Halloween is just a week away, but some Calgary mortgage holders and buyers might be more haunted by the potential of another looming interest rate hike from the Bank of Canada.
Canada's central bank is set to reveal its penultimate rate decision of 2023 on Wednesday, with several economic experts pointing to a holding of the key interest rate that currently sits at five per cent.
Despite the anticipation of an unchanged rate, some Calgarians are still feeling anxious about the housing market.
Dexx Sproule decided to take advantage of the sales market earlier this year and sell his home.
He's currently renting and shopping around to buy again, but the significant interest rate hikes have him rethinking.
"Obviously, affordability is extremely tough right now because a few years ago, you could purchase a lot more of a home than you can now just with where the mortgage rates are," Sproule said.
"There's been additional increases and it might just make sense to keep the money in the bank and rent for now until there's a bit of a correction."
A recent poll from the Angus Reid Institute found cost of living and inflation remain top concerns for Albertans.
Angus Reid's economic stress index suggests 39 per cent of Albertans polled are struggling financially. That's second only to Manitoba (42 per cent).
Nearly half of Canadians (49 per cent) polled said they are worse off financially now than they were a year ago. Thirty-six per cent said they are the same financially as a year ago and 14 per cent said they are doing better now.
"In the last six months, the number of people who say it's very difficult to pay their mortgage has doubled from eight to 15 per cent. It's about 45 per cent overall of people who describe having difficulties paying their mortgage month to month, so we're seeing kind of a growing number of that," said Jon Roe, a research associate with the Angus Reid Institute.
Calgary Realtor Curtis Atkinson agrees, the confidence of Calgarians and their ability to afford a mortgage has decreased. He says qualifying for a seven to eight per cent stress test is very difficult for first-time buyers.
"What we're finding right now is that as rates increase, a lot of people are becoming concerned about being able to make their monthly payments and it also works in an adverse way because those people that may not be able to afford their mortgage anymore, opt to rent," Atkinson said.
Atkinson says investment owners and landlords also may not be able to afford the new rates, therefore no longer being cash-flow positive and opting to sell instead.
"The bottom line is that the renting and rental tenancy market is already at its peak. Putting more pressure on the rental market, obviously, is not a positive thing," Atkinson said.
"The increase in rentals is trying to cover the lack of income that comes from being a landlord. As the landlord increases rent, to make their payment, it's extremely hard on the tenant."
RECESSION FEARS LOOMING
According to Andy Hill, co-founder of Ratefilter.ca, about 62 per cent of Canadians are spending more than 30 per cent of their pre-tax income on housing.
Those numbers were tabulated following a survey of more than 1,000 Canadian homeowners and 650 Canadian mortgage holders across the country.
More than half of them (51 per cent) noted they would miss a mortgage payment within the next three months if they were to lose their primary income source.
"Barring any economic surprises, the Bank of Canada is likely to hold its key rate for the rest of the year, and in 2024, we might start to see some cuts," Hill said.
"But it's not likely that will provide a lot of relief for homeowners as we're about to see close to 1.2 million mortgages across the country come up for renewal in 2024. So a lot of people are going to have to rest at these higher rates."
According to the Calgary Real Estate Board, the average median price for a home in the city sits at $505,000, but the annual income needed to qualify for a mortgage of that size is $120,000.
In a recent report from Nesto Mortgage Experts, new data found the annual income needed to purchase a home in Alberta has increased by about $11,000 in September compared to the same month last year.
Calgary mortgage broker Keith Uthe says the type of mortgage could have a much larger impact on significant increases.
"People who took variable rates have seen anywhere from three to four times their rate increase even though they have a significant discount off their rate, but when it comes to fixed rates, we've seen those rates increase, but now it's the people who are renewing their mortgages that are impacted," Uthe said.
"Those people that got their mortgages in 2018 are having this impact. The saving grace is the government had the qualifying benchmark rate in effect in 2018 when they qualified, so the rates that they're renewing are not significantly different."
Uthe says in Alberta, the default rates on mortgages are not showing a problem from insurers compared to other provinces and his best advice is for homeowners to shop around and find the best rate that fits their budget.
A decision Tuesday by the Office of the Superintendent of Financial Institutions (OFSI) has now allowed Canadians with a previously insured mortgage the ability to transfer by qualifying at the contract rate instead of the previous benchmark qualifying rate.
"This is going to offer borrowers greater opportunity to get better rates and terms," Uthe said.
BRIGHT SPOTS FOR THE ALBERTA ECONOMY: DESJARDINS REPORT
According to the Desjardins Provincial Economic Outlook for Alberta, there are several bright spots for the economy.
Principal economist Marc Desormeaux found employment growth was still strong and the population increase across Alberta is advancing at a nation-leading, balanced and durable rate.
"Every economy in Canada, every provincial economy is feeling the effects of sharply higher interest rates, there's no question, but relative to other provinces, the situation is looking stronger in Alberta," Desormeaux said.
"There is less exposure to the housing market than there is in, for instance, Ontario and British Columbia, so there's less risk going forward. There have not been the same kinds of supply-side challenges as there have been in those other cities over the last few years."
The Desjardins report also found Alberta's economy still looks well-positioned to avoid the worst of the coming Canadian downturn.
An extended oil sands maintenance period could weaken the second-half growth rate, but oil prices and energy investments remain supportive.
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2023-10-24 22:05:00Z
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