Variable Rate Mortgages Take a Nosedive and 43% of First-Time Homebuyers Think it’s a Good Time to Buy

This week’s top real estate stories.

By  Jared Lindzon | 2 minute read

Every Friday, Wahi brings you the most important real estate stories from the past week.

Variable and Five-Year Fixed Terms are Nearing Extinction  

The variable rate mortgage — once king of the Canadian mortgage jungle — is rapidly nearing extinction thanks to higher interest rates. During its January 2022 peak, variable was the mortgage structure of choice for 57% of borrowers, but as of April, that’s down to just 8%, according to Canadian Mortgage Trends — a level not seen since before non-virologists could spell the word “coronavirus.” The data also suggests borrowers are opting for shorter fixed terms, with 39% taking three years or less, 41% opting for a three- or four-year term, and just 12% locking in rates for the traditional 5-year term.   

Ontario Rents Are Through the Roof (Which Probably Also Needs Repairs)

Ontario’s affordability crisis is hardly breaking news, but new data paints a grim picture of just how expensive the province has become. According to the Canadian Rental Housing Index rental costs increased 27% between 2016 and 2021, second only to B.C.’s 30%. According to the study Ontario tops the country with 1.7 million rental households, each spending an average $1,406 monthly on rent and utilities. Most concerningly, 38% are spending more than 30% of their income on housing, while 15% are spending more than half. Furthermore, 13% of households in the province qualify as overcrowded and 8% need “major repairs.”

After a Warm Spring Comes a Chilly Summer   

As the roller coaster that is Canada’s housing market rolls on, experts believe we’re witnessing one last rush before the brakes are applied. According to the latest Canadian Real Estate Association data sales climbed 5.1% in May over the previous month, while prices climbed 2.1%, and it’s likely those both will continue to rise in June thanks to a 6.8% increase in listings. The recent interest rate hike — and the prospect of more in the months ahead — however, has economists at RBC, Scotiabank and BMO predicting a slowdown in both price increases and activity by midsummer.     

Experts and Regulators Fearful of Housing Market’s Future  

Canada’s economy feels like the early scenes of a disaster movie, where people are blissfully oblivious to the ominous warning signs all around them. Like birds suddenly falling from the sky or a mysterious substance found in some far-flung corner of the planet, experts are warning of trouble on the horizon. This week those signs came in the form of statements from CMHC’s president Romy Bowers, who warned of the risks of extending amortizations and changing requirements for insured mortgages. Meanwhile, Canada’s banking regulator raised the amount of capital institutions need to keep on hand fearing vulnerability to sudden economic shocks. 

First-Time Homebuyers Remain Optimistic — Somehow  

Whether by optimism or naivety, first-time and prospective homebuyers have not been discouraged by sky-high prices, interest rates, and economic uncertainty. According to a survey 43% actually believe it’s a “good” time to buy a home, with 14% going a step further, suggesting it’s a “very good” time to buy. On the flip side, just 27% of Canadian homebuying newbies feel it’s a “bad time” to enter the housing market. By comparison, only 13% of the general population agrees it’s a “good” time to buy, and just 2% add the word “very,” with half rating the current market “bad.”