Mortgage Basics

Will the Housing Market Crash in Canada? (Plus, Fixed or Variable Rate in 2022-2023)

Will the Housing Market Crash in Canada? (Plus, Fixed or Variable Rate in 2022-2023)
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  • nesto
| Sep 2, 2022
Reviewed, Jun 9, 2023

Table of contents

    Welcome to our first ever instagram live session replay. 🥳 We had the opportunity to have Chase Belair, our principal broker here at nesto & special guest, Catherine Labelle, realtor at Keller Williams International talk about the housing market crash plus whether fixed or variable rate mortgage is the way to go in 2022. Read on or watch the full video below.

    Key Takeaways

    • The pros and cons of a fixed and variable rate
    • The forecast for homes & mortgages for the rest of 2022
    • How will or how are interest rates impact(ing) the mortgage stress test and affordability?
    • Will the housing market crash?

    Are you a first-time buyer?

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    Read the full interview below:

    Enjoy the handy timestamps so you can skip to something that is most important to you right now!

    [00:00:00.550] – Chase

    Welcome everyone to nesto’s first instagram live today.  I will talk about the real estate market, interest rates, mortgage trends, how people are feeling, and most importantly, whether our advice leans towards fixed or variable in this market. So, joining us today from the realtor’s perspective is Catherine of Keller Williams.

    [00:00:27.710] – Catherine

    Excited to be here. Thank you so much.

    [00:00:30.120] – Chase

    All right, I’m going to start off with the first question and it’s more of a feeling question. So a lot of people are watching the housing market. They believe it’s cooling, they think it’s cooling. Not all of them are experienced in that cooling aspect, depending on where they are in Canada. But specific to you and your market, what’s changed for your customers as the interest rate started increasing since last March?

    [00:00:50.090] – Catherine

    I think, like you mentioned, banks, Canada have been increasing interest rates to be able to pull down the real estate market a little bit. Right? So we have seen a cool down, we have much less multiple offers and properties are staying on the market for a longer period of time. So they would stay on the market for maybe a few days. And now we’re back up to about between 15 and 30 days. So it’s still good. It’s not bad, but I guess it changed a little bit with interest rates going up, people’s ability to buy prices are a little bit lower and I think there’s a lot of uncertainty around the real estate market as well.

    [00:01:29.690] – Chase

    I like that you said, it’s still good because it does feel good. When I was looking at homes two years ago at the height of the Pandemic, it was scary, unpredictable, and it was not a fun experience. That’s not how you imagine buying home, you imagine it being enjoyable and rewarding. I find now what we’re seeing  is more financial conditions in the offers, which I love seeing that because it protects the borrower, and I guess the question I’m trying to ask you is, is there a safer time to buy a home now as a buyer than it was three or four months ago or is it a scarier time?

    [00:02:03.990] – Catherine

    So I would definitely say in Quebec it’s a little bit different because we have a lot of rules and regulations around inspection clauses and financing clauses. So we did see a lot of people removing financing clauses or even reviewing condo board documents whenever buying a condo. And so, yeah, it was a risk to take, right? And people were willing to take that risk to get their dream home and have a bit of a better offer than others because we were seeing multiple offers. So now I think the stress is a little bit reversed where we’re seeing sellers being a little bit more stressed, feeling like maybe they kind of missed the boat if ever they’ve been waiting to sell. And then we’re seeing buyers that are taking a bit more time and are able to visit a house more than once in a long time, including inspections, including the review of condo board documents. I think that it will be safer and it’s starting to be a little bit more of an enjoyable experience for buyers.

    [00:03:10.470] – Chase

    Best case. On the subject of cooling market or heating market, one indication or one indicator that we like to follow nesto is the median down payment that the users are anticipating using towards the purchase. And at the height of the pandemic, when the market was, “crazy hot” and unsafe or unfair for a buyer in some aspects, we noticed the down payment increased tremendously. A lot of times the borrowers were doing everything they could to get 20% down payment to mitigate the obstacles of potential inspection or financing or appraisal issues. Now we’re seeing that mean endowment drop tremendously as well across the country. Based on our experience in the industry, do you believe that’s a very strong indicator of a cooling market or we’re actually in a buyer’s market now.

