The housing market in Brampton, Toronto and the GTA has withstood the test of time and is not in danger of crashing like the US did back in 2008 despite higher mortgage rates and an economic slow down.

I can honestly say I don’t believe there will be anything close to a housing market melt down. I am in fact purchasing when I see opportunities and believe you should not let your fears be bigger than your dreams!

The Canadian housing market has been through its ups and downs in the past. Today we are seeing a market correction, but the overall market remains stable with excellent long-term potential thanks to several key factors. With these reassuring facts and when you are financially prepared, you can be confident you can embark on an exciting journey into homeownership.

Here’s why we can expect long-term housing market stability and strength:

A chronic lack of supply

Despite the increasing demand for housing in recent years, the actual supply of housing available has not kept pace. We’re even seeing housing projects being cancelled because of higher rates, higher cost of materials, and labour shortages.

CMHC last year forecasted that 3.5 million new housing units was necessary by 2030 to improve housing affordability, which is significantly more than the current rate at which housing units are being built. In fact, CMHC recently noted that housing starts fell when comparing 2022 with 2021.

Our chronic lack of supply is a primary reason our housing market isn’t heading towards a significant downturn and will cause housing to remain unaffordable for many Canadians.

Immigration

Canada welcomed a record number of immigrants in 2022. Over 430,000 new permanent residents arrived in Canada last year, up from more than 400,000 new arrivals in 2021. And the federal government has even more ambitious plans for immigration in the coming years, with 465,000 new permanent residents targeted for 2023, followed by 485,000 in 2024 and eventually 500,000 new arrivals each year starting in 2025. This is great news because immigration is so vital for our economy’s long-term success. We welcome all newcomers to Mississauga, Toronto and the GTA.

Toronto continues to be one of the most popular destinations for immigrants to Canada, with 115,775 new permanent residents making the GTA their home in 2022, according to Immigration and Citizenship Canada.

While most new immigrants arriving in the area typically do not have the resources to immediately buy a home, we do see that after about two- or three-years homeownership becomes a possibility. With increasing immigration targets, over the long term the result will be continued pressure on our housing supply.

Distressed selling will not have a big impact

Yes, there will be some distressed selling, but arrears are expected to remain low. Arrears for Canadian mortgages has been around a very low 0.14% and is projected to go no higher than 0.25%.

Economic downturns do put some homeowners in a tough situation that results in them selling their home when they must and not when they want. Some investors will not be able to carry all their properties and may look to sell for whatever price they can get.

History hasn’t shown a meaningful correlation between higher mortgage rates and defaults. In fact, job losses are much more highly correlated with mortgage defaults, and while our very tight employment market may lose some momentum this year, we’re a long way from the kind of unemployment spike that would trigger a surge in mortgage defaults.

Most of the impact of our rising rate environment is being felt by homeowners with variable rate mortgages, which is about 30% of borrowers. While they have been stress tested at a higher rate than their mortgage contract rate, there still will be some financial stress felt by higher payments. The good news is that our lenders are working diligently and proactively with these clients, offering solutions to help them manage their situation and keep their homes.

Fixed-rate borrowers, the largest group of homeowners, don’t feel the effects of higher rates until the end of their terms. When they reach that point, they will be renewing a lower mortgage balance than when they initially took out their mortgage. Regular mortgage payments pay both interest and principal, and many use their prepayment privileges to further pay down their mortgage, which builds an important safety buffer.

Government regulation

The Canadian mortgage market is much more conservatively regulated than the US market. Whether we like it or not, the government has played a key role in keeping the housing market stable by regulating mortgage financing. The mortgage qualifying stress test is one such example along with ensuring Canadians have 20% equity in their homes before being able to refinance.

It’s possible that new regulations coming this spring or summer will make it even tougher to qualify for a mortgage as the government worries that all the factors mentioned here will cause the housing market to take off, something they don’t want to see especially since the purpose of higher rates was to cool the market off.

The great wealth transfer

Over the next few years, it is estimated that about a $1 trillion intergenerational wealth transfer from the Baby Boomers to succeeding generations will continue to unfold. Some of this money will be used as downpayment funds particularly since many Boomers want their children and grandchildren to benefit from long-term property appreciation and they often want to participate in such a happy occasion.

According to a poll conducted by the Ontario Real Estate Association (OREA) in 2022,  about 40% of parents helped their children financially when they purchased a home, and that on average, the amount of money gifted to buy a home was $73,605.

Rates will eventually decline                       

The Bank of Canada recently announced another rate increase of .25%, taking the policy rate to 4.5%. The Bank is resolute in its fight against inflation and bringing it back to the target of 2%, currently at 6.3%. They are certainly making headway in this fight, with the Bank expecting inflation to move down to around 3% in the middle of this year and back to the 2% target in 2024. The Bank indicated it will now look to pause rate hikes while assessing the impact of their eight consecutive increases, which will likely include a recession, and recessionary times bring rates down. We don’t know when rates will start to decline, but we do know inflation is heading downward and there are signs of economic softening, eventually leading. to lower rates.

What’s the bottom line?      

There is no question the current economic climate has put a strain on our wallets and caused prospective homebuyers to be anxious about their financial security and hesitant about entering the housing market. However, there are multiple factors working together to keep Canada’s housing market stable. While prices may soften further, the combination of tight inventories, high immigration, low projected arrears, prudent regulation, and eventual lower rates are creating an environment of long-term prosperity for those entering the housing market.

Don’t be a housing bear! Look beyond the current correction and consider why it might be important to take advantage of today’s lower home prices. History has shown us that it pays to be ahead of the curve! We all want to buy low and sell high but because emotion plays such a big role in our decision making, we often miss out and have significant regrets after the fact.

The upcoming spring market could be an important moment of opportunity for purchasing real estate and benefiting from long-term home price appreciation in Mississauga, Toronto and the GTA. Don’t miss out if you are financially ready. If you are not prepared or don’t know how to be, I can guide you on the best strategies to become financially fit for homeownership.

Let me help you achieve your homeownership dreams. I have the expertise and experience to help you navigate today’s complex and confusing marketplace. Let’s talk!