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‘The only people refinancing today are the people who really need it’
Publication date:
08/08/2022 • 5 hours before • 3 minutes read • 23 comments 
The Bank of Canada’s aggressive rate hikes are creating a new economic reality for the Canadian housing market that is beginning to weigh on mortgage demand. Photo by Jay LaPrete/Bloomberg News
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Canada’s housing market has been booming for years, but the Bank of Canada’s aggressive rate hikes and the possibility of a recession are heralding a new economic reality that’s starting to weigh on mortgage demand, industry watchers say.
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David Larock, a mortgage broker and president of Toronto-based Integrated Mortgage Planners Inc., said he definitely sees business down given the new conditions, but said he sees different implications when it comes to refinancing versus new purchases.
“Typically, until recently, about half of my business was refinancing and half was buying — and of course both have been impacted by higher interest rates,” Larock said. “But … I would say the most significant impact I’ve seen so far has been the refinancing.”
Larock said that’s because customers looking to refinance had for a time broke a mortgage with a higher interest rate than the refinance rate, which provided tailwind — especially as the pandemic brought ultra-low interest rates to the market. That deal, he said, has been hit hard now that interest rates are rising aggressively.
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“The only people refinancing today are the people who really need it,” Larock said. “I would say the refinancing business has practically dried up in the short term … a little bit, but not much.”
On the buying side, Larock noted that it’s challenging to determine whether the slowdown in new home mortgage origination is due to a typical summer lull, or whether more customers are waiting to see if prices could drop.
Leah Zlatkin, LowestRates.ca expert and licensed mortgage broker, said she’s seeing a shake-up in the types of customers she sees.
Clients looking for new mortgage origination tend to be less conventional and ask for more flexibility. For example, the number of mortgage seekers in the gig economy who are moving toward private finance.
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“I think that leads to the fact that we have experienced a huge wave,” said Zlatkin. “The last year has been a huge wave — even a tsunami — of mortgages and stocks coming through our desks, and now we’re sort of at the point in the wave where the big wave hit, and we’re kind of in that.” Foam. So the foamy deals are always a little bit more choppy, a little bit more unconventional.”
For more conventional customers standing on the sidelines, Zlatkin said it was a question of where prices are headed over the next few months and whether or not fears of a prolonged recession will materialize.
“A lot of people just wait and see; want to see what will happen with the next rate hike before stepping in,” Zlatkin said. “The question is, how long are you going to wait? How do you know when we’re down? And what is the best opportunity for you? And can you take some risk? That’s about where our customers are sitting right now and what they’re considering.”
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Montreal sees a “shift in market dynamics” as home sales and prices fall
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Toronto home prices continue to fall as sales plunge 47% year-on-year
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Vancouver home sales plummet, Calgary’s share price slide as rising interest rates and uncertainty take their toll
The Bank of Canada has already raised interest rates four times this year, raising the overnight lending rate from a quarter percent to 2.5 percent.
The downturn in the mortgage market is also leaving its mark on the companies that provide them, be they mortgage brokers or banks, which have been quick to raise interest rates to follow central bank lead.
A July 26 statement from the National Bank of Canada called the mortgage finance industry a “no man’s land,” with mortgage lender stocks also hit by political uncertainty stemming from efforts by the Office of the Superintendent of Financial Institutions to de-escalate the mortgage market .
“Overall, we believe Mortgage Land’s relative underperformance will persist in the near term, at least until uncertainty surrounding these risks abates,” wrote Jaeme Gloyn, an analyst at the National Bank and author of the report. “As a result, we’re lowering our target multiples across the board.”
Companies like Equitable Bank Inc. (with price target moved from $86 to $75), First National Financial Corp. ($36 to $35) and Home Capital Group ($38 to $35) were among those caught up in this mix.
• Email: [email protected] | Twitter: StephHughes95
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