    [00:04:03.550] – Catherine

    I mean, the switch comes really quickly, right? And I haven’t been in the industry for 30 years, but working with people that have, they all say the same thing. And Gary Keller, who’s the founder of Keller Williams, actually spoke about this as well. But the switch between a seller’s market and a buyer’s market is almost one day to the next. And so we were seeing that in the past three years, where we’ve been seeing a seller’s market, it was pretty clear, right? And now we’re getting more into a buyer’s market where buyers have a bit more flexibility, they can negotiate a little bit on conditions, on price point, like we touched about. And so I think that we’re switching, we switched it’s been about a month and a half, two months now that we’ve been switching to a buyer’s market, for sure. Still a great market for sellers, though. I mean, house prices are still high and it’s a balanced thing. I think we spoke about this a little bit, but in a few of our conversations, but it’s always time to sell and it’s always time to buy, like if it’s a need, right, for a lot of people. 

    [00:05:11.620] – Catherine

    And so if you sell high, you’re going to buy high, but if you sell a little bit lower, then you’re going to buy a little bit lower too. So it’s also a balanced game.

    [00:05:21.640] – Chase

    Yes, timing is everything. I do want to jump into how it impacted our customers strictly on the mortgage in a second. But one more question. Going back to the home buying experience, I’m imagining that a subset of customers who needed to buy, whether it was a cottage for leisure, luxury, or they needed to buy, they didn’t want to miss the boat. Has their feelings changed or has their strategy changed with these new rates? Is that need still there or are they less opportunistic?

    [00:05:54.250] – Catherine

    The need to buy, you mean, or the need to sell?

    [00:05:56.690] – Chase

    They need to buy. Everyone wanted to get in. They don’t want to miss the boat who didn’t get in. But we’re so eager to. I’m a dreamland power too. What do you think they’re doing today?

    [00:06:07.990] – Catherine

    I think because again, we spoke about this a little bit, but uncertainty is part of what we’re seeing right now with a lot of people, right, sellers and buyers and so a lot of investors that are long term and people that have bought quite a few houses. Like you said, it’s a timing game, but at the end of the day, it’s bounds. So I’m seeing a lot of people that they’ve been wanting to buy, they’re still going to buy. People are excited. They might be a little bit less stressed that it’s not as much of a seller’s market. So they’re not feeling like they’re going to jump into this, taking risk that they possibly probably we’re still seeing people buying and investors are still buying. And for them, it’s kind of even better than it was a year ago, two years ago. A lot of them are keeping homes long term as well. But I’m not seeing a big difference in people’s want to purchase the property.

    [00:07:11.930] – Chase

    That’s a good optimistic view. I share it with you on our side too. When it comes to stripping to the mortgage transactions, what we’re noticing is now that the rates are higher than to whether or not I should do something with that mortgage. So if we exclude the purchases and we have left refinances and mortgage renewals with the rates being where they are, the refinance business that we’re seeing or the requests we’re seeing are a lot more strategic and less opportunistic. So previously when rates are really low, a refinance would take place to build a school fund for the children or to buy a cottage or to enhance lifestyle, enhance luxury within the lifestyle. There’s a lot of reasons why one would refinance, including investments. Today, the refinance requests that we’re predominantly getting are more so cash flow based, so they want to make sure they have as much money available to them per month as possible, which includes extending amortization or lumping in their existing debt into their mortgage at a lower rate. So we’re seeing a lot of people at this point in time set themselves up with a buffer for the future, the up into the future, and a lot less people refinancing for a boat or refinancing for investment purposes.

    [00:08:27.200] – Chase

    So I think the refinance transactions are going to come down a little bit and the remaining one would be renewals. And it’s interesting the renewal piece here, because we’ve had such a hot market since 2016 or so, but 2017/2018 /2019 there was so much real estate activity and purchase activity. Those mortgages are becoming due for term maturity 22, 23, 24. So I feel like the renewal market will be just as hot as it previously was. And the thing that was less pixel for me is the purchases. But based on our conversation here, it sounds like we can expect purchases to remain stable. I don’t see any indication, and this conversation has not given indication, that there is a major fear of a housing crash in our day to day customers. Now, if you read the news, there’s a lot more fear being spread there. But in our day to day, I think we’re on the same page.

