Falling mortgage interest rates didn’t give much relief to Canadian real estate buyers. Canada Mortgage and Housing Corporation (CMHC) data shows the average monthly payment for new mortgages increased in Q4 2020. The size of the increase isn’t all that important, so much as the fact it increased at all. Mortgage rates were cut by a third, but higher home prices more than absorbed the cheaper debt.
Canadian New Mortgages Loans Rise The Most Since 2017
The average mortgage payment for new mortgages increased faster than usual. Average monthly payments reached $1,483 in Q4 2020, up 2.24% from the same quarter a year before. It may not seem like much in this market, but it’s the largest increase for monthly payments since 2017. Still, the increase isn’t all that interesting by itself. You need to look at the fact payments increased, while mortgage interest dropped.
Canadian Mortgage Monthly Mortgage Payments Q4
The average monthly payment for new mortgages in the fourth quarter. Source: CMHC; Equifax; Better Dwelling.Canadian Mortgage Interest Rates Fell Over 33%
When the pandemic struck, mortgage rates were slashed as a way to allow people to “save” money. The average advanced mortgage rate was 3.23% in Q4 2020 and fell all the way to 2.14% in Q4 2019. It works out to a 33.12% drop in interest paid, giving new borrowers a little extra spending room.
Canadian Home Prices Increased By 13% Over The Same Period
Over the same period, home prices increased substantially at the national level. The composite benchmark for resales reached $637,800 in December 2020, up 13.03% from the same month a year before. Low interest rates propelled home prices even higher than the mortgage rate discount.
Ideally, lower interest rates lead to smaller payments, leaving borrowers with extra cash. For payments to stay the same in this situation, borrowers need to buy 12.5% more expensive homes. For payments to rise they need home prices to rise even further — which just happened. Any benefits of cheap mortgage interest rates have been wiped out by higher prices.
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Homes now function like corporate earnings apparently. Lower rates mean higher returns, and higher rates mean lower returns. How long this can last is a mystery, but never have a purge of values sounds like a recipe for disaster.
Central banks live in the magical world where lower rates make housing more affordable and increase the value of your home.
A friend of mine is a real estate agent, said he’s starting to see people add clauses into the P&S agreements allowing them to assign the purchase right to anyone else before closing.
Feel like that was made illegal, but looks like prices are going up so fast, these people think they can make a good profit selling a house without owning it first.
Time to raise rates already.
Does that mean families are officially out of the market?
Guys if you believe prices will fall then would you tell your parents or family to sell the house now and buy back when it crashes?
See, even you don’t believe its going to crash.