As mortgage market challenges grow, what approach should hopeful homebuyers take?

If the national housing agency’s newly released update on Canada’s current mortgage market outlook is anything to go by, the financial picture facing many Canadians isn’t getting any more straightforward.

Risks of financial strain are continuing to linger for many homeowners amid the prospect of higher interest rates upon renewal, according to Canada Mortgage and Housing Corporation (CMHC), while delinquency levels are inching upwards amid those rising rates in recent years.

Still, while affordability-related challenges on the housing front are persisting, a strong appetite for homeownership among Canadians is also clear. Overall mortgage debt levels are rising at a slower than usual pace, but alternative lenders are expanding market share and posted an increase in lending between last year’s final quarter and Q1 of 2024.

What’s more, a recent Royal LePage survey showed that younger Canadians remain bullish about their homeownership prospects, with a sizable percentage of that cohort viewing a home purchase as an achievable goal.

What approach should Canadians be taking in their homebuying plan?

The growing complexity of a home purchase and rising levels of associated mortgage debt underscore the need for a comprehensive approach to financial planning centred around the mortgage, according to a leading executive in the space.

Chris Karram (pictured top), managing partner at SafeBridge Private Wealth, told Canadian Mortgage Professional that the strategy could prove an important service and value add for mortgage clients and borrowers. “For most Canadians, if you’re making a half-a-million-dollar decision to take on debt – to buy a house or investment property or whatever it may be – it’s such a big number for most people that it should be then looked at within the rest of their overall financial plan,” he said.

“As far as we’re concerned, people should be reviewing their entire insurance and wealth portfolio, their cash and the budgeting – all of the things that are important to managing the family’s finances.”

Skyrocketing home prices across major urban centres in Canada have made a choice that was always a big one for Canadian families even more significant, only increasing the importance of having a strong overall financial picture.

The complexity of securing a mortgage, meanwhile, has also grown amid a fraught current conventional lending landscape. “It’s a lot harder for people to get traditional mortgage financing today than it ever has been,” Karram said, “which makes the whole navigating the financial world that much more complex from both underwriting to [the question of] how this fits into the rest of your portfolio.”

Investor, second-home market changing rapidly

Investor enthusiasm for purchasing secondary properties may have dimmed slightly in the face of interest rate spikes, but the growth in that market segment over the past two decades – whether cottages, chalets, or rental properties – suggests the downturn may not last for long.

What’s more, devising an all-encompassing financial strategy for current investors and second-property owners is doubly important now, Karram said, because of the rapid change in borrowing conditions seen during the past two years. “The reality is, there are far more real estate investors today than there were 20 years ago and that landscape is massively different today than it was then,” he said.

“Obviously, the real estate market’s not rising at the same clip – there are massively different interest rates today than two years ago. Carrying that cashflow, managing those properties, and frankly dealing with not just the necessarily upward trajectory of the value of your property has really focused people to take a look at their overall real estate portfolio.”

It may have once been the case that buying real estate, sitting on it for a couple of years and then selling it for a tidy profit was a surefire bet – but that no longer rings true for all, Karram warned. “And that risk that people are taking on needs to be considered with everything else that they’re doing,” he said, “never mind balanced with everything else in terms of other asset classes, tax implications, portfolio management and things of that nature.”

CMP

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