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January, September house prices continue to fall, the lawyer issued a warning.
The continued move by the Bank of Canada to raise interest rates has led to a sharp reversal in the property market, and now real estate lawyers are warning that the market storm is brewing and could get worse.
‘now credit is tight, deferred loans are rife and default rates are rising, ‘said Mark Morris, a Toronto real estate lawyer. ‘The liquidity of the market has become a trickle,’he said.
As inflation gets out of control, the Bank of Canada has raised its benchmark interest rate four times since March to its current level of 2.5 per cent. It is possible to raise interest rates three times this year.
Morris said lenders tend to provide financing to builders without strict scrutiny and do not require proof of qualification of uncompleted buyers.
“the market is illiquid right now,” he said. Buyers will find that they cannot afford to buy or transfer the uncompleted flats. ”
Brookes saw that in some cases, when a family applied for a loan to buy a property, three or four people were applying for it. “the names of parents and children are on the property right.”
As interest rates soar, too many customers need to refinance existing loans or run into problems when they mature, Brookes said.
In the worst-case scenario, the homeowner may have a term loan with an interest rate of 1.89% and the interest rate at the time of renewal becomes 5.89%. Usually in this case, the repayment period should be extended, which can be as long as 40 years.
Brookes believes that as interest rates continue to rise and more mortgages are updated, more homeowners will face financial challenges.
“I believe we will see a lot of job-hopping [bankruptcy] in September or October,” she said.
2. Canadian house prices will fall sharply in the coming year.
According to a recent report released by RBC, there will be a “historic correction” in the Canadian real estate market, with resale volumes in BC and Ontario falling 45 per cent and 38 per cent respectively in 2022 and 2023, respectively, and the house price index will fall more than 14 per cent from its quarterly peak.
House prices in the Greater Toronto area of Ontario soared during the COVID-19 epidemic and have fallen for four consecutive months since March, affected by successive interest rate hikes by the Bank of Canada, the report said.
The latest figures from the Toronto area real estate board show that sales fell 41% in June from a year earlier, with an average house price of C $1.146 million.
The report predicts that average house prices in Canada will fall by about 12 per cent by the second quarter of 2023 from their peak in February 2022. The report expects the “revision” to last about a year and end around the first half of 2023, but a deeper and longer recession cannot be ruled out.
However, Robert Hogue, assistant chief economist at Royal Bank of Canada, said in a report that the Canadian real estate market is not yet expected to “collapse”.
3. Interest rates will be raised three times in the three months before the end of the year.
Doug Porter, chief economist of BMO Bank, predicted in an interview with the Financial Post that the Bank of Canada will not raise interest rates again this year, but three times.
“our view is that they will actually continue to raise interest rates at the remaining three meetings this year.” He said.
That may sound grim, but he doesn’t think the central bank will raise interest rates by 100 basis points at a time, as it did in July.
He thinks the next three interest rate hikes will add up to 1%.
“but as to how high the central bank will raise interest rates, it seems that we can see the outcome.” He said.
In July, the Bank of Canada raised interest rates by a full percentage point, the biggest increase since 1998. The move is aimed at curbing inflation in Canada.
Higher interest rates are particularly bad for homeowners who hold floating-rate mortgages, or anyone who wants to apply for a mortgage in the coming months. Higher interest rates could also lead to a recession, which has happened in the past.
This year, the Bank of Canada is expected to announce upcoming interest rate adjustments again on September 7, October 26 and December 7.
4. if interest rates continue to rise next month, a large number of people will jump off the ship as house prices continue to fall.
Although some experts say that the current house price can no longer reflect the real price of the house, it will continue to raise interest rates next month and house prices will fall sharply.
“I believe we will see a lot of people jumping off ships by September or October,” said Mark Morris, a real estate lawyer.
Morris believes that the heavy debt burden that Canadians have accumulated in recent years is a major risk. In the past, people used to use home equity as collateral to pay for their major expenses, but the practice of using HELOC to cover daily expenses has accelerated in recent years, he said.
“five or six years ago, people began to use their houses as bank accounts,” he said. ” Those who borrow money to maintain their lifestyle need to continue to borrow more money. “I’m not sure if people realize how many houses have become part of their wages.”
Many economists in Financial Street expect the central bank’s benchmark interest rate to eventually rise to 3.25% or 3.5% this year as the central bank tries to rein in runaway prices. Canada’s inflation rate reached an annual rate of 8.1% in June, a 40-year high.
According to Morris, although interest rates used to exceed 20% in the 1980s, much higher than they are now, consumer debt levels are much higher than they used to be.
He worries that higher debt servicing costs could lead to a tipping point, forcing a large number of people to sell their homes while house prices fall. He warned that the combination of the two could lead to a vicious circle.