LACKIE: Lifetime mortgages becoming the new normal

Monday May 01st, 2023


Now that the market appears to be hopping again, it seems like the natural reaction — beyond complete bewilderment that we might actually be seeing what we think we are seeing — is to wonder how on earth it is that the sky never actually fell.

After all, we are now — maybe? — one the other side of the fastest interest rate-hiking cycle in Canadian history with rates still sitting way higher than any of the pandemic borrowers evidently ever dreamed.

The resale market is hopping once again with record low inventory doing the heavy lifting in driving prices northwards again. And to speak with both buyers and sellers, FOMO is very much a thing again.

It’s hard to believe.

It’s almost like the market crash that was well underway and all-but-certain lost steam.

But why?

We saw a precipitous decline in housing prices. In some areas it was absolutely brutal while in others it was a mild correction.

On the other side of this there now seems to be a widespread belief, even a reluctant admission in some cases, that real estate in Canada is simply too big and too important to fail.

Robust immigration, insufficient housing supply, and complete and total government ineptitude is a powerful trifecta that will keep prices high and the market virtually impenetrable.

But how exactly is it that Canadians have managed to hold on the way they have?

We have shockingly low levels of mortgage delinquencies while boasting the highest level of household indebtedness among G7 nations.

We also now have people walking around, living their lives, carrying static payment variable rate mortgages that they will almost certainly never be able to pay off.

As rates shot up, many borrowers carrying variable rate mortgages with fixed payments probably felt lucky. They were perfectly positioned to ride out the turbulence with their household budgets in check while poised to reap the benefits when rates came back down again. Few engaging in that sort of calculus likely expected rates to go that high that quickly, and certainly few expected them to stay there for any prolonged period of time.

Likely few knew what a trigger rate was, or that once their set payment was only covering interest and not a dime of principal an adjustment would have to be made to the length of the loan in order to make the numbers work.

Now it turns out that a sizable portion — reportedly between 25 and 30% — of Canada’s big banks’ mortgages are sitting with terms extending past 30 years.

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