    [00:09:17.580] – Catherine

    Yeah, it’s going to be where, yeah, you’re going to have a lot of refinances for paying debts and yes, life is getting much more expensive. Right. We have a lot of expenses in general, so with the inflation, there’s a lot of people that are getting a little bit worried about that. And we’ve seen the stock market go down quite a bit. But at the end of the day, this is my region, right. Like our region in Ottawa and in Gatineau, because our prices are  much lower than in Ottawa. I mean, there’s reasons for that, right, for tax return. There’s reason for that. But at the end of the day, I think that if people want to become homeowners, most of my clientele comes from Toronto, Montreal, Ottawa, right? Because they can come here, they can buy a home and they can actually afford to become homeowners. And so I’m not seeing a decrease in people wanting to buy, I’m seeing an increase in listings for people selling, which is getting back to what it was prior to Covid, basically. Got it. So it’s going to be interesting to see how things are going to go. But I really doubt in our region we’re going to feel a huge impact in terms of a really big decrease in prices.

    [00:10:43.370] – Chase

    Got it. One thing I actually forgot to mention when I was talking about the refinances and it’s just important to make sure that everyone listening gets to hear this in case someone in their life or their circles need the advice. But when we’re in an area, in an environment, I guess when rates are increasing and inflation, it is what it is and the cost of living is increasing as well. There’s a lot of borrowers who use credit a lot and there’s also a lot of borrowers out there who are almost paycheck to paycheck or even paycheck to paycheck. If you are one of them, or if you know one of them, it’s really important that you take advantage of the opportunity to protect yourself from a life event or an expense that’s actually going to put you in a position where you cannot repair situation with refinance. So I’ll give you an example. To get the best refinance rate today at nesto, you’ll need a credit score of 680. If you get your credit check by your bank or nesto and your score is 690 and your credit balances. They’re not max. But they’re high and you’re almost pitched at the paycheck.There’s a good chance that the next time you get your credit check your score will be below 680 and you would have lost that opportunity to refinance today and pay off that debt at the best rate available to the perfect credit score of 60 or higher. So the reason I’m sharing this is because you see it a lot, you entertain the idea of improving your cash flow or bring up your debt, you start the process and then you procrastinate these people who’s almost pitched to paychecks. The procrastinating could be extremely detrimental to actually what is available to you to get you guys that hole you’re in or you might fall into shortly. I think that was important to get off my chest. It means a lot to me to be able to save someone while they’re in the best position possible to be safe. Whereas after the fact it’s so much more difficult to get a very competitive rate, product or even a great experience.

    [00:12:33.150] – Catherine

    A lot. And talking with clients and people that are getting ready to buy their first property or even buying investment property. Not a lot of people are educated about it, right. And they don’t understand what actually brings their credit down and what brings their credit up. This is just a little tidbit, but when you use credit, it’s not just paying on time that makes a difference, right? You can pay your bills 100% of the time, zero out your credit card every single month, but your credit score would still go down if you use your entire credit, right? So if you have $1,000 of credit and you use $1,000 every month, the banks or the institutions will see that as you utilizing 100% of your credit, right? So typically to be able to keep your credit score at the same or lower or actually make it higher, you’d want your credit to be used to be utilized less than 30% every single month. And that makes a huge difference for a lot of people because they don’t notice or they don’t know. And after a whole year, if they decide to not necessarily refinance to help consolidate debt, for example, they could end up losing 100 points, like you said.They could end up having good credit and then being at a point where they can’t actually buy anything, or they have to go to a b lender where interest rates are much higher, much higher rate. So it’s a good point to talk about that, and I think people should look into it more and be aware. And I know a lot of banks are starting to offer that as well.

    [00:14:11.490] – Chase

    It should be just on credit because I think we can talk about that for about an hour. The close on the credit subject, you’ll paying your bills on schedule is the expectation. That’s not how and we don’t know the date that your bank reports your balance to the credit bureau. So to have your balance close to zero as possible at all times is the best way to make sure you’re going to get as close to a score of 800 as you could. So the big question that we’re supposed to talk about, and we kind of alluded to it so far, is fixed versus variable. I have a very strong and potentially biased opinion on the subject, so I’d love to start with you talking about what your customers feel and ask about that subject while speaking to you, the real estate professional.

