Interest Rate Hikes Eroding Housing Affordability

Lisa Manwaring • July 10, 2018

After improving slightly late last year, housing affordability has now reached “crisis levels” in Vancouver and is posing a “tremendous challenge” in Toronto.

That’s the assessment from RBC’s latest Housing Trends and Affordability report, which says higher interest rates are the main reason for a deterioration in affordability right across the country.

“The winning streak for housing affordability in Canada ended,” the report reads, noting the aggregate affordability measure for Canada rose by 0.4 percentage points to 48.4% in Q1. “This rise entirely reversed the slight 0.3 percentage-point decline recorded in the previous quarter—the first decline in 10 quarters.”

Unsurprisingly, Toronto and Vancouver led the way as the country’s least affordable markets.

In Vancouver it takes 87.8% of household income to cover the costs of home ownership, the report said, while in Toronto that percentage is 74.2%. Compare that against the national average of 48.4%, or 43.7% in Montreal, 43% in Calgary and just 28% in Edmonton.

“[Affordability] is at crisis levels in Vancouver and poses a tremendous challenge for many Toronto-area buyers despite improving in the past two quarters,” the report noted.

Overall, higher interest rates were cited as the main factor for sending homeownership costs to a multi-decade high, while the situation was amplified in both Vancouver and Victoria due to a return to appreciating prices.

Although affordability in Toronto remains a concern, the report noted that it was one of only two markets, along with Winnipeg, to see a small improvement.

“The main reason was that home prices fell enough in both markets to counteract the effect of higher interest rates,” RBC noted. “In the case of the Toronto area, the mortgage stress test that came into effect in January added further downward pressure on property values—which were still adjusting to last year’s Fair Housing Plan implemented by the Ontario government.”

But that may not be the case for much longer, as the Toronto Real Estate Board’s latest datashows the average price of a home in the Greater Toronto Area climbed to a 13-month high in June—up 2 percent year-over-year to $807,871.

National Bank published similar findings to RBC recently in its Housing Affordability Monitor. It noted that the mortgage payment on a representative home as a percentage of median income rose by 1.2 points—the 11th straight month that this metric had increased.

Given the limited capacity for Vancouver and Toronto homebuyers to put more of their income towards housing than they already are, the National Bank report concluded that prices could start to decline should interest rates continue to increase.

“Since we don’t see how Vancouver and Toronto homebuyers could pay a higher share of their incomes for shelter, a downward adjustment of prices is conceivable,” the authors write. “If our scenario for interest rates out to the end of 2019 materializes (+75 basis point on the 5-year mortgage rate), and assuming historically average income growth, prices would need to fall on the order of 2% to keep home affordability from deteriorating further.”

This article was written by Steve Huebl and was originally published on Canadian Mortgage Trends on July 5th 2018.

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Benefits of Working with an Independent Mortgage Professional

By Lisa Manwaring • February 19, 2025

If you need a mortgage, working with an independent mortgage professional will save you money and provide you with better options than dealing with a single financial institution. And if that is the only sentence you read in this entire article, you already know all you need to know. However, if you’d like to dig a little deeper, here are some reasons that outline why working with an independent mortgage professional is in your best interest. The best mortgage is the one that costs you the least over the long term. An independent mortgage professional can help you achieve this. Mortgages aren’t created equally. Oftentimes slick marketing leads us to believe the lowest “sticker price” is the best value. So when it comes to mortgage financing, you might assume the mortgage with the lowest rate is the best option. This isn’t always the case. When considering a mortgage, your goal should be to find the mortgage that will cost you the least amount of money over the total length of the mortgage. There are many factors to consider, such as your specific financial situation, the rate, initial term length, fixed or variable rate structure, amortization, and the penalties incurred should you need to break your mortgage early; the fine print matters. An independent mortgage professional can walk through all these factors with you and will help you find the mortgage that best suits your needs. Sometimes taking a mortgage with a slightly higher rate can make sense if it gives you flexibility down the line or helps you avoid huge payout penalties. Working the numbers with an independent mortgage professional will save you money in the long run instead of just going with what a single lender is offering. Save time by letting an independent mortgage professional find the best mortgage product for you. Let's face it, getting a mortgage can be challenging enough on its own. Everyone’s financial situation is a little different and making sense of lender guidelines is a full-time job in itself. So instead of dealing with multiple lending institutions on your own, when you work with an independent mortgage professional, you submit a single mortgage application that is compared to the lending guidelines of various mortgage lenders. This will save you time as you don’t have to go from bank to bank to ensure you’re getting the best mortgage. Simply put, an independent mortgage professional works for you and has your best interest in mind, while a bank specialist works for the bank and has the bank's best interest in mind. It’s no secret that Canadian banks make a lot of money. It seems every quarter they turn billions of dollars in profit (despite the economic environment). They do this at the expense of their customers by charging as much interest as they can and structuring mortgages to their benefit. It’s all about the alignment of interest. Bank employees work for the bank; the bank pays them to make money for the bank. In contrast, independent mortgage professionals are provincially licensed to work for their clients and are paid a standardized placement or finder’s fee for matching borrowers with lenders. When you work with a single bank, you only have access to the products of that bank. When you work with an independent mortgage professional, you have access to all of the lenders that mortgage professionals have relationships with and all their products. Working with an independent mortgage professional will save you money, time, and provide you with better mortgage options. Plus, you have the added benefit of working with a licensed professional looking out for your best interest, providing you with the best possible advice. If you’d like to know more or to discuss mortgage financing, please connect anytime; it would be a pleasure to work with you.

