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Over the summer months, we’ve seen a consistent rise in interest rates with every Bank of Canada announcement, followed by a drop in sales and a cooling in pricing.

With fall quickly approaching, we wanted to provide you with a quick market update and then outline all the opportunities that will help get you positioned to increase your revenue stream even as things start to slow down.

Interest Rate Update

Update On Pricing

Is the Sky Falling Now?

You may be hearing the words “historic” housing correction but don’t be fooled. It’s just a correction off of the ultra highs in February, which was not a normal month – peaking at $816,720 up 20.6% Year over Year (YoY). 

We are expecting a decline from these numbers – but Year End (YE) growth for 2022 is still projected to be positive.

  • TRREB – average price in July up 1.2% YoY, HPI up 13% YoY, 12-month moving average projecting upwards. 
  • National – RBC projects prices will continue to fall in most markets, but overall price growth will still be positive by YE. 

Update on Sales

Is the Sky Falling Now?

Sales have started to slide in most markets. The city of Toronto dropped 7.3% in July MoM and 13% since April. RBC bank is expecting sales to slump 23 percent this year and 15 percent next year.

Is this a major concern? Not necessarily. Expect a slowdown in sales to persist into the winter market but we’ll see a return to pre-pandemic levels by the end of the year.

  • TREBB 12-month moving average shows no seasonal variations or irregular fluctuations when compared historically.

What Else can we Expect to see?

Market in Transition

Fixed rates peaked in June, and we’ve recently seen a drop off back to the mid-4% range for fixed rates. As buyers adjust to the new lending landscape and rates start to stabilize more, consumer sentiment will shift. 

A similar situation happened in 2019 after the 2017 crash. Buyers who sat on the sidelines eventually adjusted to the stricter lending requirements causing sales and prices to rise again in May 2019.

Issues to Continue on Affordability

As variable rates rise as of posting, we are seeing a 1% difference between the fixed and variable rates, which is expected to tighten with the next BoC announcement. 

Even with fixed rates dropping, pushing the stress test down to 6% from 8%, qualification will still be challenging for some, especially first-time homebuyers.

Fortunately, there are alternative mortgage options available to help improve debt qualification and make monthly payments lower. We can help!

Fact vs. Fiction – What Might You Hear in the news? 

Investors Rushing To Sell Off

  • Fact – Savvy investors are gearing up to buy not sell-off.
  • Short-term and inexperienced investors who bought on the upswing are feeling the pain. When these investors sell, more opportunity opens up for long-term investors, move-up buyers, and even first-time homebuyers.

Toronto Developers are Delaying Launching 10,000 Units

  • Fact – Developers Increased New Launches by 63% this Year Already.
  • The reality is Ontario and BC investors have started to look at more favourable markets during the rate hikes. Opportunities still exist however in pre-construction condos. A big benefit for first-time homebuyers and less experienced investors.

What to Know – Debt is Rising

Credit card and HELOC debt have crept up this year with each rate announcement.

It’s flipped for deposits, with people saving less than they did during the pandemic.

Debt heavily impacts mortgage qualification so it’s important to have your clients undergo a mortgage pre-qualification to ensure that their debt load does not impact their purchasing power.

Where Could You be Focusing?

Helping to set the right mindset

Most people are worried and consumer sentiment is low right now. The best thing you can do is ensure your clients know about the effects of the rate hikes and position yourself as the expert with accurate information. 

  • You can also help by reframing the language you use. Try “future opportunity or value correction” vs. “drop or crash”
  • Focus on the positives – how much equity they have built up in their home, how much more their home is worth today vs. 5 years ago.

Long-term Goals vs. Short-term Wins

There is a life cycle to buying, let’s get them mentally prepared. Remind them that they are also purchasing in the same landscape as they are selling but with less competition right now. Remember, appreciation will outstrip any losses in the long term. 

  • If they can’t sell today, explain how other opportunities could help them sell faster in the future, like adding a basement rental unit.
  • If they can’t buy today, reassess how much house they can actually afford with a mortgage broker and/or look at an equity play today.

Fall Opportunities and Considerations

  • Focus on move-up buyers and savvy investors by connecting with your existing database.
  • Get clients into the sales funnel by discussing how has the rates impacted their personal finances, and retirement goals. etc.
  • Discuss with your clients the benefit of selling first so they can budget accordingly if prices drop.
  • Discuss the benefit of taking a lower price when purchasing today vs waiting it out
  • Explain why waiting for lower rates can backfire. More buyers = more competition = higher prices.
  • Discuss the strategies available to increase borrowing power and improve qualification

Your mortgage professional can run numbers for you, and help you identify the opportunities available. 

How we can Help

  • We lock them in and guarantee them the lowest rate.
  • We prepare them for unexpected changes on the lender side.
  • We are helping Realtors support their business by providing updates on market conditions and rates.
  • We shift your seller’s and buyers’ mindset to an “opportunity” mindset.
  • We look at Non-B20 compliant options to qualify on contract rate vs. the stress test.
  • We look at alternative options to increase borrowing power and lower payments.
  • We look at all appraisal options to reduce appraisal shock.
  • We look at cash-back mortgage options for immediate cash upfront.
  • We focus on short-term loan options so they can switch to a lower rate with a minimal penalty when rates drop.
  • We focus on their budget to ensure they can afford it.
  • We focus on prepayment privileges to reduce overall borrowing costs.
  • We focus on hedging strategies to reduce any future rate shock by lowering their overall mortgage amount by renewal time.

Questions? I’m happy to answer all of your questions and/or set up a presentation for your brokerage and/or clients as well.