Spire’s 2023 Q3 Mortgage and Housing Update
There are 3 parts to our Q3 2023 update:
Alberta Real Estate (from our boots-on-the-ground perspective)
Where the HELL is everyone going to live?
Predictions about Mortgage Rates in late 2023 and 2024.
Alberta Real Estate (from Spire's perspective)
It's August 1st, and HOT DAMN; the world is still CRAZY for Calgary Real Estate! Here are a few facts & predictions; straight from our desks.
At Spire, we're about three months ahead of the "home purchasing curve." This is because our clients come to us, work through a pre-approval and then start looking for homes with their Realtors. One of the statistics we track is the number of credit bureaus we pull from Equifax and Transunion, as this is the primary indicator for our future deal volume. Year to date, our credit bureau pulls are 36% greater than the year prior (2022). From our boots-on-the-ground perspective, Canadians are desperate to purchase property in Alberta. We continue to see strong in migration from clients in Ontario and BC. We had a slowdown in late 2022 and early 2023 when sales were shakey in those provinces, but we've seen a resurgence in clients calling and wanting help developing plans for moving to Alberta. We had 2 deals fund this week for clients that picked up and moved their whole families cross-country.
In the eyes of the country, Alberta really seems to be the promised land.
We recently asked Mortgage Centre Canada about their funded mortgage volumes across the country, and they provided the following insights:
British Columbia is down 53%
Ontario is down approximately 35%
The Prairies are down approximately 15%
Atlantic Canada is down approximately 17%
Our pre-approval queue is about 50% greater than usual because many of our clients can't get their hands on properties to purchase. Typically, at this time of year, many of our "Spring shoppers" have purchased, and our pre-approved clients decrease to about 50 families shopping, but currently, we still have 104 families shopping that we've pre-approved in 2023. This is an inventory story - they can't get their hands on a property. I believe this means our market will remain strong through Q4 and well into 2024 despite higher interest rates.
We are seeing many of our landlord clients struggle with the decision to "keep or sell" their rental property. While rents are up 25-30% in the last five years, many other costs have escalated for landlords. Insurance has tripled, property taxes are up 15%, and maintenance costs are higher. I believe that rents will have to continue to increase to keep small landlords in the market & due to in-migration.
The lift on the foreign buyer's ban has helped our international clients purchase property, and we were glad to see the changes in early April. CLICK HERE if you missed the changes.
We have seen clients "stressed" about increasing payments and higher rates at renewal, but we haven't seen any true distress that has resulted in missed mortgage payments. Mortgage arrears continue to be below pre-pandemic levels. That being said, we're seeing some increases in credit card delinquencies and a massive uptick in consumer proposals, so a small uptick in mortgage arrears might be coming. (PS: Do not enter into a consumer proposal WITHOUT calling us first. We can help you decide the best way to proceed). You heard it here first: this does NOT mean a housing crash. Fundamental demand is too strong. Check out the charts below.
Part 2: Where the heck is everyone going to live?
In Alberta (Calgary particularly), active inventory remains historically low and population growth is off the charts.
The data from the pros, AND the shlubs like us, all show the same thing. People are coming...but they just won't build it...(I think that's a movie quote gone wrong or something like that...)
We continue to see massive population growth in Alberta through a combination of new immigrants and in-migration from other provinces.
This massive population growth seems to be arriving in Calgary, and as a result, rents and property prices continue to climb. One of the team members at Spire announced today that she listed her 500-square-foot garage suite for rent asking $1300/month. She received 30 applications in the first 24 hours...
At one point, we thought that the "rent vs. buy" argument might swing the pendulum back towards "renting," but with rents climbing as quickly as they have, (and properties becoming LESS and LESS available to rent), purchasing still seems the better option for most clients.
Let's pause for a moment and reflect on the Canadian Population graphs...
The number of people arriving in Canada is absolutely astonishing.
Why aren't we building new homes?
Interest rates.
Skilled labour shortages.
Supply chain issues.
City politics (hard to push development projects through)
Fear of getting caught with too much inventory and reliving 2009.
All of the above.
This is all uncharted territory for the decision-making generation in Canada. Builders don't want to be caught with inventory like they were in 2009, they are more cautious now. I do believe we will have to see an uptick in single family home building in Calgary in 2024/2025. PS: if you know a builder looking for a good mortgage broker...I might know one 😝
These graphs tell me one thing: I don't want to be short Canadian Real Estate in the next few decades (and I don't want my kids to be short Real Estate as they graduate from school in the next 5-10 years)...
The Bank of Canada & 5 Year Bonds
Over the last 3 months we've see incredible strength in the 5 year Canada Government Bond. It's rocketed from about 2.75% to 4.00%. As a result, 5 year fixed rate mortgages climbed from the low 4s, 4.29% ish straight to the mid 5's, 5.59% ish. The bank of Canada's increases have moved prime rate at 7.20% and I wouldn't be surprised if we saw further increases in late 2023. For reference, we've traditionally been fans of variable rate mortgages, 80% of our clients took variable rates, but over the last year, we've only placed only about 1% of clients in variable rate mortgages and almost 100% of the variable rate mortgage holders in our portfolio have converted to fixed rates.
The unknown and the volatility wasn't something our clients wanted to live with anymore.
Rate Predictions:
Variable rates will stay above 6% and will not drop below 5% until 2025
Insured (less than 20% down), fixed rates will stay between 5%-5.50% for the next 4-6 months and may potentially drop by 0.50% if we see some weakness in the US economy. Overall, home purchasers in 2024 should expect fixed rates between 5%-6%.
Conventional (more than 20% down) fixed rates will stay between 5.50%-6% for the next 4-6 months
Canadians will continue to take 2-4 year fixed rate mortgages during this period.
When should you call us:
If you have a mortgage coming up for renewal in the next year - call us
If you are starting to feel the squeeze on your monthly cash flow and you feel like you might miss a payment - Call us FIRST! Be proactive!
If you are shopping for a home and you don't have a rate hold - Call us
If you are shopping for a home and your rate hold is expiring in the next 60 days - call us to get a new one!
Overall, know that we're here to help with any questions related to mortgages, cash flow, new builds, refinances and renovations, rental properties - you name it! Connect any time! And....if you made it to this part....THANK FOR READING!
Credit where credit is due:
Much of our date comes from the amazing Ben Rabidoux at Edge Analytics.