Costs Associated with Buying Property

By Lisa Manwaring • February 12, 2025

When calculating if you can afford to purchase a property, don’t just figure out a rough downpayment and quickly move on from there. Several other costs need to be considered when buying a property; these are called your closing costs. Closing costs refer to the things you’ll have to pay for out of your pocket and the amount of money necessary to finalize the purchase of a property. And like most things in life, it pays to plan ahead when it comes to closing costs. Closing costs should be part of the pre-approval conversation as they are just as important as saving for your downpayment. Now, if your mortgage is high-ratio and requires mortgage default insurance, the lender will need to confirm that you have at least 1.5% of the purchase price available to close the mortgage. This is in addition to your downpayment. So if your downpayment is 10% of the purchase price, you’ll want to have at least 11.5% available to bring everything together. But of course, the more cash you have to fall back on, the better. So with that said, here is a list of the things that will cost you money when you’re buying a property. As prices vary per service, if you’d like a more accurate estimate of costs, please connect anytime, it would be a pleasure to walk through the exact numbers with you. Inspection or Appraisal A home inspection is when you hire a professional to assess the property's condition to make sure that you won’t be surprised by unexpected issues. An appraisal is when you hire a professional to compare the property's value against other properties that have recently sold in the area. The cost of a home inspection is yours, while the appraisal cost is sometimes covered by your mortgage default insurance and sometimes covered by you! Lawyer or Notary Fees To handle all the legal paperwork, you’re required to hire a legal real estate professional. They’ll be responsible for transferring the title from the seller's name into your name and make sure the lender is registered correctly on the title. Chances are, this will be one of your most significant expenses, except if you live in a province with a property transfer tax. Taxes Depending on which province you live in and the purchase price of the property you’re buying, you might have to pay a property transfer tax or land transfer tax. This cost can be high, upwards of 1-2% of the purchase price. So you’ll want to know the numbers well ahead of time. Insurance Before you can close on mortgage financing, all financial institutions want to see that you have property/home insurance in place for when you take possession. If disaster strikes and something happens to the property, your lender must be listed on your insurance policy. Unlike property insurance, which is mandatory, you might also consider mortgage insurance, life insurance, or a disability insurance policy that protects you in case of unforeseen events. Not necessary, but worth a conversation. Moving Expenses Congratulations, you just bought a new property; now you have to get all your stuff there! Don’t underestimate the cost of moving. If you’re moving across the country, the cost of hiring a moving company is steep, while renting a moving truck is a little more reasonable; it all adds up. Hopefully, if you’re moving locally, your costs amount to gas money and pizza for friends. Utilities Hooking up new services to a property is more time-consuming than costly. However, if you’re moving to a new province or don’t have a history of paying utilities, you might be required to come up with a deposit for services. It doesn’t really make sense to buy a property if you can’t afford to turn on the power or connect the water. So there you have it; this covers most of the costs associated with buying a new property. However, this list is by no means exhaustive, but as mentioned earlier, planning for these costs is a good idea and should be part of the pre-approval process. If you have any questions about your closing costs or anything else mortgage-related, please connect anytime; it would be great to hear from you!