    [00:14:55.450] – Catherine

    It’s always the question I get, right? It’s “all right, we’re ready to make an offer”, or “we’re getting ready to start shopping around.” And I always get the question, should I take fixed? Should I take variable? So my first thing that I want to make sure clients are aware is that I’m not a mortgage broker, right? So I deal in real estate, although I do have a knowledge on the idea of them. I don’t know the 100,000 different products that there are in the different institutions offering them. So I think it’s important for people to speak with a mortgage broker or to speak with someone who a relative that has purchased many properties or sold many properties to get an idea of what would be best for them. Right. When it comes to the second portion of the answer, it would be for me, my particular situation, having a family, I’m someone who likes to know exactly how much I’m spending every month, exactly how much I’m saving and whatnot. So it’s important for me to know how much I’m going to be paying for the next three, four or five years and not be unaware of if my prices for my mortgage are going to go up or if it’s going to go down. Personally, I like the stability. So for me, fixed rate paying a little bit more is something that’s important, that’s very personal to me. Right. What about you? I know we spoke about this a little bit and I know we have different views personally, but I’d love to hear about an expert advice for sure.

    [00:16:35.570] – Chase

    So I’ll start by saying I’m biased. In full disclosure, I’ve only ever had a variable rate mortgage throughout my life but I do have kind of a unique life that in my mind justifies the variable rate for me. In fact, before I can tell you how I feel about it in general, I would like to share a little bit but what are you just have been doing? Users that are visiting for information and also for improve for the homeowners process and the numbers are pretty big. So between May and today there’s always been about 75% of people landing at nesto inquiring about the variable and when they say well, it’s a lower rate, it attracts the eyes, so that could be the case. But 75% of our users back in May and also today start off wanting to talk to us about the variable rate in May. At the end of the process, 83% of our users have actually chosen to opt for a variable rate at that point in time. They may change their mind after that initial submission. But the submission was a variable, the number dropped by 13% for June.

    [00:17:34.850] – Chase

    So we had 70% choose variable in June. And keep in mind the intent at the beginning was always spoke 75% variable rate today, which would be a mix of our July numbers and August numbers, we’ve got 60% executing the variable. So the interest is there. The visual cue of that rate is so low I want to talk about it still there. But after discussing with the mortgage professional which would probably include what the next five years they’re like looks like less and less are opting for that variable rate. And the quickest way to hack through this question is the variable rate has a tiny break penalty. So it’s very forgiving if something happens in your life that causes you to break your mortgage. That’s a quick, cheap answer, but the better answer would be when you choose. When you’re left with the decision to choose between a fixed or variable, there’s too many things to consider. The agent has a great resource, but the agent doesn’t know you the person who’s supposed to know you and be prompted to ask questions about you based on what you’re sharing to help them form a picture of what’s most suitable.

    [00:18:34.550] – Chase

    So if you are opting for a fixed rate, and it’s my opinion, I think they’re making three bets you’re betting that you’re not going to sell the property in five years. You’re also betting that you’re either not going to need money from the property or if you do need money, you’re going to get it from somewhere else without an issue. And the third bet you’re making is that you’re not going to want to early renew. So you don’t believe the interest rates are going to be significantly lower before your five years are up. When you are opting for a variable, the bet you’re making is that the bank of Canada will not increase the prime rate to the point that you’ve now paid more interest on the variable than you have on the fixed. So in simple terms, those are the three banks. Now, the benefit of the fixed rate that we didn’t talk about in the bet is you have a static payment, you know exactly what to expect. The benefit of the variable right, excluding the debt is it’s a very small breakdown. The quick math is about 1.5 times your monthly payment.

