Recalibration of the mortgage market

Houses for sale in Ottawa

Over recent years, facing relatively low interest rates and with a strong desire to own real estate, many pursued real estate purchases; homeowners have often been rewarded with considerable equity appreciation, net of transactional and carrying costs.

That equity accumulation has allowed homeowners to access low-cost capital for many purposes, including consolidation of high-interest debt; making down payments on other real estate acquisitions; or simply as cash on hand for living expenses. Many homeowners saw real estate values continue to rise year over year and had little reason or desire to believe the music would stop.

There were certainly homeowners who began to question the sustainability of refinancing over the long term or challenged the old folktale that real estate values only go up, and took the opportunity to sell their homes, pocket their gains, and downsize to lower-priced homes, with smaller mortgages or no mortgages at all. Others may have shared the same feelings but, depending on their situation, pursued homeownership by all means necessary.

Fast-forward to today: real estate values are softening in certain markets, and trans-action-related nightmares include the inability or unwillingness to close on purchases, in some cases jeopardizing a series of related transactions. There has also been a reduction in purchasing sentiment and an increase in borrowing costs and qualifying hurdles, meaning it is now unfortunately judgment day for a segment of homeowners, including new owners who purchased real estate at the peak of the market and are witnessing their neighbours’ homes selling months after their purchase for hundreds of thousands of dollars less than they paid for them.

Similarly, homeowners who have never relied on real estate value increases as a method of supplementing income or servicing existing mortgages are now facing carrying cost increases on certain mortgage products and renewal interest rate increases, all while simultaneously battling an increase in the overall cost of living. In summary, the run-up in real estate values created a false sense of reality and security for a segment of homeowners.

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