What Does Rising Interest Mean To Your Mortages
I mean, they're paying taxes, right? They're taking from the government, they're taking from roads, hospitals. In fact, I probably think we're gonna go to recession because if they're not going to contribute economy, they're paying taxes..
Transcript**
Kenneth Yim 0:00
I mean, they're paying taxes, right? They're taking from the government, they're taking from roads, hospitals. In fact, I probably think we're gonna go to recession because if they're not going to contribute economy, they're paying taxes. Hey guys, welcome to another edition of Broadview table talks. Today, we're going to be talking about the rising interest rates and what that means to mortgage. So as you know, Bank of Canada started raising their rates aggressively in March. And they started that with half point increase, or the one increase, have no quarter point than half point. Yeah, halfway to April. And June's coming up and is probably another P, we're talking about half point two, one full point of interest rates. And every time you raise those payments, it increases your mortgage payments by quite a bit. But the issue is that if you punch out the calculation, you look at the mortgage calculator, it only makes a $12 difference over $100,000 mortgage right, so it's not that much. And the best part and I keep telling everybody about this is that five of the big six banks out there offer cap payment structures, where if the rates go up, the payments still stay the same. It's just the amortization you pay more towards interest. So basically, it takes longer to pay it off, right? Scotia is the only one that doesn't have the cap payment structure unless you do a three year variable or you specifically request for it. So I don't think it's the end of the world, or you.
Michael Ng 1:25
Honestly, I just renewed my mortgage. And I don't think it's the end of the world either. I'm still trying to pull equity out. It's feels like business as usual. Obviously, there are a few changes, but it's something that we can adapt to.
Kenneth Yim 1:36
Yeah, and so the thing is, right now, what's happening is that people are getting freaked out and buyer sentiment is really taking over and everyone's kind of like, you know, rates are going up. So they're just waiting, waiting, waiting. And when there's no buyers price is coming down a little bit, right? So if you're a buyer out there, and you're thinking should I buy now? Well, I don't know, what do you do? Right, you probably think in your head, I'm gonna wait a little longer since prices are falling in. All right, so then that just exacerbates the problem, the more even though realistically it doesn't do anything to the market, if you're already had an existing variable rate mortgage or getting a new one doesn't really make that much of a difference. But if I was a buyer, right now, I wouldn't wait any longer, like the rates will go up. So the payments will go up. But more so the big issue is the affordability. Because all mortgages are stress tested at a certain rate. So the fixed rates are going up, which means you have to qualify it five in what is it 5165 or 6%, for your interest rates. And if it's variable, it's whatever your contractual rate is times a plus 2%. So if the interest rates are going up, it means your what you're qualified for goes down, which means your purchasing power goes down, right, as well. So if you wait any longer to buy, essentially what happened is sharp prices might come down, but your affordability comes down with it. And also the cost of borrow, that also comes up as well, too.
Michael Ng 2:55
Yeah. And I had a conversation with a client last week when we put an offer for a property down here in this area. And your your purchasing decision doesn't exist in a vacuum. You know, while you feel that you may not be affected too badly, by interest rate changes, and the mortgage stress tests, you know, people out there are being affected by it. And it's not necessarily the people who are competing at your level. It's also people are competing above your level, who might be dropped down and have to look at properties that you're looking for as well. So if you were sitting on the fence before, it's not that you're going to have a decrease in competition, if anything, the competition for desirable homes and desirable neighborhoods is just going to continue to stay heated.
Kenneth Yim 3:33
So what you're saying is that more people from the higher price range, we'll have to come down a little bit. And that area, like the where everybody the average price point is gonna get really crowded. And obviously,
Michael Ng 3:43
yeah, because there's not enough supply. We know that and there aren't new homes being built in the highly desirable areas, especially larger family homes. So there are you know, when we see the news, that price has dropped 20% over the GTA throughout the GTA, for example. It's not necessarily true for every pocket, every neighborhood.
Kenneth Yim 4:02
Well, the thing is, the prices have gone up so fast in the past two years because of all the liquidity that got injected into the market because of COVID. And all that. The shutdowns. So yeah, prices went up by 50% in the past two years, so they come down a little bit, you know, maybe whether it's 10% or 15%, or 20%. You're reading 20% I didn't hear that.
Michael Ng 4:21
I saw Globe and Mail article that's at 20%. Well, I
Kenneth Yim 4:24
guess it depends on where you're looking at right in Toronto. I think the average price shoot was a retracement right now.
Michael Ng 4:29
We'll figure that out. The average price for detached in Toronto wasn't like over 1.4 million.
Kenneth Yim 4:34
Some of that's all of Toronto, right. Good areas for detached because like 1.8 2 million, right? Yeah, core. I don't know why the market is being affected. I mean, I know why obviously because everyone's getting freaked out but I think they're being not so smart about that. I think that there's a small window of opportunity to buy while it's coming down in just a little bit and if you waiting longer you can your boring abilities can be lower as well too. In other words, I already said that but Um, that is an issue, I think, well, I
Michael Ng 5:02
mean, if we look at why interest rates are increasing, it's because primarily, we're using it as an instrument to tame inflation,
Kenneth Yim 5:09
right? Inflation is probably caused by rising house prices, because 40%, or close to 40% of the CPI basket is through housing, or housing costs, right carrying costs.