    [00:19:36.200] – Chase

    The penalty could be anywhere from 1% of the loan balance up to 3.5% and  4% depending on the lender and depending on the day you break the mortgage versus the mortgage rate that you have. So after all those bets are said and done, I think that when the variable rate is 1% or more lower than the fixed rate, it’s really hard to justify taking the fixed rate. The difference is massive and you need to pick a candidate to truly work against you month over month over month to where the interest exposure? You’re at a loss today. So our best betrayed today at nesto for a quicker mortgage is four three nine. Our best variable is 3.6. So the spread is much smaller than it was over the past three years. For example, on a $40,000 mortgage, it’s $165 a month on the difference there. So if you have a very mortgage today, two bank of Canada moves upward might make you get your decision because you’d be paying more interest assuming he doesn’t come back out. And all that you’re left as a benefit is I can break my mortgage very cheaply. So if the odds of moving or if the odds of needing money are very low me historically variable, I’m going to be taking a fixed rate. If the odds of moving exceed 10% or the odds of relocating, I would probably stick with the variable and pay that higher interest cost for the freedom to exit cheaply. And I’m different than yourself. You do got kids in the family and in your home. I work between auto and Montreal. I still travel, I have no kids. So I am very comfortable with the variable rate mortgage because I love that freedom. I don’t want the mortgage money to dictate a life decision of mine at this stage of my life. But that’s a unique perspective from someone like me. Most people might have that at this time. So I do really appreciate that. Your respect for that secured payment, you know what it is for five years. You can budget accordingly. You can plan it exactly.

    [00:21:33.250] – Catherine

    So, there’s a little secret that banks don’t talk about, but that I like to talk about. And I know we talked about this before, but I don’t think there’s anything about everybody has an opinion on this, but I think it’s very personal, choosing a variable versus super personal. It depends on so many variables. One thing that I wanted to touch on, and maybe you can explain this a little bit more because I know about it, but I don’t know everything about it. And I think it’d be kind of interesting to speak to everybody about this. But portability, you have a fixed rate, right? And of course, fixed rate, you can do two, three, five years, right? But let’s say you do a five year fixed rate because I’ve done that before and then I wanted to port my mortgage to my new home. So I want to keep my current interest rate and my current mortgage, and I want to buy a house that’s potentially a bit more expensive and so create a second portion, basically. But I would keep the majority of it as a lower rate. Can you explain that to me a little bit more?

    [00:22:47.220] – Chase

    Yeah. I’ll start off by saying it’s extremely complicated. The only word, portability portable feature can I work. But depending on the institution who owns your mortgage, the word means something else. I’ll start with the big banks. The big banks on average will allow a port window of 120 days. Meaning if you sell your property on day one, as long as you buy your new property by day two, you can transfer the mortgage over. Now, depending on the product at the bank, and also depending on the bank, that window exists there’s. Stipulations within. So example would be some lenders may not let you increase your mortgage. You have to add a second part of your mortgage at the new rate other than offer what’s called a blend and extend. Other lenders or products are a lot more strict and there’s no new money being allowed to be added. So if you have a $200,000 balance on your house that you just sold, you always have to carry that $200,000 mortgage to the new property, meaning the difference in your mortgage is going to be your required down payment and not everyone has the funds to satisfy that and they have to break the mortgage.

    [00:23:52.230] – Chase

    But the option of portability is extremely underutilized and important because it takes away the fear out of the fixed rate, the only mechanism that would exist to save you from a large penalty. And I won’t talk about  penalty very much, but I will say when your mortgage rate is higher than the best rate in the market rate, you can expect your fixed penalty to be very large. When your mortgage rate is smaller than the market rate, you can expect your fix it to not be that large. The bank wants that money back, they want to lend that again, whereas per example, they don’t want the money back because they got to lend that against the cheaper. So portability, the feature itself is the only way around that prepared penalty and it doesn’t always work. I give you the example before depending on what portal feature exists in your mortgage is one thing and then the other things where they could kind of pop your tire in that process is the property that you bought was the mortgage that you were qualified for. The decisions that went to give me that mortgage included the property and now you want to port the mortgage to a new property. So the decision has to come back. And let’s say you want to put the mortgage from your condo in downtown Montreal to your cottage in Outaouaise. Well, if the cottage is on a well and septic the bank has, they have discretion here to say that’s not the same mortgage, we don’t want to do this. And that’s why portability is not talked about enough and there’s so much uncertainty and the power is not predictable, the powers in the bank’s hands. So if I’m getting a mortgage and I’m getting a fixed rate, I’m definitely focusing on the portability feature and I’m asking the questions about it and I probably can seek to have the responses sent to me in writing just in case that person is not there by the time I need to do this.

