Happy new year everyone! I hope everyone reading this took some time to reflect and recharge over the holiday season. There was a lot of negativity swirling around in 2022, and I’m sure a lot of you needed a break from it all. I sure did. It’s easy to get swept up in all of the doom-and-gloom. But if you look at the big picture, you might see that there’s a lot to be optimistic about in 2023 – in the housing market, the economy, and beyond.
Putting Things Into Perspective
Contrary to what the talking heads say, life is good. Excluding the Russia-Ukraine War, we are currently living in the longest peacetime in history. Our standard of living is the highest it’s ever been. Average incomes have doubled in the last 20 years, and unemployment has plummeted to historic lows. In fact, we’re still struggling to fill thousands of vacant jobs. Even with a 4% hike in the bank prime rate, Canadians seem to be taking it all in stride.
Good News From the Housing Market
A good way to measure the financial health of Canadian homeowners is by looking at how many of them are in mortgage arrears. Arrears are defined as being 3 months behind on payments. I recently learned from a major Canadian mortgage lender that of the 300,000 mortgages they have under their administration, only 164 of them are in arrears. Only 164!
Many of these 164 mortgages are people who have missed payments because they’ve passed away. You may also be surprised to hear that just 20 of them are variable rate mortgages. The mainstream media will tell you that a bubble is bursting, but as it turns out, people are still keeping up with their mortgage payments – even on variable rate mortgages (looks like those aren’t so risky after all).
So the sky isn’t falling. Yes, interest rates are up which isn’t great for any buyer. But just look at the last 50 years. We’re still nowhere near the sky high levels of the 80s and early 90s. In fact, interest rates were higher in the early 2000s.
What Happens Next
History has shown us that rates never move in a straight line in any direction forever. The big banks seem to agree. TD has forecasted that variable rates will begin to fall at the end of 2023. We can already see that the housing market has already absorbed the rate hikes and is beginning to flatline. Prices have fallen, but the dip seems to have either slowed or stopped depending on where you are in Canada.
If you were looking for a mortgage today, I would recommend going with a variable rate or a 1-year fixed rate product. Both will allow you to benefit from inevitable rate decreases in the coming years. CIBC is calling for rates to fall by 1.25% by the end of 2024.
As always, no two homeowners are ever the same. Everyone has their own needs, goals, and situations. Don’t leave major financial decisions to articles online, know-it-all friends, or social media. Pick up the phone and speak with a trusted mortgage professional that can help figure out what’s best for you.
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis: 416-224-0114; email@example.com