Welcome to our comprehensive overview of the Canadian mortgage market for April 2024. As we navigate through the ever-changing landscape of home financing, it’s crucial to stay informed about the latest trends, policy changes, and economic factors that can impact your mortgage decisions. In this article, we’ll dive deep into the key developments shaping the market and provide insights to help you make well-informed choices.

Canadian Mortgage Market Update April 2024

Capital Gains Tax Changes

One of the most significant updates this month is the proposed changes to the capital gains tax, set to take effect on June 25, 2024. Under the new rules, individuals realizing more than $250,000 in annual capital gains will face an increased inclusion rate of 66.7%, up from the current 50%. However, gains below this threshold will continue to be taxed at the existing 50% inclusion rate.

If you’re an investor with multiple properties or considering buying or selling investment real estate, these changes could have a notable impact on your strategy. It’s essential to factor in the potential tax implications when making decisions about your portfolio.

For example, let’s say you own a rental property that you purchased for $500,000 and plan to sell it for $800,000 in 2024. Under the current rules, your capital gain would be $300,000, and the taxable portion (at 50% inclusion rate) would be $150,000. However, with the new rules, if your total annual capital gains exceed $250,000, the taxable portion would increase to $200,100 (66.7% of $300,000).

This change could significantly impact your after-tax proceeds from the sale, potentially influencing your decision to hold or sell the property. It’s crucial to consult with a tax professional to understand the full implications and develop a strategy that aligns with your financial goals.

Economic Overview

Canada’s economic performance plays a significant role in shaping mortgage rates and lending conditions. In February 2024, the country’s GDP growth came in at a sluggish 0.2%, falling short of the expected 0.3% and marking a decline from January’s revised 0.5% growth.

Looking ahead, the first quarter is expected to remain relatively flat, which could influence the Bank of Canada’s monetary policy decisions. With the possibility of lowered interest rates as early as June 2024, borrowers may have opportunities to lock in lower rates or explore refinancing options.

However, it’s important to note that interest rate decisions are influenced by various factors, including inflation, employment rates, and global economic conditions. The Bank of Canada closely monitors these indicators to maintain a balanced approach to monetary policy.

If interest rates do decrease, it could provide relief for homebuyers and existing homeowners alike. Lower rates can translate into more affordable monthly mortgage payments, potentially opening up opportunities for those who were previously priced out of the market.

New Mortgage Options for First-Time Homebuyers

In a move aimed at improving affordability for first-time homebuyers, the Canadian government has announced the introduction of 30-year amortization periods on insured mortgages for newly built homes. This change, effective August 1, 2024, could make homeownership more accessible by reducing monthly mortgage payments.

To illustrate the impact, let’s consider a scenario where a first-time homebuyer purchases a newly built home for $500,000 with a 20% down payment ($100,000) and a 5-year fixed mortgage rate of 4.79%.

• With a 25-year amortization period, the monthly mortgage payment would be approximately $2,150.
• With a 30-year amortization period, the monthly mortgage payment would be approximately $1,950, a savings of $200 per month.

While the longer amortization period can provide immediate relief in terms of monthly cash flow, it’s important to consider the pros and cons. Over the life of the mortgage, the total interest paid will be higher with a 30-year amortization period compared to a 25-year term.

Additionally, it’s crucial to factor in the potential for interest rate fluctuations over the longer amortization period, as well as the impact on your overall debt load and long-term financial goals.

RRSP Withdrawal Increase for Home Buying

Another notable update is the increased withdrawal limit for the Home Buyers’ Plan (HBP). Effective April 16, 2024, first-time homebuyers can withdraw up to $60,000 from their RRSPs to purchase a home, nearly doubling the previous limit of $35,000. Additionally, the repayment period has been extended to five years, providing more flexibility in financial planning.

This change can be particularly beneficial for those who have been diligently contributing to their RRSPs and have accumulated a substantial amount of savings. By utilizing the HBP, first-time homebuyers can access these funds to cover a larger portion of their down payment or closing costs, potentially reducing the overall mortgage amount and associated interest costs.

However, it’s important to remember that withdrawals from your RRSP are considered taxable income in the year they are made. While the funds can be repaid over a longer period, it’s essential to carefully consider the impact on your retirement savings and develop a plan to replenish your RRSP contributions.

Current Rates and Forecast

As of April 29, 2024, the 5-Year Fixed mortgage rate stands at 4.79%. However, forecasts suggest that rates may decrease by the end of the year, with the 5-Year Fixed rate projected to reach 4.54% by December 31, 2024.

This potential rate decrease could present opportunities for borrowers to secure more favorable borrowing costs in the near future. For example, if you’re currently in a variable-rate mortgage or nearing the end of your term, it may be advantageous to lock in a lower fixed rate before rates potentially rise again.

Additionally, existing homeowners may consider refinancing their mortgages to take advantage of lower rates, potentially reducing their monthly payments or accessing equity for home renovations or other financial goals.

