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Real estate buyers and sellers are finding themselves in new positions at the bargaining table after rate hikes by Canada’s central bank have put the market in a spin. Ari Altstedter reports at Bloomberg:
One of the world’s bubbliest housing markets is tilting from sellers to buyers with dizzying speed.
A string of central bank interest rate hikes has flipped the switch on Canada’s white-hot real estate market, spurring the first national home price decline in two years. That has both buyers and sellers in some of the frothiest pocketsscrambling as they try to navigate an unusually rapid shift in the country’s housing landscape.
In some cases, people are turning to high-interest bridge loans to get themselves out of tough situations, according to Bruce Joseph, founding director of Trident Mortgage Investment Corp. His alternative lending firm, based in Barrie, Ontario, typically serves a niche market of high net worth business owners who can afford to pay interest rates around 7% for financing tailored to their needs.Now that borrowing costs across the board are up — the average of major banks’ five-year mortgage rates runs at 5% — some people who already bought new homes are struggling to offload their old ones. That’s when they turn to alternative lenders like Joseph.
“I think we have a group of people that kind of got caught with that market turning,” Joseph said. “We just came out of a very aggressive sellers’ market, and moved very quickly into a buyers’ market, so their strategy made a lot of sense until really the last several weeks.”
They’re not the only ones getting caught by the sudden shift. Mom-and-pop real estate investors in some places have seen their prospective margins from new purchases evaporate with the rise in borrowing costs, potentially sidelining a source of demand that came to account for a fifth of the market nationally through the pandemic. And those who took out shorter-term subprime mortgages — which account for 1.3% of Canada’s loan market — now face the prospect of having to refinance at double the cost. That could introduce forced sellers and distress to the market.
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