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George Fallis: Housing affordability is not in crisis
Core housing need has actually been falling over the past 20 years
In recent years, the news media have declared a “housing affordability crisis.” House prices were soaring in most cities, rising far faster than incomes. At one stage earlier this year, rents in the Greater Toronto Area were up 20 per cent year-over-year. But what do these data really tell us about the affordability problems faced by Canadians?
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Core housing need has actually been falling over the past 20 years
In recent years, the news media have declared a “housing affordability crisis.” House prices were soaring in most cities, rising far faster than incomes. At one stage earlier this year, rents in the Greater Toronto Area were up 20 per cent year-over-year. But what do these data really tell us about the affordability problems faced by Canadians?
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“Rents in the GTA are up 20 per cent” makes us think all renters faced a 20 per cent hike. But that’s not true. The 20 per cent increase applies only on units advertised for rent (on Realtor.ca). But they are a tiny share of all rental units. Most rental units in Ontario are regulated and the guideline increase is 1.2 per cent this year and 2.5 per cent next. The vast majority of GTA renters will therefore have a rent increase well below the rate of inflation. The households that do face big increases are those wanting to move and those just coming into the rental market — immigrants, refugees and post-secondary students, for example.
Same story for owners: until recently, house prices were rising dramatically and the income needed to buy the average house kept rising (even though mortgage interest rates had been falling). But was housing affordability for most owners getting worse? Absolutely not. As prices rose, existing homeowners paid no more for their housing; indeed, they got better off because the value of their home rose and their equity in it grew. Only those trying to enter the ownership market — the would-be first-time home-buyer — faced an affordability problem.
In brief, over the past five years, most renters have faced modest rent increases and most owners have become better off. Is this really the stuff of a housing affordability crisis? Could it be the media are more interested in bold headlines and clicks than in analysis?
Canada Mortgage and Housing Corporation (CMHC) seems to have wandered off in this direction, too. In June, it issued a report estimating “what is needed to solve Canada’s housing affordability crisis.” But the only indicator of housing affordability it used was shelter cost as a share of disposable income when the average household buys the average house. As we’ve seen, this is a good indicator of the problems faced by first-time home-buyers but it tells us little about existing owners and nothing about the affordability problems of renters. Even so, CMHC declared a housing affordability crisis and concluded “there must be a drastic transformation of the housing sector” — which is strange because just a few years ago it said “Canada has one of the best housing systems in the world.”
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Same story for owners: until recently, house prices were rising dramatically and the income needed to buy the average house kept rising (even though mortgage interest rates had been falling). But was housing affordability for most owners getting worse? Absolutely not. As prices rose, existing homeowners paid no more for their housing; indeed, they got better off because the value of their home rose and their equity in it grew. Only those trying to enter the ownership market — the would-be first-time home-buyer — faced an affordability problem.
In brief, over the past five years, most renters have faced modest rent increases and most owners have become better off. Is this really the stuff of a housing affordability crisis? Could it be the media are more interested in bold headlines and clicks than in analysis?
Canada Mortgage and Housing Corporation (CMHC) seems to have wandered off in this direction, too. In June, it issued a report estimating “what is needed to solve Canada’s housing affordability crisis.” But the only indicator of housing affordability it used was shelter cost as a share of disposable income when the average household buys the average house. As we’ve seen, this is a good indicator of the problems faced by first-time home-buyers but it tells us little about existing owners and nothing about the affordability problems of renters. Even so, CMHC declared a housing affordability crisis and concluded “there must be a drastic transformation of the housing sector” — which is strange because just a few years ago it said “Canada has one of the best housing systems in the world.”
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750,000 Canadian Mortgages at Risk of Rising Trigger Rate Payments This Fall
Canadians have seen rent, food and gas prices soar in the past year, and now hundreds of thousands of households can expect another hit: rising monthly mortgage payments.
Many borrowers who took out variable-rate mortgages during the height of the housing market frenzy in 2021 and early 2022 could face higher payments next month — or even the need for a lump-sum payment on their mortgages.
