Canada’s national housing agency sees a much smaller mortgage in your future. Canada Mortgage and Housing Corporation (CMHC) forecast numbers included projections for mortgage rates. The high projection for the rates almost add a fifth to the cost of servicing a mortgage. If rates hit these projections, buyers would lose up to 11% of their max mortgage size over the next two years.
What Are We Looking At Today?
Today we’ll be looking at the CMHC mortgage rate projections, and the impact they’ll have on a household. The Crown Corp used a 5 year fixed terms, and we’ll be running them against a 30 year amortization. We won’t be stress testing, because you can dodge a stress test at a credit union. Instead we’re looking at the pure impact of rates, on households earning the same amount over 3 years.
The 5 Year Mortgage Rate Is Forecasted To Rise Nearly 22%
The CMHC is forecasting mortgage rates will rise, consistent with interest rates “normalizing.” Analysts have a high forecast of 5.6% in 2018, 6.2% in 2019, and 6.5% in 2020. Currently, the 5 year posted BoC rate is only 5.34%, meaning a huge reduction in buying power is coming. The numbers seem small, but the 21.72% increase in rates from today to 2020 will have a serious impact on buying power.
Canadian 5 Year Fixed Mortgage Rates
The historic posted rates for 5 year fixed mortgages, and the CMHC high forecast.
Source: CMHC, Bank of Canada, Better Dwelling.
Canadian Real Estate Buying Power Can Be Reduced Up To 11%
Buyers in 2020 will be paying a lot more interest, reducing the size of principal that can be borrowed. If rates hit their forecast, the max mortgage for a household in 2019 would be 8.7% lower than one earning the same today. By 2020, it would be 11.69% lower than a household making the same today. The increase in rates show a big potential loss in buying power.
The impact of the rate increase skews to markets with a high debt to income ratios. Markets like Toronto and Vancouver, have very high home prices for the incomes. The result would be reduced liquidity. Cities like Ottawa and Calgary have very high incomes and relatively cheap housing. These markets are more likely to take the hikes in stride.
Like this post? Like us on Facebook for the next one in your feed.