    [00:25:37.240] – Chase

    Absolutely. And I think you mentioned, when you mentioned uncertainty about the product, right, even when I called for my own personal mortgage because I wanted to cancel and I wanted to buy another property and I was before the end of my term, nobody told me, yeah, of course you can cancel, use your fee. Thank you very much, you can pay that. Nobody told me I had a second option which was actually offered to me when I mentioned it. And I said, well what about portability? Like could I keep this mortgage and just add a little bit extra or just have a second mortgage for my other property. And the first thing they told me was like, oh it’s going to be more expensive at the notary. But for us that’s a lawyer, right? Sure. $400. $10,000. So I think asking a lot of questions to see if that’s an option for you. And if you don’t ask a question, you won’t know that’s right. It’s really important to know your options and most institutions won’t. And I think we talked a little bit about this, but some representatives actually don’t know what portability is. Right. Because it’s it’s a complicated product, they won’t necessarily be aware of it. So making sure you press to talk to someone who actually knows about it and if they tell you if you’re eligible and if you can actually do it and what are your criteria is.

    [00:27:05.990] – Chase

    Really important that’s certainly I would make a mental note that if my mortgage professional does not talk to me about the prepayment penalty if I break the mortgage or the options of according to the mortgage. That’s a red flag. It should be easy to talk about, especially when you’re product that you’re offering. One small piece of ad and portability subject is assumability. It’s less common, much less common, but it’s very similar. Instead of porting your mortgage, when you use that feature, you allow the buyer to assume your mortgage. Now they start the same way you did, but if you have an interest rate of 2395 year fixed rate now when the market rates are up in the forest, that may be what’s needed to sell your house for the price you want compared to the neighbors you want to sell. So the assumability is also interesting.

    [00:27:57.110] – Catherine

    I can see this happening where people are going to be buying a house sure. But they’re also going to be buying potentially a mortgage rate. Right. Start selling their houses with their 2.9% rate, which we’re not going to see anymore and that’s going to give them the advantage versus the neighbor who’s selling. I know there’s a lot of people talking about affordability and if the interest rates are going to be at five point whatever percent which they actually are now at a higher around 5%. I get this question a lot. Where don’t you think people are going to have to sell their homes because the rates are now over 5% and they got approved for one point whatever, 2%. But there’s a really important process when you do an application that includes a stress test. Correct?

    [00:29:11.700] – Chase

    Exactly right.

    [00:29:13.500] – Catherine

    The stress test. There’s a minimum percentage that you need to be able to qualify for. And what is that percentage of interest. That the banks go for?

    [00:29:27.220] – Chase

    The stress that is is actually going to become a bigger subject soon, because of the discrepancy that now exists due to the way the rates have moved. Normally, to get a five year fixed mortgage, fixed or variable, the stress test is applied. And what the stress test is, if it’s a fixed rate or the stress test is always supposed to be the contract rate that you’re applying for plus 2% or the bank of Canada qualifying rates, any fixed rate available plus 2% — was much higher than the Canada qualifying rate. But you’d be using the contract plus two, qualifying for less money than you would have thought in the old ways. But then when you’re getting a variable rate, the contract rate is much, much lower. So its contract rate plus two or bank of Canada. Historically, in the past three months, four months, the Bank of Canada rate was the higher of the two. So if you mortgage, I think this might cause problems that we don’t know about yet. If you were opting for a better rate mortgage, you were qualifying for quite a bit more money in mortgage than if you were applying for a fixed rate. That’s something that’s being ironed out now. It’s a hot topic. We don’t have final figures yet as to what that did, but we’ll bring those forces as we do. But if you put that aside, what the stress test did for these consumers was positive. It made sure that we apply our extremely strict lending rules and debt service ratio criteria on a fictitious rate that is substantially higher than the rate you’re actually paying. So if your mortgage payment is $1,000 a month, we actually qualify you probably somewhere between $1300-1400 a month. And it does not mean that we expect you to be able to afford that payment. It means that we created a buffer based on the mortgage rules. Everyone who’s going to be experiencing these increased payments, whether the variable has gone up during the term or the new fixture term is coming. They need to renew for a higher rate. We’re all going to feel a cash flow, of course. Is there any way around that? But what’s really important is that your ability to get another mortgage and refinance and fix your cash flow externally from your mortgage, but by including your mortgage, was protected because of the way the stress test was built and when it first came to play, there was a lot of opponents against the stress test. I love having a stress test for purchases. I think it’s a no brainer. I think we look stronger if we needed to. But the one piece of stress test people deemed was inappropriate was on a mortgage renewal. And why that was deemed inappropriate is because if you stay with your existing lender, there’s no stress test. But if you want to leave to a new lender, you get stress tested. So the existing lenders would take advantage of a borrower in that case and offer a higher rate knowing they were kind of married to them. So if your arguments against a stress test, it was in that renewal category, whereas I believe that one industry really supports a stress test on purchases they go tomorrow. Good question.