Michael Ng 5:19
And when we're looking at 6.7% and inflationary growth, like we need to tame it down, I understand.
Kenneth Yim 5:26
Yeah, it's true. So it's kind of like, you got to crash the economy, right to make the inflation come down a little bit. And in order to be if you're a buyer waiting on the sidelines, and you're thinking, Oh, the price is going to come down on like, a lot significantly, I think it has come down a lot before it becomes really affordable in order to do that. Like I'm talking about the 50% gain that we had pre pandemic, from pre pandemic levels. That's gonna hurt the economy is gonna hurt a lot of people. Yeah. In fact, I think I probably think wouldn't go to recession because of that, if that ever were to happen.
Michael Ng 5:57
Yeah, absolutely. Especially with the amount of debt that the average Canadian now carries.
Kenneth Yim 6:01
Yeah, yeah. So I don't know. It's gonna be a wild ride out there. I'm gonna see what's happening. I mean, I'm looking forward to seeing what's happening.
Michael Ng 6:11
Every weeks, a new week, every single
Kenneth Yim 6:12
week, and with the strength of the know, at the end of day, guys, what a housing crisis, there's a shortage of inventory out there is a huge demand. We're an aging population. And without immigration, like this whole economy will fall apart. Because nobody's working. Everybody's relying on social services. And the government's broke at the end of the day. Yeah. So we got to bring our people in. And I just got a comment on YouTube saying that the immigrants coming in, they're saying they're slaves. Right. And that's such a sad thing to say, but I don't know the rest of world is kind of crappy right now. Canada is actually pretty good. Like with all the wars going on with all the just, you know, lock downs in China. And just, I don't know how prosperous Europe is even for that matter, like until they're doing really bad.
Michael Ng 6:57
Well, I mean, even some countries, you have to pay for your own vaccination for COVID, which is not a reason to leave the country. But no, it's not a reason. But it's, you know, we have a relatively easy here.
Kenneth Yim 7:06
Yeah, yeah. Just I don't know. I think there's a lot of wonderful things about Canada, and it goes to show exactly why there's 40,000 People 430,000 People coming into Canada this year. Yeah.
Michael Ng 7:15
450,000 the next two years, right, next year, this year by 2024.
Kenneth Yim 7:20
Yeah, so we're gonna have a massive growth, you know, we have 30 something million people and another million coming in for the next couple years. How many are leaving the tube? The net emigration is still positive at the end of the day? Yeah. Right. So Canada's really aggressively opening the borders, to bring people into here to support our social services, because everybody's getting old and nobody can work anymore. And we're having labor shortages. So we need housings, people to write. And people don't just come in isolation, they bring their families in who aren't productive members of society. So they all need houses. No, seriously, right? Like, they're not doing anything. Like if you've been parents over here, you know, I mean, like the older like our generation anyway, our parents, they're not really working their retirement mode, they're not going to contribute economy, they're paying taxes, right. They're taking from the government, they're taking from roads, hospitals, and you know, young kids with school and stuff like that. Somebody's gonna pay for that. So that's why they have an aggressive immigration policy policy, I guess.
Michael Ng 8:17
But so for every, every family that's moving to Canada that we've held so far this year, they, you know, they've liquidated their assets back home, they're prepared to move here, they're prepared to integrate fully. It's, it's a huge difference from how it was a few years ago, because they have all their banking financials ready to go. They already know what their plan is. They want to rent and they're planning on buying in the next three years. They have an extra plan.
Kenneth Yim 8:41
Yeah, and the foreign buyer exempt band is exempted for people actually coming here to live as primary residences. So are you getting a lot of calls from people back home when you're looking to own your stuff? Connections in Asia?
Michael Ng 8:52
Yeah. So I've probably picked up two clients thinking about moving here. One of them's already doing it in June, right. And then through our listings alone, I think we've helped like four or five different families with high paying tech jobs.
Kenneth Yim 9:06
Yeah, for sure. It's it's it's a big thing that's constantly like, I can't tell you how many times a day I get or a week, I should say, I get calls for people coming here from just new new to the country. So I think at the end day, I wouldn't bet against housing, we're still in a housing crisis, just like Tesla don't bet against some housing market, I think is on a strong growth in the overall picture of it. And again, the best thing I heard was that the housing is like a yo, yo, right? Yeah. And up and down. But on an escalator, so going up and up and up and up slowly. As publishing rises. As you know, our publishing grows in Canada. We need housing, we need space. Yeah. With that, thanks for watching. I don't think the rising interest rates are going to hurt Canada that much, or at least house prices. So don't bet against it. If you have any questions, give us a call.