Canada’s real estate market is currently facing a potential crisis due to the increase in fixed mortgage rate renewals. This situation is expected to impact about 20% of Canadian mortgages up for renewal in the next year, putting many borrowers in tough situations1. The Bank of Canada has even predicted that the average increase in payments at renewal for fixed-rate mortgages will hit its peak in 2025 and 20262.
The looming rise in mortgage rates threatens to upset the balance of the real estate market, with potential effects on both market inventory and prices.
Rising Mortgage Rates and Homeownership
Homeowners who are currently enjoying low monthly payments due to fixed rates may face a shock upon renewal3. A study from the non-profit Angus Reid Institute reveals that three-in-ten homebuyers are having a difficult time with their mortgage4. As rates increase, this number is expected to grow, potentially leading to an increase in homeowners defaulting on their mortgages.
The Financial Post advises homeowners whose mortgages are up for renewal within the next year to hold a rate with a new lender now5. However, this might not be an option for everyone and could result in an increase in homes being put up for sale as homeowners struggle to meet their higher mortgage payments.
Impact on Market Inventory
Rising mortgage rates may lead to an increase in housing inventory as homeowners decide to sell their properties to avoid defaulting on their loans. This could result in an oversupply of houses in the market, which would typically cause house prices to drop.
However, it’s important to note that approximately half of all mortgages in Canada are set to renew in 2025 or 2026. This mass renewal, combined with higher interest rates, could lead to a sudden influx of properties on the market. The surge in inventory could potentially destabilize the market, leading to unpredictable price fluctuations.
Effect on Housing Prices
The increase in mortgage rates is likely to have a significant impact on housing prices. If a large number of homeowners decide to sell their properties due to increased mortgage payments, this could cause an oversupply in the market, leading to a decrease in house prices.
Conversely, if the Bank of Canada continues to hike rates, it could deter potential buyers, decreasing demand and further driving down prices. With four million Canadian mortgages due to renew by 2026, many borrowers are contending with higher interest rates for the first time6, which could lead to a decrease in demand as potential buyers are priced out of the market.
The potential real estate crisis due to the increase in fixed mortgage rate renewals presents a complex situation for the Canadian real estate market. The potential increase in market inventory and fluctuating housing prices could significantly impact both homeowners and potential buyers.
While it’s impossible to predict the exact outcome, it’s clear that the impending mortgage renewals will have a significant impact on the Canadian real estate market. As homeowners and potential buyers navigate these uncertain times, it’s crucial to stay informed and make decisions based on careful consideration of the changing market dynamics.
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