    [00:32:28.070] – Catherine

    Awesome. I love it. I know a few people are asking their questions here.  

    [00:32:40.070] – Chase

    Yeah, let’s go over them.

    [00:32:41.410] – Catherine

    Can you talk a bit about the impact of the next Bank of Canada announcement?

    [00:34:14.880] – Chase

     So, that date is set for September 7 and it’s really interesting because Canada tells us they need to increase the interest rates to solve our rent of inflation and then we get great inflation numbers, I shouldn’t say great, much better inflation numbers coming in for July. And immediately after this, the bank of Canada tweeted our target is 2%. We are going to keep doing things until we get the 2%. The bank of Canada didn’t have to tweet that it was a negative tweet, but they did so on purpose to make sure no one got false hope or optimism from those inflation numbers. So before that Tweet came out, I was anticipating in my head a .5% increase. As soon as I saw that tweet, I started bracing for a 0.75% to 1.0% percent increase. I would expect us to close the year and this is pure ballpark guessing based on the sentence that I don’t make a candidate and being on the ground, seeing inflation in real time in my own life, in my networks, like, I think we’ll probably see the prime rate go up another 1.5%. And again, I’m not an economist, that is speculation. But 0.75 for September 7, and then one more after that and then we’ll see what happens. This does not mean I’m scared of the variable rate, but it does mean that unless I really need that prepayment flexibility of a small penalty, the variable is a little bit scary. Because even though it’s $165 a month less today for $400,000 mortgage, two more increases to prime is going to increase that interest rate savings for me. And then I have to hope that the Bank of Canada will come back down before my 5 year term is up to make sure that I’m ahead interest wise.

    [00:35:53.590] – Catherine

    Yes. And I think for real estate, again, like, it was there to cool down the market. So it’s going to help maybe keep the houses at a price where it’s going to be a bit more affordable. But again, prices, people are going to be able to afford a little less as well. Right. So it’s all a balanced game. I think around the bigger cities, we’re going to see a slowdown like we still are. People worry about houses, the housing market crash like it would probably somewhere where it would be in the middle of nowhere. So I think we’re safe in that regard.

    [00:36:33.910] – Chase

    I agree. I can’t imagine a housing crash coming our way. If you look at our immigration targets, look at our shortage of house of supply, it’s just an untrue statement based on all my feelings and what I see when I hear it. I’m not arguing that we won’t see reduction in price or corruption by any means, but I don’t think anyone’s real estate empire is at risk or the retirement real estate is at risk by any means.

    [00:37:01.140] – Catherine

    No. I mean, even looking at three years ago, before COVID, and I mentioned this to my clients when they asked me the same question, is it because of Covid that all these prices have been going up? And my answer is always, no, I don’t think so. I think it definitely pushed things forward and probably made it happen a little quicker. But a full year in Gatineau before COVID, we saw our first increase in 30 years, that was 14%. This is a full year before Covid, so that wasn’t even the thing. Right. Even thinking about global and so the increase in 14%, and it was the first year that we had more people moving into Gatineau. Then moving out. So a positive migration here. And so to me that means something, right? It means that people. Are already moving here. People are getting maybe a little bit more in the suburbs of the bigger cities because they want to buy a property and so they’re looking a little bit outside of there. And I think in Ottawa, correct me if I’m wrong, but in Ottawa we’ve also seen even a few years prior to Covid, the real estate market being where we would fire increases in gaming, we saw an increase of 24% to 26% for two years straight. Right. I really doubt it’s going to go back to what it was prior to and I’m not worried about that.

