What the Tiff?
Mr. Macklem has continued his assault on interest rates and with it the Canadian Housing market. Wednesday's announcement of another 50 basis point increase to the overnight rate has now brought it to a new high of 4.25% (with prime rates now reaching 6.45%). The impact; higher monthly payments for variable rate holders, more difficulty qualifying on a debt servicing basis and some unhappy Canadians. This has left many Canadians wondering, what the Tiff!?
But is Stiff Tiff leading us to a housing collapse? We think not. The doomsday sayers out there are failing to take into account that those that purchased on variable rates during the peak, qualified at an elevated (stress test) rate. Those that locked into fixed, do not need to renew for 2-4 years. Those that do need to renew were already paying pre-
covid rates, have built equity and are not in line for a large increase upon renewal. Heck, Quest mortgage is currently offering insured mortgages in the range of 4.69%! That is a far cry from the 20% we saw in the early 80's and less than the stress test rate of 5.25% (or higher). The group most at risk are the new home construction speculators, but even in their case, the majority of builders have required 20% deposits providing for significant wiggle room on a loan to value basis.
Will the housing market be like what it was last March, no. But make no mistake, the need for housing still far outpaces our supply. We may not be at the bottom just yet, but with the rate hike cycle coming to an end (or maybe already there) we are very close to it.
Our opinions are derived from on our experience in the industry, market data and the opinions of our banking partners. Interested in discussing further, reach out to our team here!