Real Estate

Canadians Household Net Worth Shrank 1.8% as Financial and Housing Markets Weaken

Canadians Household Net Worth Shrank 1.8% as Financial and Housing Markets Weaken

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    The recent Q3 report released by Stats Canada revealed the latest insights into the state of Canada’s housing market and housing supply challenges. 

    The report highlighted that in the third quarter, household mortgage borrowing expanded after 4 consecutive quarters of decline. However, the value of real estate declined after 2 quarters of increases. The weakened housing and financial markets have led to lower household net worth. 


    Key Takeaways

    • Household net worth decreased 1.8%, driven by declines in financial and housing markets.
    • While this quarter marked declines in household net worth, over the long term, the value of dwellings is up approx. $160 billion from this time last year. 
    • New construction is up 6.5% this quarter, rising for the first time in 6 quarters.

    We’re curious…

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    The Power of Home Equity Highlighted

    The StatsCan report showed the significant role that home equity plays in boosting household net worth. In the third quarter of 2023, household net worth decreased by 1.8%, shrinking to 301.2 billion. This decrease was primarily driven by softening financial markets and the value of real estate, which has declined after 2 quarters of recovery. 

    While this quarter reported declines, the value of dwellings has risen approximately $160 billion since Q3 2022. This emphasizes the long-term benefits of homeownership as a wealth-building strategy.

    Housing Supply a Continuous Problem

    Housing investment on a seasonally adjusted real basis increased for the first time in 6 quarters. This was primarily due to new construction, up 6.5%. 

    There remains an imbalance between demand and supply, which puts pressure on housing prices, making it increasingly more difficult for individuals and families to enter the housing market and afford a home. The housing supply shortage has significant implications for first-time homebuyers (FTHB) and lower-income households. 

    There are concerns about the future supply of housing and the potential impact on affordability. The value of residential real estate may continue to rise despite higher interest rates. 

    Canada’s surging mortgage rates are straining homebuyers’ borrowing capacity, with the mortgage stress test reaching new heights. These same concerns are driving many Canadians to enter the housing market during this period of surging rates to avoid even higher rates in the future as our housing supply dwindles.

    Mortgages Squeeze Household Budgets

    Mortgage costs have been on the rise in Canada, putting financial pressure on household budgets. In the third quarter of 2023, household borrowing increased after 4 consecutive quarters of decline. This was primarily due to a jump in demand for mortgage loans, which rose from $13.8 billion in Q2 to $19.4 billion in Q3. 

    Homebuyers must carefully assess their financial situation and consider the impact of higher interest rates on mortgage affordability. Homeowners need to clearly understand their financial situation and develop a budget that allows them to meet their future mortgage obligations while maintaining overall financial well-being. 

    Seeking professional advice and exploring different mortgage options can help mitigate the impact of rising mortgage costs on homebuyers. A knowledgeable mortgage expert can help prospective borrowers understand affordability and help shop for the lowest rate available. 

    Although shopping for a low rate may be a priority for most homebuyers, it’s equally valuable to shop for the right mortgage. 

    What’s the right mortgage? The right mortgage is a borrowing solution that satisfies your current needs and mitigates future risks. Mortgage experts possess industry knowledge to highlight the features and benefits that may be most valuable for your financial situation.  

    For example:

    • If you solely choose a mortgage based on its low rate without considering the impact of excessive penalties some of these low-rate mortgages come with, you could be left with a hefty penalty if you or your family need to relocate for work.  By honestly discussing your situation with a mortgage expert, you could avoid considering solutions that don’t come with flexible options, such as portability or lower discharge penalty calculations

    Frequently Asked Questions

    Welcome to our Frequently-Asked Questions (FAQ) section, where we answer the most popular questions designed and crafted by our in-house mortgage experts to help you make informed mortgage financing decisions.

    How can households manage their mortgage costs amidst rising interest rates?

    Households can consider refinancing their mortgage to extend their amortization, make extra payments to reduce the principal faster, and shop around for the best mortgage rates and terms to manage mortgage costs amidst rising interest rates. It is advisable to consult with a mortgage expert to determine the best course of action based on individual circumstances.

    Note: subprime and private mortgages offer longer amortizations, but they are typically suitable for borrowers looking for short-term solutions with an exit strategy.  It’s important to be wary of mortgage brokers who jump to these solutions before explaining why you can’t qualify on the prime lending side.

    What can be done to address the housing supply shortage?

    Addressing the housing supply shortage requires a multi-faceted approach. Policymakers can implement measures to incentivize the construction of new housing units, such as offering tax incentives, removing municipal policy roadblocks against increased housing density, or streamlining the regulatory process. 

    Additionally, investing in affordable housing initiatives and encouraging the development of rental properties can alleviate the strain on the housing market. Collaboration between government, industry stakeholders, and communities will be crucial to finding sustainable solutions to Canada’s housing supply issues.

    What should potential homebuyers consider in a tight housing market?

    In a tight housing market, potential homebuyers should be prepared to act quickly and make competitive offers. It is essential to have a solid understanding of the local real estate market, set a realistic budget, and seek professional advice before making an offer.

    Final Thoughts

    The Stats Canada report provides valuable insights into the ongoing challenges in housing supply and the impact of rising mortgage costs on household budgets. Homeownership continues to be a significant wealth-building strategy, with the appreciation of real estate values contributing to the accumulation of home equity. 

    However, the persistent housing supply shortage poses challenges for potential buyers and affordability concerns for existing homeowners. Rising mortgage costs further strain household budgets, burdening the economy and consumers, emphasizing the need for careful financial planning and shopping for the best rates possible. 

    Reach out to nesto’s mortgage experts to understand how much mortgage you can afford.


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