As the first quarter of 2024 reaches a close, many Canadians are left wondering what is next when it comes to financial concerns. The past 12 months have been rough for variable-rate mortgage holders, as they have been witness to their interest rates climbing higher and higher. According to a recent survey conducted by RATESDOTCA, 48% of Ontarians have noted a rise in interest rates. This has impacted their decision to move or buy, with 17% delaying their plans to purchase altogether. Additionally, 4% of Ontarians state that high interest rates have resulted in them regretting buying their home altogether. So what now? Let’s take a look at how high interest rates are affecting homeowners across the province.

Homeownership is becoming a heavy burden

For quite some time, home ownership has been viewed as a great investment strategy. However, in recent times, many Ontarians are viewing it as more of a burden. Because of the high interest rates, baby boomers and millennials are put in a tough position. With this new mindset, the housing rate is becoming increasingly more competitive. 30% of people who took the survey believed real estate is a good investment if you can afford it. With this in mind, roughly 17% of people believe real estate was a good source of investment, however, it no longer is.

“The millennial cohort is one of the largest in Canada in terms of population,” says Shelly Kaushik, economist with BMO. “As these millennials age into the prime house-buying age, they are looking for larger space and bigger properties.” These high inflation rates are leading to some realizing the burden a home may carry. Many millennials who also planned on upsizing now have plans to wait. In the survey, over 13% of people overall are no longer deciding to move to a larger home after previously wanting to.

Inflation plays a role in high interest rates

Currently, the CMHC mortgage stress test still requires borrowers to meet a certain income level to afford two percent above the rate negotiated. This makes it harder than ever to even qualify for a mortgage. “It was challenging before, but house prices were lower,” says Jacqueline Porter, a Mississauga-based financial planner. “We’re also in a high inflation time, so the cost of everything has gone up significantly. Millennials have a lot of financial goals, such as having children or buying a home. They may be trying to figure out the best use of their money at this time.”

With only 10% of respondents stating they don’t plan on buying a home, some are giving up on the milestone completely, which is a sad reality for most Ontarians.

Excess demand forcing relocation of Ontarians

Unfortunately, we have yet to return to pre-pandemic prices of single-family homes in big cities such as Toronto. The fact is, there’s still a huge demand for housing. Typically with higher inflation rates, there’s a reasonable expectation that prices will drop. Fortunately, this is the case for some condos and smaller units. However, this is not the same for most homes.

Due to this, the prices of homes in major cities remain painfully high. On top of this, smaller cities in Ontario are also seeing an increase in prices. In the RATESDOTCA survey, roughly 3% of respondents stated they moved somewhere cheaper than originally intended. 87% stated that due to high interest rates, they were simply moving to more affordable cities.

Holding out for high interest rates to lower

At the end of the day, these rates rise to combat inflation. Since economic uncertainty is looming over the country, Ontarians are playing it more safe with their money. This includes home-buying plans, starting a family, and the purchase of goods and services.

With this in mind, Kaushik believes in a more affordable future. According to her, BMO Economists have called for rates to be cut starting mid-2024. Furthermore, construction companies continue to work at capacity., despite many labour shortages and supply-chain issues.

Remember, if you are thinking of moving, or are simply staying put, having proper home insurance coverage is crucial to saving yourself money. Contact us or request a quote today!

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