In this episode we're talking the current state of the Canadian housing market and how the renters boom is affecting home ownership and vice versa.
Welcome to Canada's Property Management Podcast, your number one resource for investing, managing, and maximizing the value of your real estate assets. And now here's your hosts, Carla Browne and Adrian Schulz. Canada's rental property experts.
Andrian Schulz (00:19):
This may be the dooms day episode. The question is, is home ownership dead in Canada? Carla, what do you think?
Carla Browne (00:31):
Adrian, I can't do a dooms day episode. I'm not a dooms day person, you know that. Let's talk about this, is home ownership dead in Canada? First of all, our audience needs to understand, I believe in home ownership. I come from a strong real estate background. And even though I am in property management and I truly believe in the housing rental space, home ownership is something that the majority of Canadians do strive for.
Andrian Schulz (01:01):
It's why people come to Canada.
Carla Browne (01:03):
Yes, yes, but we definitely are seeing a lot of things within the space that are pointing towards where rental housing is going in comparison to home ownership or the real estate market. So some simple stats to kind of start us off. And then we'll kind of see where this one goes from here. We know over 33%, these aren't my stats, okay. These come from stats Canada and government bodies that tell us these things. Over 33% of Canada currently rents. We know. Bank of Canada released this I think last month, one in five houses that are being purchased right now in Canada are being purchased for investment. They're now in the rental pool.
Carla Browne (01:49):
There are stats that would blow people's minds on housing affordability and where that has gone in Canada. And that is dooms day one for sure is that even in the rental space, people are getting into positions where they can't afford housing. They can't afford the 30% of their income go to housing. Super, super sad. So we need to really think about this. We need to think about where inflation is going, the big one on an interest rates.
Carla Browne (02:17):
And I'm really curious, coming from a mortgage background yourself, where you predict things are going to be going in that way. Because I think we all kind of sit on pins and needles every month when that bank of Canada rate comes out, that we're just not really sure what is going to happen. So let's talk about the interest rate piece first of all, because home ownership is largely dictated by that, not just the ... sale price of is the number one thing. The number two thing is the interest rate because are people going to be able to buy now? And if they do buy now, are they going to be able to afford to keep that house if there is a change?
Andrian Schulz (02:55):
Yeah. So, I mean, we are coming off a few years of historically low interest rates.
Carla Browne (03:03):
Andrian Schulz (03:03):
Yeah. So I think the consumer has gotten used to very unrealistic unsustainable borrowing costs. So we're coming out of a pandemic, inflation is I think a 30 year high rate and rise, and interest rates are moving up daily at the moment. If you're buying a new home, it's a little bit of a shocker because not only are house prices at historic highs and growing in value, interest rates are also going up. But when you think about it, since we've had historically low interest rates for the last few years, interest rates are actually right now just going back into that three ish range where they somewhat belong. And some would argue that interest rates belong in that three to four percent range as it pertains to mortgage financing.
Andrian Schulz (04:10):
The bank of Canada on a quarterly basis will likely continue its quarter point raise on bank of Canada prime for the next four quarters, most analysts are expecting. So if over the next four quarters, it goes up a quarter point each time, we're talking about prime rising up 1%. So if you had or if you got a 2% mortgage a year ago, and your renewal comes up at a time when prime is where it's going to be, then your interest rate on your mortgage is going to go to three, three and a quarter percent. That is still less than my parents ever paid on mortgage interest rate ever. So I think we have to take it into perspective and look at not just the last 10 years, but 20, 30, 40 year history of interest rates. And you could argue that Canada from a borrowing perspective is still one of the most viable places to become a home owner.
Carla Browne (05:27):
I'll tell you a story that'll probably blow your mind a little bit. When my husband and I were very young and married, we did not have a down payment for a house, but I mean, at that point in time renting a house was like, you only rented for as least amount of time as possible, which isn't what we see in Canada. Now we see renters at a minimum renting for 12 to 15 years and more, which is super common. But at that point in time, we needed to figure out how we were going to buy a house. We didn't have a down payment. We had no money. We were young and dumb.
Carla Browne (06:04):
So assuming mortgages was a thing back then, very easy to assume mortgages. So we end up somehow landing into this scenario. I think actually we saw it in a newspaper ad, believe it or not, that somebody was looking for somebody to assume their home. They got themselves into financial trouble. And it was a relatively new home. It was perfect starter home for us. We went out on a Saturday afternoon and looked at it and decided that, yes, we're going to go ahead and assume this mortgage, because that meant we could get our foot in the door and then work our way into what we were going to do next. The interest rate on that mortgage that we assumed was 12.75.
