15 Apr
It has been reported by Equifax that even before the interest rates began to rise, there were a smaller number of people who applied for mortgages in the fourth quarter. However, the overall debt continued to rise in the same quarter. The company further highlighted that the number of new mortgages fell by 8.1% year over year at the conclusion of 2021. The biggest drop was seen in the markets of Toronto and Hamilton, which fell by 16.1% and 18.1% respectively.
Furthermore, Canadians expected that the interest rate hike would cause a cooling effect within the housing market, but such cooling effect was not perceived by housing experts. It was believed by experts that the rate hike would allow for meeting up the supply and demands of homes, however, a 0.5% increase would not have significant effects.
As an additional rate hike is expected in April, the average mortgage loan size has increased to 10.1% from the fourth quarter of 2020 to $355,000. But this was reduced by 1.5% from the third quarter, which is the first decrease since the commencement of the pandemic.
Although this may be an indication that the average housing prices are stabilizing, the continued demand and the shortage of supply, makes the stabilization of housing price unachievable. The current housing market has created a unique situation whereby in the past, when interest rates increased, home buyers would contemplate buying a home. Now, as per the current situation, more and more home buyers are applying for loans for the sole purpose of owning a property.
Another important aspect highlighted in the report published by Equifax was that there was a 7.9% increase in consumer debt as compared to the previous year. This makes the total consumer debt $2.2 trillion, and this is attributed to the increased credit card spending, which was up by 14.4% from a year earlier and up by 9.8% from the third quarter.
On average, consumers had spent $2,205 per month from their cards within the fourth quarter. This was an increase of 15.2% from the previous year and 6.8% increase from pre-pandemic levels within the fourth quarter of 2019. Moreover, it has reported by real estate boards, before the interest rate hike, buyers raced to take advantage of the 0.25% interest rate. Resulting in increasing prices, shortening housing supply, and an increase the overall consumer debt level.
In the recent months, realtors and buyers are complaining about the lack of new properties because new listings have dropped which has tipped the market in favor of individuals who are selling property. As such, the lack of supply and adding the fact that the interest rate will not remain the same has made buyers move towards purchasing a property as soon as possible.
