RE/MAX: homeowners are able to withstand market challenges of 2023

Although mortgage rate increases destabilized most Canadian real estate markets during the previous year, the latest report by RE/MAX suggests that homeowners are able to manage value reduction and recessionary pressures due to lower loan-to-value (LTV) ratios on new mortgages.

The report reviewed average prices and new mortgage values in 12 major housing markets to compare LTV ratios during the period from 2012 to 2022.

It says that during the past 10 years, LTV ratios went down in 67% of major markets. The biggest declines were reported in London and Moncton (21%), Halifax (15%), Hamilton (14%), Toronto (10%), and Ottawa-Gatineau (9%). At the same time, Calgary, Edmonton, Saskatoon, and Regina showed higher LTV ratios than in 2012. However, this tendency will likely change in the future as the economy is showing signs of recovery in Alberta and Saskatchewan.

In the most expensive cities, e.g. Vancouver, Toronto, and Hamilton, the lowest LTV ratios were registered: 50%, 53%, and 54% respectively. Meanwhile, Regina and Edmonton saw the highest results with 88% and 83%. The average national loan-to-value ratio reached 57%.

“Although we still face challenges amid the current high interest rate environment, risks for the overall real estate market are sharply reduced when homeowners have a larger share of equity in their homes,” – noted RE/MAX Canada president Christopher Alexander. “With half of LTV ratios remaining within the 50- 60% range, homeowners are more capable of managing the downward pressure on property values and fewer of them will have to deal with significant financial problems.”

Sharp population growth has been the main driver of home-buying activity during the previous 10 years, with the quarterly national population going up by 12.1% from 2012 to 2022. This tendency is expected to go on in the nearest future as Canada’s government plans to raise immigration levels.

“This year, we’ll most likely face certain challenges, but a healthy number of homebuyers are expected to keep entering the real estate markets all over Canada,” – said Elton Ash, RE/MAX Canada executive vice president.

In his opinion, the shift toward smaller markets should continue in regions where in-migration from more expensive markets started recently, for instance, Atlantic Canada, Ontario, and Western Canada. He also believes that major centres in Alberta and Saskatchewan will show significant growth, as provincial economies are functioning “on all cylinders.”

“The main thing is that the dream for homeownership remains strong,” – he noted. “The current mechanisms aimed at supporting stability are working, and while new challenging conditions this year could force some buyers to take a pause, the longer-term forecast is still positive. Once the central bank says it’s done with tightening, the market will get back to more normal levels of homebuying activity.”