Canadian Mortgages

Potential bubbles and meltdowns, offshore investment, unaffordability and interest rate uncertainty – when we look at Canada’s housing markets, it’s easy to find plenty to worry about right now.

But for most of us, owning a home is about lifelong dreams and goals: having a place to call our own, without being financially overextended, and – when we sell – the hope of capturing some equity for our next home and eventually our retirement.

There really is no such thing as a Canadian housing market – it’s a collection of regional markets, all influenced by a wide range of dynamics that push them in different directions at the same time.
— Ryan Berlin is an economist at Urban Futures in Vancouver

While it is easy to get caught up in the headlines, the primary driver of real estate markets over the longer term is people, says economist Ryan Berlin of Urban Futures in Vancouver. “The things that influence our population and the need to be housed are factors such as immigration at the national level, migration between provinces, how many kids we’re having and when we’re having them, when we’re dying and how many of us are dying, and the process of aging.”

Mr. Berlin has analyzed Canadian housing markets since 2004, and he’s quick to point to one of the perils faced by both market watchers and federal regulators. “There really is no such thing as a Canadian housing market – it’s a collection of regional markets, all influenced by a wide range of dynamics that push them in different directions at the same time. And it’s an extremely complex system.”

In Vancouver, the 15 per cent foreign buyer tax levy that took effect on August 2 resulted in foreign buyers largely disappearing from the market, he says. But most media reporting on the tax’s fallout overlook a deceleration in activity that started in June. “There was no hint that any kind of tax was coming down the pike, but for lots of different reasons, the market was already slowing,” says Mr. Berlin.

That slowdown may have been driven by many factors, including the Canada Revenue Agency’s announcement in Beijing in May that China and Canada would implement stronger reporting obligations to crack down on aggressive tax planning. Closer to home, a barely noticed federal change requiring a down payment of at least 10 per cent on homes between $500,000 and $1-million may have played a role (previously, it was possible to qualify for mortgage insurance with five per cent down on homes under $1-million).

While it is too early to measure the market effects of the federal regulatory changes that took effect October 17, Toronto mortgage broker Christine Xu feels they will have an unanticipated impact on homeowners. “Most people think mortgage insurance is only for high-ratio borrowers, those whose down payment is less than 20 per cent of a home’s purchase price. However, the new requirement will have a big impact on everyone who borrows money through the monoline lenders.”

Monoline lenders, non-bank lenders that tend to offer the lowest mortgage rates, typically insure all of the mortgages they fund. This means that monoline borrowers will be subject to more rigorous qualifying requirements than those who borrow from Canada’s chartered banks, she explains. “The banks can still offer 30-year amortizations and offer the same products for investment properties. Bank borrowers who chose a five-year fixed rate will still be qualified using the rate they’ll pay rather than the Bank of Canada benchmark rate, which is currently 4.64 per cent.”

The longer term result, she says, is that the lenders that have been putting downward rate pressure on mortgages rates may no longer be able to compete in Canada’s market. “Sadly, it all means that borrowers will pay more.”

While Canada’s demographic trends support healthy housing markets over the longer term, these recent changes illustrate the fact that housing prices are impossible to predict, says Mr. Berlin.

“People often sit on the sidelines waiting for the perfect opportunity. They want to buy low and then, one day, sell high. If I were to offer advice, I would say this: buy a home because you want to own a home and you can afford it – the reason shouldn’t be purely financial.”

For more information on the long-term demographic trends expected to affect Canadian housing markets, visit Urban Futures. Visit

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