Hold or Sell? Jumping in to Ontario’s Real Estate Market

Published on 29 August 2022, 07:22:56 AM

Mortgage interest rates are low and going lower. Who knows where Ontario’s real estate market is headed next in these unusual financial times. Real estate experts say it’s a ride alright. 

Waiting for Prices to Drop

CMHC, Canada’s national housing agency, predicted early on in the pandemic in its Housing Market Outlook that major real estate markets would take a dive this fall, then gradually recover by 2022. The harbinger of bad news believes real estate activity, housing demand and resale home prices are all on the way down. The bright light is that average home  prices in Ontario’s key markets, Toronto and Ottawa, could begin to amp up again sooner than in Western Canada.

Still Seller’s Market in Summer

Local realtors found the lull short lived. Buyers were flocking into Toronto’s market in June and July looking for hot deals. June wasn’t as hectic as real estate agents had predicted before COVID-19, but by July low interest rates and tight inventories pushed up sales by 29.5% over 2019. Strong sales bolstered Toronto prices, which jumped by 17% to an average of $943,710. Realtors credited pent-up demand from buyers and sellers who sat out March and April during pandemic lockdowns.

Buyers Hesitant to Make Unconditional Offers

Still buyers are being cautious. More agreements of purchase and sale include conditions than in previous years, signifying lenders may be more hesitant to give mortgage pre-approvals. Families are also looking outside the city, in Durham, Orangeville and South Simcoe, where they can get backyard space in case staycations become the new normal. Renovated homes that don’t require a second cash outlay for repairs are in bigger demand, while condo sales are slipping in places where former AirBNBs have entered the long-term rental market.

Mortgage Deferrals Come Due This Fall 

The market could change again in September when six-month mortgage deferrals start expiring. Housing inventories could climb once GTA homeowners who’ve lost jobs realize they can’t keep up with mortgage payments. While that might drag prices downward or slow sales by putting the chill on bidding wars, it would be welcome news for home buyers with cash and downpayment reserves. 

Delinquencies Already Inching Upward in January

Mortgage delinquincies in Toronto were already on their way up before the pandemic. A 10.1% increase in delinquincies in January 2020 over the same time last year could double or triple this fall. While delinquencies are typically low in the TO, it’s the first real change since 2017. The real impact could be felt in December, once homeowners default on 90 days or more of payments. That creates opportunities for buyers looking for bank foreclosures and distress sales. 

CMHC Mortgage Insurance Harder to Get

Stricter requirements introduced July 1 for obtaining CMHC mortgage insurance also followed higher losses from mortgage defaults between January and March 2020. Buyers with less than 20% down are banned from borrowing money to make a down payment and must have a higher credit score than previously. The amount of debt home buyers are allowed to have compared to income has also fallen. That makes it harder for first-time buyers and cliff-hangers to get into the market. 

Consumers Borrowing Too Much, CMHC Says

The pressure the federal government is feeling from COVID-19 shutdowns is evident in friction between CMHC and private-sector lenders. Banks and credit unions reacted poorly to an Aug. 10 letter from agency president Evan Siddell taking mortgage financiers to task for encouraging home buyers to borrow more than they can afford. 

Private Mortgage Insurers Pick Up Slack

Government’s share of the mortgage insurance market is way down since lenders diverted buyers with low down payments away from CMHC to its competitors Genworth MI Canada and Canada Guaranty Mortgage Insurance Co. Both offer similar mortgage insurance programs but are less selective about who they will insure. Ironically, since CMHC lost nearly 30% of applicants who formerly qualified for its insurance after the changes, that affects its wallet too. 

Hold, Sell or Whatever — What’s Next

So where does that leave the average homeowner, property buyer or real estate seller in the GTA? In the worst case, you might owe more than you could make by selling your home in a down market. That’s when holding and renting out that spare room or basement, or even the whole house if you have somewhere else to live, makes sense. If you must sell, take advantage of lower house prices by buying another home or downsizing at the same time. 

Just Don’t Walk Away from Mortgage

Whatever you do, try to avoid walking away from your mortgage or being foreclosed on, damaging your ability to get consumer loans or buy a car or house when your finances improve. And that could definitely be worse than just toughing it out.

Real Estate Lawyers Close the Sale

Axess Law Ontario finalize your real estate closing when you sell in an uncertain market. Talk to a licensed lawyer online with a video conference call, day or evening, at your convenience. Dial toll-free to 1-877-552-9377 or 647-479-0118 in Toronto or use our online booking form to make an appointment. In person consultations available at our Toronto, Scarborough, Vaughan, Etobicoke, Ottawa, Mississauga Winston Churchill or Mississauga Heartland law offices. 

Learn more about Axess Law’s real estate lawyer services.