Supply in Canada's property market surges as mortgage renewals loom
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[July 17, 2024] By
Promit Mukherjee and Nivedita Balu
OTTAWA (Reuters) - With many Canadian homeowners facing a sharp rise in
mortgage payments, many of them have decided to bail, resulting in the
highest number of Toronto housing units for sale in more than a decade
and signaling a big drop in prices in the coming months.
In Toronto, a city where two-thirds of the country's condominiums are
sold, considered a bellwether for other big metropolitan areas,
inventories have pushed past highs reached 10 years ago, data showed. At
the same time, sales have lagged.
Rising inventories with anemic sales show a high degree of stress in
Canada's biggest property market, real estate consultants said. It
indicates either a string of defaults or a price correction is in the
offing.
Fueling the surge in available properties are homeowners and investors
who bought houses and apartments five years ago at record-low mortgage
rates, aiming to grab a piece of Toronto's lucrative rental market.
But those mortgages are now coming up for renewal in an interest rate
environment starkly different than it was five years ago. Mortgage rates
are sharply higher, although the Bank of Canada has recently started to
guide them down.
In Canada, mortgages are typically for 25 years and renewed every three
or five years, in contrast to the United States, where homeowners can
enjoy a flat rate for the entire life of a 15-year or 30-year mortgage.
![](http://archives.lincolndailynews.com/2024/Jul/17/images/ads/current/graue_sda_042021.png)
Under current rates, many homeowners would have their mortgage payments
double, according to a calculation by ratehub.ca, a website that
compares mortgage offerings.
Next year, roughly C$300 billion ($219.33 billion) of mortgages at
chartered banks will come up for renewal.
"Some of them are investors who now just want to walk away from their
units because they can't afford it," said Carl Gomez, chief economist at
CoStar Group, a U.S.-based real estate information provider.
At the same time, many are also reluctant to lower asking prices and
book losses on their investment, he said, at least for now.
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![](../images/071724PIX/busine78.jpg)
A for sale sign is displayed outside a home in Toronto, Ontario in
Toronto, Ontario, Canada December 13, 2021. REUTERS/Carlos
Osorio/File Photo
![](http://archives.lincolndailynews.com/2024/Jul/17/images/ads/current/bees_lda_HEROES_2024.png)
"There's just limited willingness to lose money," said Daniel Foch,
director of economic research at RARE Real Estate. "It seems like
nobody has really adjusted their expectations to a market in which
they aren't going to make a profit," he said.
The trend is especially pronounced in the condominium market, where
inventory is at a historic high, said John Lusink, president of
Right at Home Realty, Canada's largest independent housing brokerage
firm.
The current supply would typically take more than five months to
sell.
"It is a buyers' market with no buyers," he said.
According to Toronto Regional Real Estate Board, a group
representing 70,000 brokers and salespeople in the Toronto area,
listings have risen by almost 25% in the first three months of 2024
from the same period a year ago. Meanwhile sales have edged up by
only 5.3%.
The Bank of Canada's next rate decision comes on July 24 with a
majority of economists expecting another cut of 25 basis points in
the overnight rate. Last month, it trimmed the benchmark rate to
4.75% from 5% for the first time in four years.
But economists say that even as the central bank's rate comes down
by 100 basis points, it would have a muted impact on mortgage rates
coming up for renewal. Five-year fixed rates are instead linked to
long-term bond yields, which might hover in the 3% to 4% range.
"Something's got to give," Lusink said, forecasting that Toronto
condo prices might drop by 10% by end of the year.
($1 = 1.3678 Canadian dollars)
(Reporting by Promit Mukherjee and Nivedita Balu; Editing by Frank
McGurty and Nick Zieminski)
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