Everywhere you look in the mortgage industry, records were broken in 2021. Whether it’s record mortgage rates, record average mortgage amounts, record mortgage volumes, record mortgage arrears, a Record percentage of over-indebted borrowers, record amounts of home equity or the mortgage industry’s record share of GDP, you could go on and on.
Next year’s mortgage market will be packed with action as well, but for very different reasons – many of which are not very pleasant, depending on your perspective. On that note, here are four mortgage forecasts for 2022.
This one doesn’t take much of a crystal ball. All you have to do is look at the highs of core inflation in Canada in three decades, a Bank of Canada signaling rate hikes in the “middle quarters” of 2022, and a bond market anticipating four hikes. rate or more in the next 12 months. . Obviously, rate risk will be a thing next year, once all of the other securities are no longer tied to Omicron. That’s when we’ll see what we always see when the central bank raises rates: scared borrowers rushing to lock in on a five-year fixed rate escalation. As usual, these late lockers will likely pay too much for these fixed rates. Indeed, the best time to settle down is before bond yields soar in anticipation of central bank rate hikes.
New credit restrictions
Home sales, house prices and mortgage loan volumes broke records in 2021 as feverish buyers competed for record housing availability. We ended the year with the worst housing affordability since the early 1990s, according to the Royal Bank of Canada. To move into a home, a record percentage of Canadians overborrowed – according to policymakers’ preferred “loan-to-income” measure – and investors have become the fastest growing buying segment. The result was a surge in house prices and what the Bank of Canada called a “deterioration in the quality” of new mortgages. To shore up bank underwriting and toughen the foundations of the financial system, expect regulators to tighten credit. Potential policy changes could include increasing the minimum down payment for investors from 20 percent to 25 to 35 percent, reducing the maximum debt-to-income ratio, restricting down payments borrowed for housing unoccupied and / or difficulty securing a mortgage on other properties when you have a large unused home equity line of credit.
Rising inventories and slowing mortgage growth
The main reason people have large mortgages is the high purchase price. Reasons for high purchase prices include
- record mortgage rates
- record housing inventory
- more investor purchases (investors account for a quarter of home sales in Ontario, according to Edge Analytics estimates)
- pandemic changes in buyer preferences
- blind auction
- soaring material prices
- the inability of single family home construction to keep pace, etc.
Most or all of these catalysts are expected to reverse in 2022, helping home inventories move closer to, perhaps above their long-term average. This is expected to slow or even reverse price increases by the second half of the year, especially if regulators tighten the mortgage market further. And this despite record immigration and short-sighted demand-inducing housing policies, such as the first-time home buyer incentive loans offered by the federal government.
Push against mortgage rate sites
Over the past decade, rate comparison websites have transformed mortgage shopping by adding much-needed transparency, something you just don’t get in a typical bank. But things are changing for the worse. Sites like market leader Ratehub no longer compare third-party mortgage brokers. This is a problem because these brokers often have the lowest mortgage rates in Canada. The owners of rate sites want to ban deep discounters despite the fact that these brokers are “reputable” and “continue to provide fantastic service and advice to their customers” (in the terms of Ratehub).
Why, then, are they excluding these competing brokers? It seems that site owners want to direct more leads to their in-house mortgage brokers, which is more profitable. But consumers are not stupid. In 2022, I think we’ll see mortgage buyers pushing back websites that don’t display the best deals from competing discount brokers. This could spawn new entrants into the rate comparison space and drive mortgage buyers to fully transparent sites.
Robert McLister is an Interest Rate Analyst, Mortgage Planner and Contributing Editor for The Globe and Mail. You can follow him on Twitter at @RobMcLister.