[FinancialPost.com] ‘Musical chairs’ housing market to drive strong mortgage demand through spring: experts

While the expectation of a steepening path of rate hikes could start to weigh on housing market demand psychology, Dan Eisner, founder and chief executive officer of Calgary-based mortgage firm True North Mortgage, said he has not seen that pan out so far as 75 per cent of his mortgage-seeking clients are still opting for variable-rate products.

“We believe the housing market is playing a weird game (of) musical chairs right now,” Eisner told the Financial Post in an e-mail. “In this game, no one is willing to stand up until they have a guaranteed new chair to sit in. When we see ten or 15 bids on a home, we know there are ten to 15 homes that haven’t been listed yet. Once the market begins to roll over, it will move quickly as everyone swaps chairs.”

Eisner added his firm processed a record number of pre-approvals over the past month, but many buyers are frustrated with the lack of inventory on the market.

Mortgage expert Rob McLister also pointed out Canada’s housing markets are suffering from a lack of quality listings.

“Supply is coming back to some of Canada’s hottest markets. We need to see more of that,” McLister told the Post. “Otherwise, it’s going to be another lopsided spring market. Until housing inventories rebound materially, sellers will remain in control.”

“Until housing inventories rebound materially, sellers will remain in control.” ~ ROB MCLISTER

McLister added that he’s expecting a brisk spring mortgage market on the back of strong employment momentum, low inventory, subsiding COVID-19 cases, as well as the interest-rate environment, which remains near historic lows.

However, more aggressive moves by the country’s central bank could put a halt to the housing fever.

“If (the Bank of Canada) hikes are anywhere near the 175+ bps that’s priced in, the housing market’s going to hit a brick wall,” McLister said. “I suspect that kind of move would take at least 18 months, if it happened.”

Until then, McLister said the property segments that will see more robust demand would be those over 1,000 square feet with two or more bedrooms and a smooth commute to employment hubs. As well, a price point south of $1 million will remain in greater demand for house hunters.

The cheaper price point will be key for some mortgage seekers, particularly for investors.

Nasma Ali, founder and chief executive officer at One Group Toronto Real Estate told the Financial Post that she has not been seeing a slowdown in the condo segment — in fact, it has been the opposite: investors have had a more ravenous demand for properties at a lower entry point than single-detached homes.

“I think that for condos, there’s such a big (price) gap right now between a house and a condo…. It’s so easy to see upside in condos,” Ali said, adding that the recall of workers to the office is playing a role in the demand for those units.

Ali said she does not anticipate a slowdown in condoland come spring, but the shine could come off of in the summer when she anticipates a more balanced market. While she’s a big believer in condos, she hasn’t ruled out the possibility of a condo crash like the one seen in 2020 at the outset of the pandemic.

Mortgage growth accelerated in the third quarter of 2021, the last full quarter covered by the CMHC’s Residential Mortgage Industry Report published in January.

The ten per cent increase in the quarter brought total residential mortgage debt to $1.77 trillion.

“In the third quarter of 2021, close to $58 billion worth of residential mortgages were extended, an increase of 60 per cent compared to the same period in 2020 (almost double what was extended in the same period of 2019),” the report found.

Among experts in the mortgage and real estate space, a boisterous spring followed by eventual moderation later in the year was an overarching theme when it came to forecasts.

Most warned buyers not to expect the price gains seen during the pandemic to continue.

“We believe the housing market will be brisk in 2022, but we do not anticipate seeing housing price increases like we saw in years past,” Eisner said.

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