While interest rate hikes served to destabilize most major Canadian housing markets beginning in 2022, homeowners are well-positioned to ride out the coming storm in large part due to lower loan-to-value ratios on new mortgages, according to a report by RE/MAX Canada.
The RE/MAX Canada 2023 Canada Housing Barometer Report examined average price and new mortgage values published by CMHC-Equifax Canada in 12 major markets from British Columbia to New Brunswick, to compare loan-to-value (LTV) ratios between Q3 2012 and Q3 2022.
The report said Alberta’s strengthening economic engine continues to fuel robust homebuying activity in the province’s largest centre. Calgary is one of few markets in the country reporting an increase in home sales in 2022, with the number of properties sold in the city proper climbing by just over seven per cent, while prices rose close to five per cent year-over-year, it said.
Inventory levels continued to dwindle down, falling 21 per cent from 2021 levels. Despite the higher interest rate environment, multiple offers are occurring yet again, with the greatest activity reported in the $450,000 to $650,000 price range for single-detached homes and $240,000 to $270,000 for condominiums.
“The rebound in the oil and gas sector has greatly contributed to the overall health of the housing market. Over the past decade, challenges in the resource sector cast a shadow over housing performance throughout the province, which was reflected in the 10-year stats. Average price in the Calgary CMA in Q3 2022 rose just 18.2 per cent to $503,450 over the past decade, up from $425,820 during the same period in 2012,” said the RE/MAX report.
“The loan-to-value ratio edged up to 74 per cent in 2022, an increase of three per cent over the 71 per cent reported in 2012. The market’s trajectory changed during the pandemic, coming alive as the province’s economic destiny changed course. In-migration has gained momentum in lockstep in recent years, as evidenced by the uptick in population.
“According to Statistics Canada Quarterly Population Estimates by Province, Alberta experienced a 2.7 per cent increase between the first and fourth quarter, welcoming more than 118,929 people to the province. Buyers from the country’s most expensive markets in British Columbia and Ontario are arriving almost daily, attracted to the city’s affordable housing stock and well-paying job opportunities. With Alberta expected to lead the country in terms of economic growth in the year ahead, homebuying activity in Calgary should remain strong for the foreseeable future.”
The national report found that LTV ratios had declined in 67 per cent of markets (eight) over the past decade, with the greatest drops noted in London and Moncton (21 per cent), Halifax (15 per cent), Hamilton (14 per cent), Toronto (10 per cent) and Ottawa-Gatineau (nine per cent). Four markets, including Calgary, Edmonton, Saskatoon, and Regina, were up over 2012 levels, a trend that is set to reverse in the years ahead as Alberta and Saskatchewan’s economic engines gain momentum and drive homebuying activity.
The lowest loan-to-value ratios were found in the most expensive markets, including Vancouver (50 per cent), Toronto (53 per cent), and Hamilton (54 per cent) while the highest loan-to-value ratios were found in Regina (88 per cent) and Edmonton (83 per cent). Nationally, loan-to-value ratios hovered at 57 per cent.
“While challenges certainly exist in today’s high interest rate environment, risk factors for the overall housing market are greatly reduced when homeowners own a larger proportion of their homes,” said Christopher Alexander, President, RE/MAX Canada. “With half of loan-to-value ratios within the 50- and 60-per cent range in Canadian markets, homeowners are better able to withstand downward pressure on housing values and fewer will find themselves underwater, carrying upside down loans.”
RE/MAX said three factors were largely responsible for the downward pressure on loan-to-value ratios over the past decade: equity gains, the pandemic facilitating the ability to work remotely in smaller markets, and the transfer of intergenerational wealth, particularly in the latter half of the last decade and the early 2020s.
“Government implemented measures to reduce risk to the country’s housing markets, including the much-maligned stress test, have also gone a long way in maintaining the overall health of the Canadian market,” said Elton Ash, Executive Vice President, RE/MAX Canada. “The housing market in Canada has a reputation for stability relative to other international markets, and prudent policy plays a substantial role.
“As we head into 2023, there are likely to be challenges, but a healthy number of homebuyers are expected to continue to enter the country’s housing markets from coast to coast. The trend toward smaller markets should continue to play out in Atlantic Canada, Ontario and Western Canada —areas where in-migration from more expensive markets has occurred recently. Major centres in Alberta and Saskatchewan are expected to see strong growth in the year ahead as provincial economies continue to operate on all cylinders.
“However, there could be some tough times ahead for larger markets that are seeing an uptick in over-extended buyers, as well as increased financial hardships for parents who helped their kids into homeownerships by taking out Home Equity Line of Credit (HELOCs). While most chartered banks are typically willing to work with homeowners in distress situations, buyers that chose to work with private lenders are having a different experience, as evidenced in recent stories in the media.”
(Mario Toneguzzi is a veteran of the media industry for more than 40 years and named in 2021 a Top Ten Business Journalist in the world and only Canadian)