Borrowing costs

Edmonton townhouse, condo sales rise as borrowing costs rise

Rising home prices along with higher mortgage rates mean some homebuyers are looking to more affordable options.

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Market watchers say the recent increase in activity in Edmonton’s resale market among condominiums and townhouses is the result of growing affordability challenges that are likely to become more difficult in the coming months. weeks amid higher borrowing costs.

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“The market for townhouses in the $300,000 to $350,000 range is very active because people are being shut out of the market with single family homes (houses),” says Marc Crossman, mortgage broker at Mortgage Alliance Lending Advisors at Edmonton.

Year-to-date, ending May 31, condominium sales are up 31% and townhouse sales are up 24%. In contrast, sales of single-family homes rose about 8%.

The reasons are two-fold, with single-family home prices hitting record highs, with the average price in May exceeding $492,000.

Mortgage rates raised interest rates as the Bank of Canada raised its key rate by 125 basis points between early March and early June.

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This drove lenders’ prime rate to 3.7%.

Variable-rate mortgages are now adjusting to the Bank of Canada’s latest 50-point hike on June 1, while fixed mortgage rates have already risen in tandem with bond market yields that price in rate hikes from the central bank before they even happen, says Crossman.

He further notes that he has seen “a shift from variable to fixed has occurred in the last couple of months” among clients. “It’s an acknowledgment that the party is over for low rates.”

Open-ended mortgages are the hardest hit by the recent 50 basis point interest rate hike, says Sung Lee, mortgage expert at RatesDotCA in Toronto.

“You will see an additional cost of $26 for every $100,000 of mortgage.”

Borrowers who have a variable rate, adjustable payment mortgage, in which the payment increases with the prime rate, will see their monthly mortgage costs increase. By contrast, other borrowers with variable rate mortgages will see their monthly payments stay the same, but their amortization will get longer, he says.

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Certainly, higher rates will worry many potential buyers, given that even before the last rate hike, a study by Chartered Professional Accountants Canada found that Albertans were on average more concerned about rising costs than other Canadians. of accommodation.

“More than eight in 10 people are worried about not being able to pay that mortgage,” says CPA Canada spokesperson Sandy Lyons, based in Lethbridge.

He adds that it makes sense that more first-time buyers are considering condominiums – townhouses or apartments.

“But those come with their own set of challenges,” he says, adding that buyers need to consider condo fees and reserve funds.

The fact that more interest rate hikes are looming, including a potential 75 basis point hike in July, adds Lee to affordability concerns.

“For anyone with an adjustable rate mortgage, it makes sense to perform their own stress test to see how it might affect their cash flow.”

Buyers also need to be prepared.

“Getting pre-approved has become very critical these days,” says Crossman.

“It gives customers a price, which is obviously important; it locks in a rate, and it’s even more beneficial behind the scenes,” Crossman says, adding that it helps the transaction process “avoid the mad scrambles” that can cause unnecessary delays and jeopardize transactions.

“It’s the keystone of everything.”

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