‘Musical chairs’ housing market to drive strong mortgage demand through spring: experts

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Millicent Wong
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Bank of Canada rate hike to dampen demand

A real estate agent's for sale sign stands in front of a house that has been sold in Toronto. A real estate agent’s for sale sign stands in front of a house that has been sold in Toronto. Photo by REUTERS/Chris Helgren files

Borrowing costs started rising this week after the Bank of Canada raised interest rates by 25 basis points, with major lenders following with their own rate hikes, but mortgage experts say it has not yet translated into a drop in demand in the mortgage market.

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While expectations of a steepening rate hike path could weigh on the psychology of real estate market demand, Dan Eisner, founder and chief executive officer of Calgary-based mortgage company True North Mortgage, said he hasn’t seen this development until 75 percent of his loan-seeking customers are still deciding how before for variable rate products.

“We think the housing market is playing a weird chair game,” Eisner told the Financial Post in an email. “In this game, nobody is ready to get up until they are guaranteed a new chair to sit on. If we see 10 or 15 bids for a house, we know that there are 10 to 15 houses that are not yet listed. Once the market starts to turn, it will move quickly as everyone switches chairs.”

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Eisner added that his firm processed a record number of pre-approvals over the past month, but many buyers are frustrated by the lack of inventory in the market.

Mortgage expert Rob McLister also pointed out that Canada’s housing markets are suffering from a lack of quality supply.

“Offering is returning to some of Canada’s hottest markets. We need to see more of that,” McLister told the Post. “Otherwise it will be a one-sided spring market again. Until housing stocks recover significantly, sellers will remain in control.”

Until housing stocks recover significantly, sellers will remain in control

Rob McLister

McLister added that he expects the mortgage market to be buoyant in the spring due to strong employment momentum, low inventories, slowing COVID-19 cases, as well as the interest rate environment remaining near historic lows.

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However, more aggressive moves by the country’s central bank could halt the housing frenzy.

“If the (Bank of Canada) rate hikes come anywhere near the 175+ basis points priced in, the housing market will hit a brick wall,” McLister said. “I suspect such a move would take at least 18 months if it comes about.”

Until then, McLister said, real estate segments larger than 1,000 square feet with two or more bedrooms and easy access to employment hubs would see more robust demand. Also, a price point south of $1 million will remain in higher demand among home seekers.

The cheaper price point will be key for some mortgage seekers, especially investors.

Nasma Ali, founder and chief executive officer of One Group Toronto Real Estate, told the Financial Post that she hasn’t seen a slowdown in the condominium segment — on the contrary: Investor demand for real estate has grown from a lower entry point than single-family homes.

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“I think that with condos right now there’s such a big (price) gap between a house and a condo…. It’s so easy to see benefits in condominiums,” Ali said, adding that the dispatching of workers to offices plays a role in the demand for these units.

Ali said she doesn’t expect a slowdown in Condoland in the spring, but the shine could fall off in the summer when she anticipates a more balanced market. While she’s a firm believer in condominiums, she hasn’t ruled out the possibility of a condo collapse like the one seen in 2020 at the start of the pandemic.

Mortgage growth accelerated in the third quarter of 2021, the latest full quarter covered by the CMHC’s Residential Mortgage Industry Report, released in January.

  1. A for sale sign outside a home that has sold above asking price in Ottawa.

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  2. Greater Toronto Area realtors recorded 9,097 home sales in February, down 16.8 percent from the number reported in February 2021.

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  3. A pedestrian walks past a Royal Bank of Canada building in Toronto.

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The 10 percent increase in the quarter brought total residential mortgage debt to $1.77 trillion.

“Nearly $58 billion worth of residential mortgages were renewed during the third quarter of 2021, an increase of 60 percent compared to the same period in 2020 (almost double the same period in 2019),” the statement said Report .

A stormy spring followed by an eventual slowdown later in the year was a common theme among mortgage and real estate professionals when it came to forecasts.

Most warned buyers not to expect the gains recorded during the pandemic to continue.

“We believe the housing market will be buoyant in 2022, but we don’t expect house prices to rise like they have in previous years,” Eisner said.

• Email: [email protected] | Twitter: StephHughes95

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