The Top Real Estate Stories of 2022
2022 was quite an eventful year. We saw the prime rate go up 4% and home prices tumble. Let’s look at the top real estate stories of the year.
Arguably the biggest story in 2022 was interest rates.
In January, the Bank of Canada decided to forgo an expected interest rate increase due to Omicron. Little did we know that we would see interest rates go up at their fastest pace in 30 years. We have seen our central bank increase interest rates seven consecutive times. The prime rate went up by 4% in 2022! This has resulted in the mortgage payments of many Canadians going up by $1,000 per month or more. Many Canadians with a variable rate mortgage with a fixed payment hit their trigger point and were forced to pay more.
Variable-rate mortgage holders aren’t the only ones who saw interest rates increase. Fixed mortgage rates jumped as well.
There was a time when you could get a 5-year fixed mortgage below 2%. Sadly, those days are long gone. Today we are seeing fixed rates in the 4-6% range, depending on the mortgage term length.
If you’re locked in a fixed-rate mortgage right now, that may not concern you. But anyone signing up for a new mortgage or with a mortgage coming up for renewal is likely in for a rude awakening.
What’s in store for interest rates in 2023? It’s hard to say. If inflation comes down, we could see a break from the interest rate increases, but only time will tell.
The Mortgage Stress Test
A consequence of interest rates spiking is the mortgage stress test is a lot tougher to pass compared to before. Instead of qualifying based on the benchmark rate of 5.25%, now you might have to qualify at a rate of almost 7% or 8%, depending on whether you are taking a fixed or variable rate mortgage.
The result of this is that you could see your purchasing power decrease by 20% or more, even if your income remains the same. That’s because instead of proving that you must qualify based on mortgage payments at 5.25%, you need to show that you can afford mortgage payments based on a mortgage rate of 7% or 8%.
Will we get a break from that? I wouldn’t count on the mortgage stress test being changed anytime soon, although if mortgage rates come down, it would provide borrowers with some much-needed relief.
It hasn’t been all bad news. As a result of higher mortgage rates, home prices have come down as much as 20% or more in some areas from their peak. You don’t have to be an economist to understand this.
There is an inverse relationship between interest rates and home prices. When interest rates are low, home prices tend to be higher. But when interest rates are high, home prices tend to be lower.
This means there are good buying opportunities despite the higher cost of borrowing since your home-buying dollar tends to stretch a lot further.
How the Canadian Mortgage App Can Help
The Canadian Mortgage App stays updated with all that’s happening in the real estate market.
The Canadian Mortgage app has your back in 2022 and beyond. The app uses the latest stress test rate based on current mortgage rates. You can enter current home prices and see how much you qualify for. It’s as simple as that.
What are you waiting for? Download the Canadian Mortgage App today to try it out.