You’re wise to wonder how softening home prices, something the Bank of Canada aims to achieve, will impact you. Household debt is high, while housing affordability is off the map. Torontonians spend 68% of their median household incomes on housing, way over the 40% lenders consider affordable.
CMHC considers Toronto highly vulnerable to a price correction due to price acceleration, an overheated housing market, and overvaluations. Major mortgage lenders see the “froth” churning home prices upward as slowing.
So what could happen during an inflation? Higher interest rates for mortgages and credit cards, property taxes, and household expenses equal more financial stress for owners. More home buyers than ever have sunk their wealth into housing, and some only dodged pandemic job losses by getting CERB or EI. They may have to cut their losses if wages stay static, or higher living costs outstrip their budget.
Consumer proposals to settle household or mortgage debts can force lenders to resell those homes at cost. While that brings more houses to market, it may put downward pressure on prices because lenders are usually impatient to sell. Better-heeled buyers can afford to outwait higher prices to net bargains from cash-strapped sellers. That may take some edge off Ontario home values.
On the upside, government is out to tame inflation, and you could also profit.
- Housing supply in Canada is notoriously low. Some buyers shrug off inevitable drops in value. They don’t have a crystal ball either, and “they’re not making more land.”
- The end of pandemic-driven upsizing for home schooling and remote work offices could flatten some home prices. You win anyway if your home went up in value. Only 20% of Canadians expect to go back to working in person, and many want a mix of remote and office work.
- A remigration to cities as the pandemic eases could take a toll (or not) on home prices in the ex-burbs, fringe burbs, and cottage country. Taking your profits while home prices are high could get you more home down the road, in a location of your choice.
- Your mortgage drops the longer you hold. Since home prices go up over time, that alone can be a money maker.