Housing affordability: Significant deterioration in Q3 2023
From National Bank of Canada
The third quarter of 2023 witnessed a considerable deterioration for housing affordability in Canada. This degradation follows three consecutive quarters of improvements and deletes nearly two thirds of the progress that had been made so far. The worsening was widespread with every single market experiencing an increase in their mortgage payment as a percentage of income (MPPI). At the national level the deterioration stemmed from a surge in home prices of 4.6%, the largest in 6 quarters and partially erasing the decline over the last year. A rebound in home prices during a period of rising interest rates could initially appear perplexing. That said, a chronic lack of supply in the resale market compounded by record population growth has allowed prices to rise. Also contributing to lessening affordability, mortgage interest rates rose 32 basis points in the quarter, more than eliminating the two prior declines. While still rising income was a partial offset in the third quarter, it did little to assuage the situation. Looking ahead, we see a moribund outlook for affordability. At the very least, a further worsening is in the cards for the last quarter of the year. Mortgage interest rates have steadily trended up in October on the back of rising longer-term interest rates. If interest rates hold at their current level, it would only take a home price increase of 2% in the fourth quarter to surpass the worst level of affordability in a generation. The outlook remains particularly challenging for first-time homebuyers.
Canadian housing affordability posted a worsening in Q323 following three consecutive improvements. The mortgage payment on a representative home as a percentage of income (MPPI) rose 4.0 points, more than erasing the previous pullback of 1.6-points in Q223. Seasonally adjusted home prices increased 4.6% in Q323 from Q223; the benchmark mortgage rate (5-year term) surged 32 bps, while median household income rose 1.2%.
Affordability deteriorated in all of the ten markets covered in Q3. On a sliding scale of markets from worst deterioration to least: Vancouver, Toronto, Victoria, Hamilton, Calgary, Montreal, Quebec, Ottawa-Gatineau, Winnipeg, and Edmonton. Countrywide, affordability worsened 2.5 pp in the condo portion vs. a 4.5 pp degradation in the non-condo segment.
Mortgage Transfer Qualifying Policy Changes
POST - During the latter part of October, 2023 the Canadian Mortgage Insurers (CMHC, Sagen Canada Guaranty) changed their policies regarding Mortgage Switches/Transfers in accordance to the Federal B-20 Guidelines. The change and enhancements have come to great delight with the Mortgage Broker Industry.
Effective immediately, mortgage lenders are able to qualify insured transfers and insured collateral transfers using the contract rate. Naturally, there are some conditions to this and are they are listed below:
Must be a transfer of an existing insured mortgage where the borrower paid the default insurance premium.
The amortization cannot increase and must stay consistent with the original terms of the mortgage
No more than $3,000 in penalty and/or fees can be capped (added) onto the mortgage at the time of the transfer
Insurable and Uninsurable Transfers will continue to be qualified on the higher of the minimum qualifying rate or the contract rate plus 2%.
What does all this mean you ask? It means that if your mortgage is maturing and was originally insured by one of the Canadian Mortgage Insurers and you paid the insurance premium yourself or was added to the mortgage at the time, you may transfer your maturing mortgage from one lender to another and qualify based on the new contract rate being given by the new lender.
This will enable borrowers to explore their product and rate options leading into their mortgage maturing and improve the ability to qualify for the transfer to get that better product and/or rate moving forward. Up until now, many borrowers have been unable to do a transfer as they were forced to qualify at the new rate plus 2% and with rate increases, this was becoming more and more difficult to accomplish.
This change opens up the door for more Canadian Homeowners to capture a better mortgage structure and cost options so please ensure you explore your options well ahead of your mortgage maturing.
As a Licensed Mortgage Broker, I am armed with numerous lender, product and rate choices to provide you during this exercise.
Financial Literacy Month 2023
November is Financial Literacy Month across Canada and a great time to stop and take stock in our current finances, our management and payment of our current debt and what we can do to optimize our financial health among other important checks and analysis.
A critical aspect of our lives is to learn, understand and practice financial literacy so we can live our life as stress free as possible financially while ensuring we are doing the right things to prepare for a comfortable future. As the years have progressed, governments have and continue to take steps that are generating an uneasiness with our financial future. Even companies have ceased providing the wonderful pension plans of yesteryear so we must take it upon ourselves to do the right things to ensure a comfortable retirement in our later years.
Throughout the month, the Financial Consumer Agency of Canada (FCAC) and other organizations will be sharing resources focused at assisting Canadians to further understand our finances and empower us to:
* Manage our money and debt wisely
* Save for the future
* Understand our financial rights
This years campaign theme is Managing Your Money in a Changing World that anchors our continued complex and constantly changing financial environment and the importance of checking up on our financial health.
Lets take some time to check-in with our financial position of both debt and savings to determine where we are at presently, where we would like to go and how to get there.
Available Resource Material
Financial Literacy Month 2023
National Financial Literacy Strategy 2021 to 2026
Canadian Foundation for Economic Education
Credit Counselling Society