Welcome to my blog on housing, culture and design in Toronto, Ontario, Canada. I’m Steven Fudge, and I’ve been guiding Buyers & Sellers through the real estate process in Toronto, Ontario, Canada, for 35 years.
With the Toronto real estate market in flux, property owners who bought as long ago as 2018 have incurred losses after selling their properties this year. Despite Toronto real estate escalating in value significantly for 2 decades – when the Bank of Canada began increasing interest rates in March 2022 through July 2023 by 475 basis points – the impact blindsided a lot of property owners – particularly homeowners with variable rate mortgages who saw their monthly payments skyrocket and pre-construction condo buyers who discovered the appraised value of their soon-to-be-completd unit was substantially less than the original purchase price obliging them to increase their down payment or forfeit their purchase. Furthermore, people who took advantage of the low interest rates on their HELOCs to upgrade their dwellings now owe more money on a property that, in most instances, would garner a lower price. As the higher interest rates fueled declines in property values, the costs associated with buying and selling real estate remain substantial, resulting in an increasing segment of property owners incurring financial duress of losses.
There is no hard and fast rule, but the general consensus pre-pandemic was one should hold on to a property for at least seven years to break even. beyond turning a profit, accounting for the impact of real estate variables: property values and borrowing costs.
Prices have varied significantly over the last several years, in some locations and for some property types. Some homebuyers may have seen the asset value of their home drop, depending on what point in the market they purchased.
This underscores that although the skyrocketing housing values in Toronto real estate over the last decade+ might indicate otherwise on the surface, real estate is a buy-and-hold investment to realize gains, which I discuss in this post: Dear Urbaneer: How Much Profit Should I Expect Climbing The Property Ladder?
It would be best if you had time for the market to absorb the shocks, ebbs and flows in value, and interest rate fluctuations. The greater the amount of financing you have against your property, the more sensitive you are to rising interest rates, which is something that first-time buyers, in particular, have been experiencing over the last few years.
For all Buyers, higher interest rates, along with softer property prices, purchasing power, and slower asset growth have been impactful.
So, what’s a dwell hunter to do?
Interest Rates Drop In Time For Holiday Shopping Spree
Just when you were resigned to having to give your kids coal for Christmas (and then ‘borrow’ it so you could keep the furnace firing), the “Bank Of Canada Cut Key Interest Rate To 3.25%” yesterday, on the heels of the BoC’s 50 basis point reduction in October with what some call a “jumbo” cut, the most significant in years.
Inflation floated close to the 2 percent target and slowed the economy. The objective of raising interest rates was to bring inflation down – which has happened – giving the BOC a little more latitude to shift attention to economic growth.
Meanwhile, the economy is slowing and in need of an injection of monetary policy, according to pundits and analysts, supporting the theory that homeowners may get a little more bang for their buck now that interest rates have been cut further.
Changes To Mortgage Amortization & Maximum Purchase Price For Insured Mortgages With Less Than 20% Down
Meanwhile, as of December 15, all first-time home buyers in Canada will be able to choose a mortgage amortization period to a maximum of 30 years from the previous maximum of 25 years, regardless of whether their mortgage is insured or uninsured, which will allow Buyers to qualify for higher sums and/or have lower mortgage payments (albeit for a longer period). (- Canada.ca )
Furthermore – and this is a game-changer – the maximum purchase price for insured mortgages will also be increased from the current $1,000,000 to $1,500,000 for all high-ratio borrowers, including first-time home buyers.
These policy changes will increase the number of property options available for high-earning Buyers, particularly in urban centres like Toronto and Vancouver, where a freehold dwelling costing $1,000,000 may require significant capital injection because it is predominantly land value.
What Will This Mean In The Market?
The consensus is that these mortgage changes, coupled with the interest rate cuts, will invigorate the market, at least in the short term, as previously sidelined Buyers might have the tools they need to climb on or up the property ladder.
However, there is always the concern that when money becomes cheaper to borrow, demand naturally follows, which could send property values up, making it harder for said buyers to buy a home.
But there is no question that these amortization changes will increase purchase power. This Real Estate Magazine article predicts that the changes could boost buying power up to 12 percent for some Buyers: “New Mortgage Rules Set To Spur Market Recovery, But Impact May Be Short-Lived.”
As this article points out, while changes around borrowing are helpful for first-timers, the real solution to easing the housing affordability crisis comes with creating more supply, particularly in the missing middle- in short, creating supply that the end user wants and needs.
These articles provide good background on the mortgage changes: “Mortgage Rule Changes to Add Fuel to Canadian Housing Recovery,” “New 30-Year Mortgage, Down Payment Rules Stoke Fears Of Rising Home Prices“, “Mortgage Changes: Cheaper Entry Into Housing Market At Steeper Costs“ and “TRREB Applauds Federal Government Mortgage Reforms“.
Are you a Buyer, ready to move forward in your Dwell Hunt in light of these policy changes? Or are you a Seller anticipating that now might be the time to take advantage of an uptick in demand?
With decades of experience helping Buyers and Sellers of all kinds navigate the Toronto real estate market I am here to help!
If you found this post helpful, these other articles on Urbaneer.com may offer you further insights and guidance:
What’s Trending In Toronto Real Estate?
The Not-So-Unbelievable(?) During A Shifting Toronto Real Estate Market
Dear Urbaneer: Has The Toronto Real Estate Market Gone SLO MO?
It’s A Different Toronto Real Estate Market, Folks!
Dear Urbaneer: A Question About Letters Of Opinion And Estimating Fair Market Value
Over A Recent 90 Day Period, We Discovered 1 In 4 Sellers Of Downtown Toronto Lofts Lost Money
Dear Urbaneer: Which Property Owners Are Selling Their Toronto Real Estate Now In 2023?
Dear Urbaneer: Who Is Buying Toronto Real Estate In 2023?
Interest Rates And The Toronto Real Estate Market
Want to have someone on your side?
Since 1989, I’ve steered my career through a real estate market crash and burn; survived a slow painful cross-country recession; completed an M.E.S. graduate degree from York University called ‘Planning Housing Environments’; executed the concept, sales & marketing of multiple new condo and vintage loft conversions; and guided hundreds of clients through the purchase and sale of hundreds of freehold and condominium dwellings across the original City of Toronto. From a gritty port industrial city into a glittering post-industrial global centre, I’ve navigated the ebbs and flows of a property market as a consistent Top Producer. And I remain as passionate about it today as when I started.
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Serving first and second-time Buyers, relocations, renovators, and those building their long-term property portfolios, our mandate is to help clients choose the property that will realize the highest future return on their investment while ensuring the property best serves their practical needs and their dream of “Home” during their ownership.
Are you considering selling? We welcome providing you with a comprehensive assessment free of charge, including determining your Buyer profile, ways to optimize your return on investment, and tailoring the listing process to suit your circumstances. Check out How Urbaneer Sold An East York Bungalow ‘Estate Sale’ For Redevelopment to learn more about what we do!
Consider letting the Urbaneer Team guide you through your Buying or Selling process, without pressure, or hassle.
The pleasure would be ours.
Thanks for reading!
-The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage – (416) 322-800
– we’re here to earn your trust, then your business –
Celebrating Thirty-Five Years As A Top-Producing Toronto Realtor
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