However, it’s important to carefully evaluate the costs associated with refinancing, such as legal fees, appraisal fees, and potential penalties for breaking your existing mortgage term. Working with a mortgage professional can help you determine if refinancing is the right choice for your specific situation.

Regional Market Insights

While national trends provide a broad overview, it’s important to consider the unique dynamics of regional housing markets. Let’s take a closer look at some of Canada’s major cities:

Toronto

• Strong demand for detached homes in suburban areas
• Condo market showing signs of stabilization after a period of oversupply
• Average home price: $1,150,000

The Toronto housing market continues to be driven by strong demand, particularly for detached homes in suburban areas. As more buyers seek more space and amenities, neighborhoods outside the city core have experienced significant price appreciation.

However, the condo market in Toronto has shown signs of stabilization after a period of oversupply. With more balanced inventory levels, prices in this segment have remained relatively steady.

Vancouver

• Continued interest from foreign investors despite the foreign buyer’s tax
• Limited supply of single-family homes driving up prices
• Average home price: $1,300,000

Vancouver’s housing market remains one of the most expensive in Canada, fueled by strong demand from foreign investors and a limited supply of single-family homes. Despite the implementation of a foreign buyer’s tax, interest from international buyers remains high, contributing to the upward pressure on prices.

The city’s geographic constraints and strict zoning regulations have also played a role in limiting the supply of new housing, further exacerbating the affordability challenges in the region.

Montreal

• Steady growth in the housing market, particularly in the condo segment
• Affordable prices compared to Toronto and Vancouver
• Average home price: $550,000

Montreal’s housing market has experienced steady growth, with the condo segment being a particular bright spot. The city’s relative affordability compared to other major Canadian cities has attracted buyers seeking more bang for their buck.

With a diverse economy and a vibrant cultural scene, Montreal has become an attractive destination for both local and out-of-province buyers, contributing to the sustained demand in the housing market.

Calgary

• Recovering housing market as oil prices stabilize
• Increased demand for luxury homes in the $1 million+ range
• Average home price: $500,000

After a period of volatility due to fluctuations in oil prices, Calgary’s housing market is showing signs of recovery. As the energy sector stabilizes, confidence in the local economy has improved, driving demand for homes across various price points.

Interestingly, the luxury segment of the market has seen a notable uptick in activity, with more buyers seeking high-end properties in the $1 million and above range. This trend reflects the city’s growing affluence and the desire for premium living spaces.

Mortgage Stress Test

The mortgage stress test remains a critical factor in determining borrowing capacity and home affordability. As of April 2024, the stress test requires borrowers to qualify at a rate of 5.25% or 2% above their contracted rate, whichever is higher.

While there have been discussions about potential changes to the stress test, no official updates have been announced. It’s essential to factor in the stress test when assessing your mortgage options and budget.

For example, let’s consider a scenario where a homebuyer has an annual household income of $100,000 and is looking to purchase a home with a 20% down payment. Under the current stress test rules, they would need to qualify at a rate of 5.25%, even if their actual mortgage rate is lower.

This can significantly impact the maximum mortgage amount they can qualify for and, consequently, the price range of homes they can afford. It’s crucial to work with a mortgage professional to understand how the stress test affects your borrowing capacity and to explore strategies to maximize your purchasing power.

Alternative Lending Options

While traditional lenders like banks and credit unions are the most common sources of mortgage financing, it’s important to be aware of alternative lending options, particularly for borrowers with unique circumstances or challenges in qualifying for traditional mortgages.

Private lenders and mortgage investment corporations (MICs) offer alternative financing solutions for borrowers who may not meet the strict criteria of traditional lenders. These options can be particularly useful for self-employed individuals, those with bruised credit, or those seeking financing for non-traditional properties.

However, it’s important to note that alternative lending options often come with higher interest rates and stricter terms, as these lenders take on higher risk. It’s crucial to carefully evaluate the costs and conditions associated with these options and to seek professional guidance to ensure they align with your long-term financial goals.

Conclusion

The Canadian mortgage market in April 2024 presents a mix of challenges and opportunities for borrowers. By staying informed about tax changes, economic indicators, new mortgage options, and regional market trends, you can make well-informed decisions that align with your financial goals.

Remember, every borrower’s situation is unique, and it’s crucial to seek professional advice to develop a personalized mortgage strategy. Whether you’re a first-time homebuyer, an investor, or looking to refinance, working with a knowledgeable mortgage professional can help you navigate the complexities of the market and make the most of your home financing options.

As we move forward in 2024, stay tuned for further updates and insights on the Canadian mortgage market. By staying informed and proactive, you can position yourself for success in this dynamic and ever-evolving landscape.

At Everything Mortgages, we strive to help first-time homebuyers, small business owners, and hardworking professionals navigate their mortgage journeys. Whether it’s securing a loan or seeking better solutions, our team is here to guide you toward becoming mortgage-free sooner and building wealth faster. Reach out to us today to explore these strategies and more.

Note: This article is intended for informational purposes only and does not constitute financial advice. Please consult a financial advisor or mortgage professional before making decisions about your mortgage.

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