by Brandon Fausto – Financial Analyst at Buckley Mortgage Broker
With an environment that has seen a large change in real estate pricing and mortgage rates,
what might buyers see in the second half of 2022? Here’s what an Ontario-based mortgage
broker has to say.
First Off, Let’s Recap
At the beginning of the year, we saw lenders raising rates at a historically fast pace. On July
14th we saw Scotiabank raise its prime lending rate by a full 1%, in a single rate change. This
comes alongside raised rates from central banks as they try to control all this inflation we are
seeing in our economy.
In real estate, this means that we are seeing increases in the rate of interest that borrowers are
having to pay for their mortgages. This has led to a decrease in sales volume, with markets
such as Toronto seeing their lowest sales volume since January.
Another trend we are seeing in the market is an increased supply of available housing. It seems
likely that the increased rates correlate to the number of available units for sale, likely due to
some combination of selling pressure and fewer buyers.
It certainly appears to be that the market is in favour of the buyer now, with cheaper prices,
more supply, and average time on the market going up broadly for many municipalities.
Where Might Mortgage Rates Go?
With the Jackson Hole meeting only several weeks behind us, the message remains fresh in our heads. The central bank of the U.S. says that rates will continue to rise, with large moves still being considered, in fact, they are likely.
Canada tends to follow suit although not always in equal proportion, in general, it seems likely the Canadian Central Bank continues to raise rates. This means that it is reasonable to expect lenders to continue raising their rates, as the cost of borrowing goes up.
The value that a mortgage broker may deliver to buyers goes up in markets like this. Comparing and finding the best rates available might make a noticeable difference to the buyer’s monthly payment and save them money in the long run.
The Good News
As we mentioned, it certainly seems like a buyers’ market. With greater supply and fewer buyers, prices have broadly been driven down. Buyers even have the ability to vet their options and place reasonable bids due to the current supply of available housing and the average time on the market for each unit. This means more confidence in the buyer’s purchase
Even though rates have risen, there is still some good news to be had. First, your monthly
payment might actually be cheaper. Across a variety of municipalities, it seems common to have prices which have dropped 20-30%. Using the Y-charts Canada Prime Rate chart as an
example, their July rate hike brought them to 4.7%, whereas back in May it was 3.2%. Here’s an example of how this would affect monthly payments:
House 1 sold in Toronto back in May and went for $1,250,000 at the prime +1 rate which would
have been 4.2%. This leads to a $6,711.48 monthly mortgage payment.
House 2 also sells in Toronto but now it’s going for $1,025,000 and the mortgage rate would
now be 5.7%. This leads to a $6,376.36 monthly mortgage payment.
The above is just an example, but those are the actual average selling prices of houses in
Toronto — which were pulled from Zolo statistics. You can see that despite all the fuss of
increasing rates, the broad decline in prices has outstripped this and it is possible to find more
affordable monthly payments today, compared to just a few months ago.
The key to remember is that rates are not forever. In fact, when you renew 1-5 years from now,
the odds of getting the same rates are slim. Regardless of how well you time the market now, it
is almost impossible to predict what the next renewal has in store for you.
To wrap it up, here are the quick takeaways:
1. There is a significant increase in the supply of housing — its buyer’s choice now
2. Rates will likely continue to rise for the remainder of 2022
3. Housing prices have broadly seen a significant decrease
4. Cheaper prices may have overcompensated for increased rates in the market, especially
when you consider monthly payments
5. The rate you sign up for today might not be the same rate you sign up for when you
renew, so timing the market might not be the most important factor
Keep that in mind when you look back at house prices and hear about increases in mortgage
rates. I hope this adds some perspective about what really matters, your bottom line, and
getting a house you will love.