Mortgage loan pressure surges, Toronto housing prices hit a ten-year high, indicating a sharp decline in housing prices
According to Reuters, Canadian homeowners are facing a sharp increase in mortgage payments, and many are now deciding to give up, leading to the highest number of listings in Toronto in over a decade, signaling a significant drop in housing prices in the coming months.
Data shows that two-thirds of the unsold apartments in the country are located in Toronto, becoming a barometer for other major cities. The inventory in multiple cities has exceeded its peak from ten years ago, while sales are lagging behind.
Real estate consultants say that the increase in inventory but weak sales indicate significant market pressure, which suggests a series of defaults or price corrections are imminent.
The surge in housing supply is driven by homeowners and investors who purchased homes and apartments at low interest rates five years ago, who originally wanted to get a share of Toronto's profitable rental market.
However, these mortgage loans are now facing a completely different interest rate environment when renewing. Although the Bank of Canada has recently started guiding interest rate cuts, mortgage rates remain high.
In Canada, mortgage loans are typically 25 years with renewals every three to five years, while in the United States, homeowners can enjoy fixed interest rates during a 15- or 30-year mortgage period.
According to the comparison mortgage website ratehub.ca, many homeowners' loan payments will double at current interest rates.
Next year, approximately 300 billion yuan of bank mortgage loans will expire and renew.
Some are investors who just want to give up now because they can't afford it, "said Carl Gomez, chief economist of CoStar Group, a US based real estate information provider.
Meanwhile, many people are also unwilling to lower their asking prices and incur losses on their investments, at least for now.
Almost no one is willing to lose money, "said Daniel Foch, Director of Economic Research at RARE Real Estate. It seems that no one has really adjusted their expectations and realized that they won't make money in this market
Image source: ratehub.ca
This trend is particularly evident in the apartment market, where inventory is at historic highs, "said John Lusink, president of real estate brokerage firm Right at Home Realty. The current supply usually takes over five months to sell. This is a buyer's market without buyers, "he said.
According to data from the Toronto Regional Real Estate Board (TRREB), which represents 70000 brokers and salespeople in the Toronto area, the listing volume for the first three months of 2024 increased by nearly 25% compared to the same period last year. Meanwhile, sales only increased by 5.3%.
The next interest rate decision by the Bank of Canada will be made on July 24th, and most economists expect interest rates to be lowered by another 25 basis points. Last month, the central bank lowered its benchmark interest rate from 5% to 4.75% for the first time in four years.
But economists say that even if the central bank cuts interest rates by 100 basis points, the impact on the upcoming renewal of mortgage rates will be limited. The five-year fixed interest rate is linked to long-term bond yields and may hover between 3% and 4%.
Lusink predicts that Toronto apartment prices may drop by 10% by the end of the year.
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https://globalnews.ca/news/10629332/housing-supply-canada-toronto-mortgages/