Toronto housing market

Toronto Housing Market: Wave of Listings Amid Mortgage Renewals

Introduction

The Toronto housing market, a bellwether for Canada’s major metropolitan areas, is experiencing an unprecedented wave of listings driven by a surge in mortgage renewals. Many homeowners, still dealing with sharp increases in mortgage payments, are opting to sell. This has resulted in the highest number of housing units for sale in more than a decade. While recent interest rate cuts by the Bank of Canada have eased some financial pressure, the market remains stressed. This trend could still signal a potential drop in housing prices in the coming months, prompting concern among real estate analysts.

Rising Inventory and Sluggish Sales

The current landscape in Toronto’s real estate market is characterized by a sharp rise in housing inventory alongside sluggish sales. Data reveals that the number of available units has surpassed the highs reached ten years ago. Although interest rate cuts are in play, the market has not yet fully recovered. This increase in listings, particularly in a market that typically absorbs properties quickly, highlights the ongoing challenges.

Real estate consultants and market analysts are observing this trend with caution. The combination of rising inventories and anemic sales suggests a high degree of market stress. While further rate cuts are expected, the market may still experience a significant price correction. The stakes are particularly high in Toronto, a city where two-thirds of the country’s condominiums are sold.

Impact of Mortgage Renewals

A significant driver behind the surge in listings is the wave of mortgage renewals. Many homeowners and investors who purchased properties five years ago at record-low mortgage rates are now facing renewals in a different interest rate environment. Although the Bank of Canada has lowered rates three times in 2024, the financial strain remains​. Homeowners are renewing at rates far higher than those seen five years ago, contributing to increased listings as some seek to downsize or sell.

In Canada, mortgages typically have a term of 25 years but are renewed every three to five years. This structure means that homeowners must periodically reassess and renegotiate their mortgage terms. While rates have fallen from their 2023 highs, many are still renewing at more than double the rate they initially locked in. According to our brokers here at Morgix, who are constantly comparing mortgage offerings, the financial burden on homeowners, although alleviated slightly, remains significant.

Helping Families Navigate Their Mortgage Renewal

As a mortgage brokerage, we recently worked with a family who bought their first home five years ago when interest rates were at historic lows. They were excited to secure a mortgage at 2.5%, which made their dream of owning a home in Toronto a reality. Fast forward to today, they were facing a renewal at a rate of over 5%, doubling their monthly payments. This increase was a significant burden on their budget.

We explored various options together. Despite recent rate cuts, the current renewal rates were still high. We helped them understand the potential benefits of refinancing to extend their amortization period and ease the monthly payment increase. After careful budgeting adjustments, we found a solution that allowed them to stay in their home.

Understanding Refinancing and Mortgage Renewal Options

Many homeowners are considering refinancing as an alternative to managing higher mortgage payments. But what is refinancing? Refinancing involves replacing an existing mortgage with a new one, often with different terms. This process can be used to secure a lower interest rate, extend the loan term to reduce monthly payments, switch from a variable-rate to a fixed-rate mortgage, or even pull funds out to consolidate high-interest debts.

How Does Refinancing a Mortgage Work?

Refinancing a mortgage involves several steps, including evaluating your financial situation, understanding the current mortgage refinancing rates, and comparing offers from different lenders. Using a mortgage broker to explore refinancing options from multiple lenders can help homeowners estimate potential savings and costs associated with refinancing.

Refinancing can offer significant benefits, but it’s important to consider the costs involved, such as appraisal fees, legal fees, and potential penalties for breaking the original mortgage. Consulting with a broker can provide valuable insights and help navigate the refinancing process effectively.

Investor Sell-Off and Market Standoff

The financial strain is not limited to homeowners. Investors, particularly those who entered the market five years ago to capitalize on Toronto’s lucrative rental market, are now feeling the pressure. With mortgage rates still significantly higher despite recent cuts, some investors are opting to sell their units rather than renew their mortgages at the elevated rates. This sell-off is contributing to the increased inventory.

However, there is a notable reluctance among sellers to lower their asking prices. Investors and homeowners alike are hesitant to book losses on their investments, leading to a market standoff. This reluctance to adjust price expectations to align with current market conditions is exacerbating the slowdown in sales​.

Guiding an Investor Through Market Challenges

Another client of Morgix, an investor with multiple rental properties, found herself at a crossroads. She had benefited from low mortgage rates to expand her portfolio, but the impending renewals at higher rates threatened her profitability. We had in-depth discussions about the current market conditions and the potential benefits of selling versus holding on to the properties.

Ultimately, she decided to sell one of her properties to reduce her overall debt and improve cash flow on her remaining investments. This decision wasn’t easy, but having a clear picture of her financial situation and understanding market trends helped her make an informed choice.

The Condominium Market: A Case Study

The trend of rising inventory and sluggish sales is particularly pronounced in the condominium market. In a recent comment, John Lusink, president of Right at Home Realty, noted that the current supply of condos in Toronto would typically take more than five months to sell. This figure underscores the depth of the inventory glut and the challenges facing sellers​.

Lusink describes the situation as a “buyers’ market with no buyers.” Despite the increased supply, the market lacks active buyers, creating a challenging environment for those looking to sell. The Toronto Regional Real Estate Board reports that listings have risen by almost 25% in the first three months of 2024 compared to the same period a year ago. Meanwhile, sales have edged up by only 5.3%, further highlighting the disparity between supply and demand.

Economic Factors and Future Projections

The economic backdrop against which these market dynamics are playing out is complex. The Bank of Canada has already lowered interest rates by 75 basis points in 2024, with another cut expected soon​. However, economists caution that while the central bank’s rate cuts will help ease financial pressure, five-year fixed rates, which are tied to long-term bond yields, may only gradually decline into the 3-4% range​.

Lusink forecasts that Toronto condo prices might drop by 10% by the end of the year, as inventory levels remain high and sales are sluggish. This prediction is based on the current trajectory of rising inventories, sluggish sales, and the financial strain on both homeowners and investors​.

Bright Spots on the Horizon

Despite ongoing market challenges, there are emerging bright spots that could provide relief for homeowners and potential buyers. Recently, the Canada Mortgage and Housing Corporation (CMHC) announced changes to its mortgage insurance criteria, increasing the maximum insured property value from $1 million to $1.5 million. This is particularly significant in markets like Toronto, where property values are often higher than the previous cap.

Additionally, CMHC has extended the maximum amortization period for insured mortgages from 25 years to 30 years. This change allows homeowners more flexibility in managing their mortgage payments by extending the repayment period, thereby reducing the monthly payment burden. These adjustments are expected to provide critical support to buyers.

First time buyers will have an opportunity to buy a home at higher values saving less of a down payment. Therefore, making homeownership more accessible and sustainable even amid higher mortgage rates.

Conclusion

The Toronto housing market is facing a critical moment. Around C$300 billion in mortgages at chartered banks will be up for renewal next year. This is causing a surge in listings and creating significant market stress.

Homeowners, investors, and prospective buyers must navigate this environment with caution. Consider financial strategies and market dynamics. Regulatory guidelines provide a framework for transparency and consumer protection, ensuring that all parties are well-informed and prepared for the challenges ahead.

Incorporating these strategies and insights can help navigate the complexities of mortgage renewals and refinancing. Whether you’re using a mortgage refinancing calculator or seeking mortgage renewal tips, staying informed and proactive is crucial. Contact us today for a free consultation.

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