borrower can still make their payments at a rate that is higher than what they would actually be paying. 

For example, your Pineapple mortgage agent locks you in at our lowest rate of 1.89% for a 5-year fixed mortgage. The bank will then use the BoC minimum qualifying rate of 5.25% as a measure of your ability to pay at higher rates, keeping in mind they’ll run the test at two percentage points above the qualifying rate. If you pass the test, you get a mortgage! The mortgage stress test is one way to ensure that lenders, as well as borrowers, are protected from taking on too much debt.

As forecasted in the TD Economics Canadian Housing Outlook, Canadian homes sales were expected to decrease through the second half of 2021. That is exactly what has happened and while we have gone through a correction we have come down to much more sustainable growth levels (see graph below). With detached home sales decreasing, condos have become more affordable taking up a larger share of the market once again as first-time homebuyers are finding better affordability in this segment. The decrease in home sales and the move to the condo segment is a result of the tighter stress test rules, which will be a short-term deterrent for home sales but in the long-term return a stronger housing market with plenty of opportunities for all. 

Even though home sales are slowing, it doesn’t mean you should miss out on owning your dream home. With higher borrowing rates and tighter stress test rules TD Economics forecasts that home sales will remain healthy and elevated through to 2022, leaving you with plenty of buying opportunities.

While the pandemic has been a damper on our lives, there are some positives that have come out of it, such as Canadian household debt slowly declining and Canadians increasing their savings stockpile. Canadians are estimated to have saved over $240 billion in the last eighteen months which they are now funnelling into down payments. This excess stockpile of savings will help home buyers get their new home, pay down debt and help spur our economic recovery.

Downsizing Home Prices

As mentioned above, condo sales have started to rebound due to the economy starting to reopen and workers returning to the office thus increasing the attractiveness of urban centres. This transition away from detached homes to the more affordable condos segment has put downward pressure on the average home price putting us back into equilibrium and restraining aggressive price growth. The drop in home prices during the second quarter of 2021 can be seen in the graph below. With a large supply of condos compared to detached homes and their relative affordability for first-time homebuyers, condos will continue to make up ground in the housing market. This in turn will help keep downward pressure on the average home price and may even reverse what happened at the start of the pandemic when expensive detached homes dominated the market. This is a positive for first-time buyers as the dollar amount required for a 20% down payment will be much less.

Canada is an extremely diverse country in terms of population but also economically and when it comes to the housing market. That’s why it’s important to do your research in your particular market. For example, in Alberta, the average increase in home price year-to-date is 6.7% whereas in New Brunswick, it’s 16.4% and some regions can have higher demand and supply causing differences in sales, affordability and price growth. So, depending on the market you’re living in or want to live in, it’s best to do your research.

To better understand the housing market in your region, reach out to a knowledgeable Pineapple mortgage agent. 

At Pineapple, we view the market from a holistic perspective, partnering with many lenders (including the big banks) in order to provide exceptional service, find the best rates for our clients and remove the stress from finding your dream home. Our specially trained mortgage specialists operate with a high degree of knowledge and transparency. Pineapple’s mission is to ensure you find the right mortgage product, and the right mortgage volume, empowering you to confidently enter homeownership.

If you’re a first-time homebuyer visit our First-Time Home Buyers page to get the process started or if you’re a current homeowner visit our Current Homeowner page to better understand your options for unlocking the equity in your home or ways to lock in a better rate.

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