Rising Mortgage Rates: 'Right now I'm at a dead end'
It is with anxiety that real estate developers, but also those who dream of their first home, await the decision of the Bank of Canada on the key rate, expected for this morning.
Audrey Blouin Rousseau would like to buy a property, but the market is proving unaffordable.
Audrey Blouin Rousseau has been dreaming of buying a first property for a few years. In 2019, she had developed a plan to build a house in Montérégie, in the Saint-Jean-sur-Richelieu area.
This mechanical engineer had scrupulously evaluated all the parameters. Purchase of land, contacts with contractors, insurance, mortgages, etc.
His financial plan for a purchase of around 375,000 dollars was already tied up. He only needed a few thousand dollars for the down payment. His intention was to take action in 2020.
It was before the pandemic, I was able to afford it, says the single woman who has annual incomes of more than 80,000 dollars.
But since, as we know, things have changed a lot. Housing prices have skyrocketed and interest rates have skyrocketed.
Currently, I might be able to buy a house in a remote area or a condo in bad condition, she blurts out, annoyed.
At 31, she lives in the basement of her parents, to whom she pays a small pension. When she returned home after a few years in an apartment, she intended to save money to supplement her down payment. Now she's waiting for the storm to pass.
“Right now I'm at an impasse; I'm still waiting a bit, but with the policy rate going up all the time, I don't have much hope anymore. »
—Audrey Blouin Rousseau
Homeownership is becoming more and more difficult, confirms Francis Cortellino, economist at the Canada Mortgage and Housing Corporation (CMHC).
According to the latest data from Statistics Canada, nearly 52% of people aged 30 to 34 owned their homes in 2021, down 7% from 2011.
The trend is expected to continue for a few more years. House prices remain high, largely due to lack of inventory, Cortellino said.
The problem, he says, is that the housing sector construction is slowing down. The market is swimming in the midst of a paradox: housing starts fall while housing needs increase.
Mélanie Robitaille is impatiently awaiting the reduction in the key rate.
In the industry, there are no more sales offices, corroborates Mélanie Robitaille, vice-president and managing director of the promoter Rachel Julien, a major player in the Montreal market.
The dazzling rise in the key rate has put off many promoters, she assures, by showing us around her last major project that is about to end.
A 25-story building in downtown Montreal, where buyers have been waiting for their apartment for three years due to delays during the pandemic.
“We have 1.3 million square feet to develop. We are going to do it, but we are waiting for the economic situation to be more favourable. »
— Mélanie Robitaille, Vice-President and General Manager of Rachel Julien
Like many promoters, Ms. Robitaille sees her investment capacities limited mainly by the rise in interest rates, but also by the increase in construction and labor costs.
< p class="e-p">Financing costs have doubled or even tripled, plagues the dynamic and experienced entrepreneur, which has a major impact for projects that amount to tens of millions of dollars.
Result: it no longer launches new projects, unless they are subsidized by CMHC.
The ability to invest is no longer there, adds Paul Cardinal, economist for the Association of Construction and Housing Professionals of Quebec (APCHQ). He notes that each amount mobilized in a project logically prevents investment elsewhere.
Mélanie Robitaille and her team on a construction site in downtown Montreal.
For buyers, the ability to pay is no longer the same, adds Mélanie Robitaille.
To obtain a mortgage, the potential client must demonstrate that they can afford a rate increase of 2%. She finds that candidates have great difficulty getting their project approved by banking institutions.
The truth is that it's no longer happening, people are no longer at the rendezvous for the purchase of condominiums, concludes Ms. Robitaille.
A carpenter does the finishing touches on a construction site from promoter Rachel Julien.
The question now is how long this lull will last on construction sites.
According to economist Paul Cardinal, patience will have to be exercised because, he recalls , housing starts fell by 16% in Quebec in 2022.
It forecasts a drop of 19% in 2023 and a rebound in 2024 if financing conditions are attractive. But, in any case, it will not be enough to restore balance to the market, he concludes.
According to current trends, nearly 500,000 new dwellings should be built by 2030 in Quebec. According to CMHC, 630,000 more would need to be built over the same period to restore affordability to the housing market.
“We would have to double housing starts to be able to house everyone affordably. »
— Paul Cardinal, economist for the APCHQ
For her part, Audrey Blouin Rousseau is increasingly considering finding a rental to leave the basement of her parents.
In an ideal world, she would like to buy a house in order to build up a comfortable financial cushion for her retirement.
Failing that, she will invest in RRSPs. But with high rent, the amount of contributions is limited, she is alarmed. It worries me a lot about my future.