    [00:38:42.530] – Chase

    I’m going back in time in my mind and I remember seeing Vancouver, I think it was probably around 2014 and 2015, but I saw what was happening in Vancouver, I saw what’s happening in Toronto, I saw the modest average home buyer get priced out of the market unless there was an equity or family support. And in my mind the next best place is biased to live Montreal and Ottawa. So I really believe that we have to feed off of those rooms a little bit prior to quote as well. We got just under 15 minutes. If you have any questions, please do just write them here and we’ll get to them. And if you don’t have questions, the last thing I want to talk about, I guess, is just to close out on what I believe the next twelve months of buying a home might look like or feel like. I challenge me on it and maybe we’ll even agree. So I was in the home buying process during Covid. I got out of the home buying process, it was too uncomfortable for me. But seeing the listings come up for sale now, seeing the amount of days there are on market, seeing the amount of buyers who are able to put conditions in there, I’m personally excited to get back into the home buy market and I’m not necessarily marrying my decision on what I want to get into the market based on the Bank of Canada. For me, it’s going to come to the value. If I see something that I love and I can picture myself living in the next five years, I’ll probably pull the trigger regardless of Bank of Canada. Because it’s shelter, we need shelter. And that’s my own sentiment. Do you think I’m unique in this or do you think I share the same things as most poor risk today?

    [00:40:08.010] – Catherine

    I’m seeing a lot of people feeling that way. There’s always people that are a bit more risk averse and I think are going to take a little bit more time in getting back into the market just because of what we’ve seen and maybe being a little bit traumatized by their experience. But I think that anytime I have a client approach me, they’re feeling a bit more calm about the process. Right. And so buying a home has always been a long term thing because you’re buying your first home. But when you buy your first home, you’re not paying rent, you’re not paying mortgage, and then you’re also building equity to purchase the next property. Whether you’re downsizing, upsizing you’re, right? Sizing right. So you’re going to go to another property. Most likely the average person in the US stays in their home for 13 years, and in Canada it’s about 7. Right. So we’re moving a little bit more.

    [00:41:08.010] – Catherine

    It’s a long time, but I think that’s going to start decreasing a lot, too, with people being able to work remotely. We’re seeing a lot of people wanting to move even overseas and to travel a lot more. So I’m sure that’s going to change. 

    [00:41:33.270] – Chase

    This may even sound off topic, and I apologize as soon as you said Canadians are spending, on average seven years in their home. My rates are five year fixed rate mortgages. You renew for another five year fixed rate, two years later, the average agent not selling that home. So if you do hit a five year mark on a fixed rate, think of how much longer you’re going to spend in that home. And if the answer is not five more years, for sure, you need to be asking the questions about fixed or mine.

    [00:42:00.690] – Catherine

    Yeah, exactly. You want to find a product that suits your needs. So people might sometimes do, I’m guessing fixed rate, and then the next time they’ll do, variable rate, and it will move around through their lifespan, it will change. So that’s why I think it’s very personal question. I don’t think someone can argue with another person about their rate because at the end they don’t know that this person is going through or what their life looks like. Right. It’s very much a personal choice.

    [00:42:34.470] – Chase

    Personal choice, difficult choice, intimidating choice and so forth. To get feedback, someone can tell you all the advice they know based on what you’ve given them. Bring that to a family member who knows you will challenge you to make sure you’re honest with yourself as well. It’s important to get perspective out of time, Captain. But this was very definitely do it again. We’ll spend a lot more time talking about credit because I think that we could have been deeper than that, for sure. Thanks for coming. Thanks for joining us. Sorry about the technicalities at the beginning. That’s on the end.

    [00:43:11.230] – Catherine

    Everybody tuning in.

    [00:43:13.510] – Chase

    Thank you. Have a lovely, lovely Wednesday. See everybody.

    Final Thoughts

    There you have it: The housing market crash isn’t a thing, so worry not. Plus, when it comes to choosing fixed or variable rate 2022, the decision is ultimately up to you and your comfort level with risk.

    If you’re ready to start your home buying journey or renew your mortgage ahead of interest rate hikes, contact a nesto mortgage expert today. They will be able to help you find the best solution for your situation.

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