Can Mortgage Renewals Affect the Housing Market? 

2024-2025 will see about 2.2 million mortgage borrowers renewing, representing 45 percent of outstanding Canadian mortgages.

 

The effects are not just about higher monthly payments, this will likely produce a ripple effect through the entire housing market. 

 

CMHC estimates that average monthly payments could increase 30-40 percent as mortgages come up for renewal over the next few years.

 

In September 2021, five-year mortgages fell to a historical low of 1.44% leading to lower monthly payments for many homeowners. Fast forward to this year, however, the average five-year fixed mortgage sits in the mid-6 percent range (lower for homes with equity).  

 

Homeowners who benefited from low mortgage rates during the pandemic may be in for a major shock as their agreements come up for renewal. Depending on the renewal timing, some homeowners may decide to sell rather than renew. This rapid inventory increase could cause more pricing decreases as demand, depending on geography, will have a buyers' market and lead to lower sale prices. 

 

Don't get your hopes up without doing your due diligence, though. Just because the tables are turning in one region, this doesn’t mean the rest of the country will follow suit. 

 

To really understand if Canada is shifting towards a buyer’s market, prospective homebuyers and those expecting to renew their existing mortgages need to watch for telltale signs, such as: 

•  Higher inventory levels 
•  A drop in median sale prices 
•  An increase in the average number of days homes spend on the market 

Are we heading to a Buyers' Market again? 

Mortgage renewals can have an impact on the housing market, although the extent of that impact depends on various factors. Here are some ways in which mortgage renewals can affect the housing market: 

1. Interest Rates: 

• When homeowners renew their mortgages, the interest rate they secure can influence their monthly payments. Higher interest rates may result in increased mortgage payments, potentially affecting housing affordability. 
• Higher interest rates could also slow down demand for new mortgages, as borrowers may be more cautious in a higher-rate environment. 

2. Affordability: 

• Changes in interest rates during mortgage renewals can impact the affordability of housing for existing homeowners. If rates increase significantly, some homeowners may find it more challenging to meet their mortgage obligations. 

3. Housing Demand: 

• Mortgage renewals can influence the overall demand for housing. If interest rates are low during renewal periods, homeowners may be more likely to continue homeownership or even consider upgrading to a more expensive property. 
• Conversely, higher interest rates could lead to reduced demand, as potential buyers may be deterred by increased borrowing costs. 

4. Refinancing Activity: 

• During mortgage renewals, homeowners may also have the option to refinance their mortgages. This can impact the housing market as well, especially if homeowners choose to tap into their home equity for renovations or other investments. 

5. Market Stability: 

• Stability in mortgage renewal rates can contribute to overall market stability. Predictable and reasonable renewal rates are generally positive for homeowners and the housing market as a whole. 

6. Regional Variances: 

• The impact of mortgage renewals on the housing market can vary by region. Different areas may have unique economic conditions, and local housing markets may respond differently to changes in interest rates. 

 

It's important to note that the relationship between mortgage renewals and the housing market is complex, and various factors, including economic conditions, employment rates, and government policies, also play a significant role. Monitoring economic indicators and staying informed about market trends is crucial for understanding how mortgage renewals may impact the housing market in each period. 

 

We are hoping that the next move is going to be a cut to Bank of Canada lending rates by the government in mid-2024. The government is balancing its fight against inflation with the worries about Canadians impacted by renewals.  

 

For a quote to estimate your options at renewal, do not sign the renewal notice without checking your options. We regularly see people saving 30-50bps on renewal offers, depending on the loan to value of your mortgage at renewal.

Call us for a free quote or email [email protected]!