The vast majority of variable-rate mortgages have fixed monthly payments, but soaring interest rates mean many of them will likely hit their “trigger rates” this fall, forcing an increase in payments.
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Canadians have seen rent, food and gas prices soar in the past year, and now hundreds of thousands of households can expect another hit: rising monthly mortgage payments.
Many borrowers who took out variable-rate mortgages during the height of the housing market frenzy in 2021 and early 2022 could face higher payments next month — or even the need for a lump-sum payment on their mortgages.
The vast majority of variable-rate mortgages have fixed monthly payments, but soaring interest rates mean many of them will likely hit their “trigger rates” this fall, forcing an increase in payments.
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Around 15% of the mortgages in Canada are in this group, according to an estimate from Ben Rabidoux, a prominent housing market analyst. That amounts to around 750,000 mortgages.
A “trigger rate” is the point at which interest payments eat up all of a monthly mortgage payment, and the borrower is no longer paying down the principal they borrowed — something that’s not allowed under Canadian lending rules.
This means borrowers will be contacted by their lender and, typically, given the option to either increase their monthly payment, or make a lump sum payment against their mortgage to lower the amount owing.
Depending on their mortgage, borrowers may also have the option to switch to a fixed-rate mortgage – though Rabidoux and others warn there’s a chance borrowers could end up locking themselves in at unnecessarily high rates.
Canadians took out $260B-worth of variable-rate mortgages between March 2021 and February 2022, at a rock-bottom average interest rate of 1.58%, Rabidoux noted in a Twitter thread.
The “average” of these mortgages will hit their trigger rate if the Bank of Canada (BoC) raises its key lending rate by just one more percentage point, or 100 basis points in the language of the financial industry, said Rabidoux, founder of North Cove Advisors and Edge Realty Analytics.
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A “trigger rate” is the point at which interest payments eat up all of a monthly mortgage payment, and the borrower is no longer paying down the principal they borrowed — something that’s not allowed under Canadian lending rules.
This means borrowers will be contacted by their lender and, typically, given the option to either increase their monthly payment, or make a lump sum payment against their mortgage to lower the amount owing.
Depending on their mortgage, borrowers may also have the option to switch to a fixed-rate mortgage – though Rabidoux and others warn there’s a chance borrowers could end up locking themselves in at unnecessarily high rates.
Canadians took out $260B-worth of variable-rate mortgages between March 2021 and February 2022, at a rock-bottom average interest rate of 1.58%, Rabidoux noted in a Twitter thread.
The “average” of these mortgages will hit their trigger rate if the Bank of Canada (BoC) raises its key lending rate by just one more percentage point, or 100 basis points in the language of the financial industry, said Rabidoux, founder of North Cove Advisors and Edge Realty Analytics.
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Market Watch Infographic-August 2022
In August 2022, the Average Price of Homes sold across Canada was $1,079,500, Up 0.9% in comparison to August 2021.
Please call us if you need any of below services for Buyers and Sellers:
- Loans with the lowest interest rates available in the market ( First, Second, Third Mortgages)
- Free evaluation of your home Home Evaluation
- Finding your dream home according to location and budget
- Obtaining complete market information in order to make the right decision when buying or selling a house/condo
We have special services for:
- First Time Home Buyers
- Newcomers to Canada
- Non-Residents of Canada
- Investment Property
- Renovation Services
☎️ You can contact us via Phone or Email:
+1 (647) 772-9502
hoizady@yahoo.com
.
In August 2022, the Average Price of Homes sold across Canada was $1,079,500, Up 0.9% in comparison to August 2021.
Please call us if you need any of below services for Buyers and Sellers:
- Loans with the lowest interest rates available in the market ( First, Second, Third Mortgages)
- Free evaluation of your home Home Evaluation
- Finding your dream home according to location and budget
- Obtaining complete market information in order to make the right decision when buying or selling a house/condo
We have special services for:
- First Time Home Buyers
- Newcomers to Canada
- Non-Residents of Canada
- Investment Property
- Renovation Services
☎️ You can contact us via Phone or Email:
+1 (647) 772-9502
hoizady@yahoo.com
.