Now we have begun a new Year, I want to thank you for trusting me with your mortgage needs. This year brought significant changes to the Canadian mortgage landscape. Here’s a quick recap and some helpful tips to keep you informed as we progress into 2025.
Market and Economic Updates
The Housing Market here in BC can be best described as slow, but still stable. While the demand is easily overwhelmed by overbuilding in certain markets, given time, demand will meet supply. When I have had clients interested in buying, for the most part it’s taken very little time to find a property. When I’ve heard from my clients who are selling, it’s been quite a task and has taken months.
We can’t be too upset though, the news coming from Toronto has been much more concerning with many micro condo projects coming to fruition and few buyers in sight. The issue of properties built for Air BnB and other short term rentals is now showing its head. With the platform banned in many markets, these properties are just not palatable to owner occupied buyers. While the better developers with the larger units might make it through this market, there are real dangers for overleveraged developers who can’t sell fast enough. But at the end of the day, real estate is local, so these trends might not be felt in all markets.
2024 Canadian Mortgage Rate Trends
The year began with high interest rates with the Bank of Canada prioritizing the fight against inflation over stimulating the economy. But by June, we saw the first rate cut from the Bank and several more as the year come to an end. Fixed rates came down in the Fall as Banks battled hard for new business. As we closed out the year the Bank of Canada punctuated the year with a final jumbo rate cut of 0.5%. As we move into 2025, early indications suggest the possibility of further Prime rate cuts, giving potential relief to homeowners and buyers. Fixed rates are likely to also follow the variable rate down, but to a lesser extent.
Many people forget the that a “normal” interest rate environment has a lower variable rate than fixed, as there is small rate premium for the predictability and security of a fixed rate. I think as the year goes on the variable rate will fall below the fixed for the first time in nearly three years.
First Time Buyers Help Finally Arrives
2024 finally saw some mortgage policy changes, that favour First Time Buyers, rather than all buyers. The policymakers are clearly concerned that the new generation of buyers lack the income and assets to keep up the demand while the old generation cashes out of real estate.
For First Time Homebuyers, these changes hit early in the year, with amended rules for the Property Transfer Tax Exemption for First Time Homebuyers. Instead of a hard limit of a property transfer tax exemption of resale properties of $550,000, now buyers of properties have a sliding scale for the purchase of properties up to $835,000 and $1,100,000 for newly built residences (up from the previous limit of $750,000).
But the good news for new homebuyers didn’t stop there. By the fall, the Federal Government responded to the lagging housing market (condos in particular) by announcing new rules for First Time Homebuyers accessing High Ratio Insured Mortgages.
Now, the Mortgage Insurers would be able extend High Ratio Insured 30 Year Amortizations to First Time Homebuyers buying their first home. (This benefit can be extended to non-First Time Homebuyers in certain cases).
Also, the Mortgage Default Insurance Cap has been extended to $1.5 Million from $1 Million. For high earners in major Urban Markets, this may mean the possibility to buy sooner, with a down payment of less than 20% for higher priced homes.
A Big Year for Renewals
If your mortgage is up for renewal in 2025, now is the time to review your options. Do Not get stuck flat footed as your renewal date approaches. Also, please remember that you do not automatically get locked into a new fixed term but some lenders have started to add a fee if you change institutions once you past the renewal date without a decision. Your Mortgage Renewal needs attention, as it’s a big opportunity to make beneficial changes.
One of these changes could be a switch in product to a variable rate mortgage. Since The Bank of Canada is now cutting rates to stimulate the economy, the variable rate mortgage will soon be the lowest rate option. For those who are uncomfortable spending 5 years in this product, you have the option to lock into a Fixed Rate free of charge in the future. This will allow you to pick a better time to enter a fixed rate mortgage, if you’re unsatisfied with the current market rates.
Although interest rates are lower than a year ago, they are still far higher than a mortgage term that began in 2020 and is now up for renewal. This will mean an increase in payments once the new mortgage term begins. Also, as the economy has been racked with inflation and stagnant growth over the past few years, many people, and perhaps yourself have accumulated consumer debt. If you increase your amortization, you can bring down the regular payment and if you take out equity you can payout those debts. I understand the frustration you might have by deviating from the current amortization schedule, but it’s always best to setup finances so that, higher interest debts can be prioritized and also avoided from accumulating in the first place.
Canadian Outlook for 2025
2025 is already shaping up to be a volatile year politically. We will see a new US Administration take the reins of power, and Donald Trump has already threatened Canada with aggressive tariffs on day one. The expected reaction by Canada will be to drop interest rates further to stimulate the embattled economy. Even if Trump’s threats never came to pass our economy is still in rough shape. A Per Capita GDP recession has already established and we might see an “Official” recession take hold soon after. Also, the consensus is that the current Liberal government will be replaced by a Conservative majority once an election takes place.
Either way, I don’t see much in the way of good news for our economy. But in the world of mortgages, if you don’t have your income impacted, Bad News is Good News, as you can access lower interest rates to your benefit.
As for major Mortgage policy changes, I don’t foresee much happening in 2025. This year saw significant changes to housing and mortgage policies. Since these changes will take time to show fruit, I don’t expect anything further to take place. Will the new policies for First Time Homebuyers heat up the cool housing market, or will the General Economic Malaise in the Country drag housing down with it?
Ready to Help in 2025
As we step into 2025, I want to thank you for trusting me with your mortgage needs. Your support means so much, and I’m always here to provide guidance for your mortgage journey.