Real Estate

Canadians Household Net Worth Increases 1.8% as Financial Markets Rally and the Housing Market Shows Signs of Recovery

Canadians Household Net Worth Increases 1.8% as Financial Markets Rally and the Housing Market Shows Signs of Recovery

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    Stats Canada’s recent Q4 report revealed the latest insights into the state of Canada’s housing market and housing supply challenges. 

    The report highlighted that household residential real estate values declined 1.9% in the 4th  quarter, the 2nd consecutive decline. However, the housing market showed signs of recovery before slowing in Q3 and Q4, with an overall increase of 1.8% over the year.

    Key Takeaways

    • Household net worth increased 1.8%, driven by the strength of bonds and equities. 
    • The value of resales and the number of sales were higher in Q4 of 2023 than in Q4 of 2022. 
    • New construction is up 3.4% this quarter, helping to offset some of the slowdown in resale activity.

    We’re curious…

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    The Power of Home Equity Highlighted

    Real estate value has decreased 1.9% this quarter, the second consecutive decline. However, the housing market is showing signs of recovery, with an overall increase of 1.8% over the year. This emphasizes the long-term benefits of homeownership as a wealth-building strategy.

    Housing Supply a Continuous Problem

    Housing investment increased by 0.1%, primarily due to new construction, up 3.4%, and renovations, up 1.4%. These increases were offset by the drop in ownership transfer costs, down 9.8% due to the slowdown in resale activity.

    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 fourth quarter of 2023, household property income payments which are made up of mortgage and non-mortgage interest expenses, rose 1.6%. This is due to the Bank of Canada’s policy rate increases more than doubling household interest payments.  

    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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