Andrian Schulz (06:47):
There you go. Yep. And you lived to tell about it.
Carla Browne (06:51):
Oh, that flows ... exactly. And that is the interesting thing actually. In real estate, going back to my days in the century 21 office and working on the operations side there, we often talked about this, is that it didn't matter what the interest rate was, houses still actually were selling. People were buying houses. You just adjust everything in your life. The thing I see now is that getting into home ownership is so difficult for are people because we don't have assumable mortgages like I was fortunate enough to have. Rent to own is not super common either.
Carla Browne (07:26):
And I wish some of these things would start to happen because it might actually help people get out of a situation where they're in trouble in home ownership and somebody who wants to get into home ownership, they could. But the reality is that somebody trying to save up the money that they need to get into a property right now, house prices the way they are, where interest rates are going, the impact of inflation, the cost because houses are rising, taxes are rising. Property taxes go hand in hand with the assessment value of the property in provinces. So all of things keep rising, rising, rising, and we're not seeing the same rise in income for people, it's not matching. So one's going up and one's maybe slowly going up. They're not coming together.
Carla Browne (08:10):
So renting is becoming more and more mainstream as that is where people need to go. Which means we need a good supply of rental housing properties right across Canada at all different price levels and ranges. So investors always say, what type of property is the best to rent? Any type is honestly a good type to rent because there are people in all different kinds of price categories. Whereas years ago, someone came in bought an executive house, I would right away say, "It's going to take us a little bit longer to rent that one, because we don't have ... the rental pool is not as big there." That's not the case anymore. It doesn't matter what you buy. This sounds kind of bad for me to say this. I can rent it.
Andrian Schulz (08:58):
There's Carla sales mode.
Carla Browne (09:01):
It was like Carla sales mode.
Andrian Schulz (09:03):
Hey, I like Carla sales people.
Carla Browne (09:05):
I was going to say that wasn't a dis to them either. That's like traditional of what the-
Andrian Schulz (09:09):
From the movies.
Carla Browne (09:11):
Persona of what people think, from the movies, but it is so true that home ownership is definitely being impacted. But I would say if you're an investor out there or you have some extra money to invest, go buy real estate. It is a really safe bet for sure.
Andrian Schulz (09:29):
I think that the current economic conditions are ideal for landlords and real estate investors. But I think it's important to leave people with some hope. And if you think that home ownership is dead in Canada, let me leave you with three reasons of how it might not be. Number one, if you have a family member that owns their home, that wants to leave you a living inheritance, there is something called a reverse mortgage, which allows people over the age of 55 to take up to 55% of the equity tax free out of their home, gift that money to you. They pay no tax on it, and they do not have to make mortgage payments on it. So there is access to equity and capital in the form of living inheritances.
Andrian Schulz (10:37):
Number two, if you're struggling to save for a down payment, consider taking a RRSP catch up loan to max out your RRSPs. And when the time comes, you can actually use the RRSPs if you're a first time home buyer, as part of or as your down payment on a home. And finally, the way that I got started in the purchasing of real estate is, my first home was actually a duplex where the income on the second unit provided income to service the debt, which allowed me to qualify for more of a mortgage. And that was the beginning of my life as a landlord and realtor. And that is how I ended up in the property management space. So there's just three examples of how home ownership may actually not be dead in Canada.
Carla Browne (11:44):
One other thing just before we leave, because that is really good to leave our listeners with that, we don't want this to be dooms day, is that real estate always moves in a cycle. So what we see today is not necessarily what we're going to be seeing in different markets in 6 months, 9 months and 12 months. Things do move in a circular cycle. And so what we see today will happen again, but things will move because not every province across Canada is feeling the impacts in the same way.
Carla Browne (12:14):
This is why it's very important that you do reach out to professionals so that you are able to get some guidance on figuring out where you should be investing if you're investing, or where you should be buying, or what kind of property you should be buying, talking to a mortgage expert, giving those amazing tips you just did to Adrian so people understand there is viable ways of doing this. You need to speak to a professional, bottom line, and try to figure out what's going to be the best move for you. Not necessarily go assume a mortgage at 12.75%.
Andrian Schulz (12:47):
But I bet you that home went up in value just as well. That's the irony.
Carla Browne (12:54):
The irony is that it was an amazing move for us in the end and where it put us, but yes, troublesome for some people to think about when I think back to it, but-
Andrian Schulz (13:04):
That's real life and real property management.
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