As I mentioned in part 2 of this blog post series, seldom via the media do we hear any mention of Canadian consumer’s mortgage debt.  Based on a recent report by Canada Mortgage and Housing (CMHC), residential mortgage debit in Canada as of January 2023 stood at $2.08 trillion Canadian, an increase of 6% from the prior year.  Whether we like to admit it or even acknowledge it, mortgage debt is going to play a key role in determining how the real estate market performs not only in 2024 but also in the 2 to 5 years that follow.

Predictions for the real estate market in 2024 are varied.  In a report by Bloomberg News, one of Canada’s major leading real estate sales companies forecasts that home prices across Canada overall will make “incremental gains in the first half of the year, followed by larger price increases in the second half of the year.  It is claimed these increases will be “spurred by expected interest rate cuts from the Bank of Canada after a historic rate-hiking cycle.”  The subject article further predicts that home prices will return to their Pre-COVID 19 pandemic highs and the 4th Quarter of 2024 will reflect a 5.5% increase year over year.

Personally I could not disagree more with respect to this prediction and my position is not based on “gut feel” alone.  Rather, it’s the result of some extensive research, looking at relevant statistics especially for the Southern Georgina Bay market and by reading what some of Canada’s major banks and other mortgage lenders are saying.  Who would you believe more?  A company(s) that makes it’s money via selling real estate or those ie: banks and other lenders that make money loaning money to consumers purchasing real estate?  At the end of the day, mortgage lenders have the most to loose in a down market?

On January 24th the Bank of Canada (BOC) announced a hold on the interest rate at 5%, read story in CBC News.  The article goes on to say that the BOC is focused on “not how high the rates should be rather its a matter of for how long.”  Many economists some with Canada’s major banks such as CIBC and the Bank of Montreal don’t see any interest rate reductions until mid 2024 at the earliest and any rate cut will depend on the fight to address inflation.  When interest rates do start to move downward what might we expect, one-half of one percent?  With higher mortgage rates, house sales down and with the inventory of homes for sale up in many markets including Southern Georgian Bay, is it realistic to be forecasting an increase in house prices?  Is a modest drop in mortgage rates going to restore Canadian home prices to “Pre-COVID 19 pandemic highs” when Canadian consumers already have over $2 trillion in mortgage debt alone?

With higher interest rates, many Canadians are no doubt feeling the impact of borrowing costs not only for mortgages but for car loans, credit card debt and lines of credit etc.  In a recent article by published by Canadian Mortgage Trends, the Royal Bank of Canada (RBC) says that it has seen its mortgage delinquency rate moving upward over the past year.  Although delinquency rates remain low by historic standards, they are said to be at or above Pre-COVID 19 pandemic levels while “insolvencies have been steadily climbing.”  This comes from RBC’s Chief Risk Officer Graeme Hepworth.  In the same article. RBC see’s “interest rates easing and stable house prices in 2024.”  This is in sharp contract to the 5.5 percent year over year price increase as stated in the Bloomberg News article mentioned above.

The same Canadian Mortgage Trends article continues to go on saying: “The bank (RBC) will see 14% ($52.2 billion worth) of its mortgage portfolio come up for renewal in 2024, and another 25% ($89.5 billion) in 2025. Roughly 90% of those are fixed-rate mortgages that currently have an interest rate of between 3.10% and 3.60%, the bank disclosed.”  Renewing a mortgage at 3% is one but at 6% to almost 7% is another matter altogether.  Published statements say that 5 to 6 out of every 10 consumers with a mortgage will be facing a challenge come renewal time.  The Canadian Real Estate Association has said that Canadian consumers need to accept the reality that 6% to 7% mortgage rates is the new normal.

We’ve been down this road before.  My own parents moved to the area and bought a house outside of Collingwood in 1992.  Canada’s economy underwent a recession from March 1990 through May 1992, as it dealt with the fallout from tight monetary policy brought on by high inflation.  Sound familiar?  Is this not where we are today?  As the result of a corporate promotion also in in 1992, I moved to Chicago and sold my Collingwood home I had owned for 5 years at a small loss.  Over the following years my parent’s home went down in value before returning to its original purchase price 10 years later when it sold.

During the latter half of 2020 and throughout 2021, real estate sales and pricing across many markets in Canada including here in Southern Georgian Bay, went through the roof, no pun intended.  While I am not an economist, I have been in real estate over 20 years.  Having gone through corporate moves prior to entering the real estate profession I have personally owned 8 homes, 2 waterfront properties and 2 vacant lots.   A lot I had purchased on the Monterra Golf Course in the Blue Mountains in 1987 for $75,000 I later sold in 1997 at a $35,000 loss.   As such I have seen the market go through highs and lows, such is the nature of real estate.

Throughout 2020 and 2021 when homes drew multiple offers with many selling for well over their respective if not inflated asking prices I came to the following conclusion:  “This will not last nor is it healthy if it does.”  Sooner or later I new and was telling my clints there would be a day of reckoning and that day is now here.

Will house prices go up again?  Absolutely.  The questions to perhaps ask are when and by how much?  Based on the information above I do not see this happening to any significant degree in 2024.  Any increase in home prices that do happen will be in specific geographic markets across Canada as well as in specific price segments of the market.  The return to “Pre-COVID 19 pandemic levels”  as stated above in terms of house prices in 2024 is a bold claim and based on what the banks are saying is without quantitative merit.

In my next post I am going to discuss how we seemingly got to where we are.  As always I look forward to and welcome your comments.