Wave of mortgage renewals drives owners to list homes, analysts say

Many Canadian homeowners are facing a significant increase in mortgage payments, leading to a surge in listings for Toronto housing units. This trend indicates a potential drop in prices in the upcoming months.

In Toronto, a city where the majority of the country’s condominiums are sold, inventories have surpassed levels seen a decade ago, while sales have been sluggish. This imbalance between rising inventories and slow sales is a sign of strain in Canada’s largest property market, pointing towards a possible wave of defaults or a correction in prices.

The increase in available properties can be attributed to homeowners and investors who purchased houses and apartments at record-low mortgage rates five years ago with the aim of capitalizing on Toronto’s lucrative rental market.

However, as these mortgages come up for renewal in a higher interest rate environment than before, many homeowners are facing the prospect of doubling their mortgage payments. This has created a challenging situation, especially since mortgage rates in Canada are typically renewed every three or five years, unlike in the United States where homeowners can secure fixed rates for the entire mortgage term.

With approximately C$300 billion ($219.33 billion) of mortgages at chartered banks set to be renewed next year, the pressure on homeowners is evident.

According to Carl Gomez, chief economist at CoStar Group, some homeowners are considering walking away from their units due to financial constraints. However, many are hesitant to lower asking prices and accept losses on their investments.

Daniel Foch, director of economic research at RARE Real Estate, notes a reluctance among investors to adjust their expectations in a market where profits may not be guaranteed. This trend is particularly noticeable in the condominium market, where inventory levels have reached historic highs.

The current oversupply would take over five months to sell, leading to a buyers’ market with limited demand, according to experts.

The Toronto Regional Real Estate Board reports a nearly 25% increase in listings in the first quarter of 2024 compared to the same period last year, while sales have only risen by 5.3%.

As the Bank of Canada considers another rate cut, economists predict that the impact on mortgage rates may be subdued, as five-year fixed rates are tied to long-term bond yields. This situation has led to forecasts of a potential 10% drop in Toronto condo prices by the end of the year.

John Lusink, president of Right at Home Realty, highlights the ongoing pressure on prices in the Saskatchewan housing market, indicating a continued upward trend.

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Continued upward pressure on prices for Saskatchewan housing market