In the beginning, I would like to thank those responsible for this unique newspaper for providing the opportunity to share with you some perspectives and expectations regarding the economic situation in general and mortgages in particular.

It is no secret to followers of the real estate market that the years 2020-2022 witnessed an unprecedented boom in the real estate market due to

many reasons, most importantly the low interest rates on mortgages, the need for larger homes after the shift to working from home in many offices and companies, which led to a sharp rise in prices and a severe shortage in the availability of residential units in general.

Just as conditions were prepared for this unprecedented upward boom, other conditions are now shaping to correct the real estate market situation as well as mortgages... but as usual, the necessity of medicine makes us endure its bitter taste.

Let us review together the current conditions in the following lines.

Many countries currently are trying to get their economies out of the inflation conditions resulting from cash flows during the pandemic period through central banks. These cash flows were accompanied by a significant reduction in interest rates that dropped to 25 basis points,

which is a historic drop almost unprecedented.

Now, as many countries are about to reopen their markets and borders and resume their economic activities, central banks must raise interest rates, which has already begun in January 2022, to control the high inflation rate for the above-mentioned reasons.

The difficult choice facing the decision to raise interest rates puts central banks worldwide between a rock and a hard place because raising

interest rates fights inflation but causes economic recession due to the excess in prices of products and their raw materials, thereby increasing

their production costs and prices, and thus buyers' reluctance or substitution.

The other option is to keep interest rates fixed, but this option also leads to increased inflation rates and consequently higher prices as well, ending up at the same result. So both options are difficult and bitter.

The repercussions of these options on mortgage markets lead first to the exit of a segment of real estate investors as individuals or

companies from the market due to low profit with the increasing interest rates.

Secondly, it leads to reduced speculation on the supply of units in the market and consequently price stability or correction, which is the reason behind buyers’ reluctance to decide to purchase while waiting for prices to drop.

Thirdly, increased supply of real estate units leading to the gradual shift from a "seller's market" to a "buyer's market," meaning that buyers then have the decision power over unit prices, and the serious seller must accept these prices or end the sale process.

Fourth and finally, low prices also cause current unit owners to be reluctant to offer them in the market in the first place, and this effect greatly reduces the supply of units.

What does this reading mean...

The main problem in the real estate market before the pandemic was and remains the shortage of supply and consequently increased prices, which is one of

the market axioms in Canada because the demand for owning property never stops... especially with the increasing number of immigrants after reopening borders and accelerating immigration applications.

So the market data in Canada always tend to increase prices, and the market forces balance often leads to regret among buyers who bet on lower property prices, especially since mortgage policies in Canada are very cautious.

Let’s look at the current mortgage situation in Canada...

About 80% of registered mortgages mature within 4 years, meaning that 80% of property owners had their finances

evaluated based on a security interest rate of 5.25%, which is a very high number compared to the current interest rates that range

from 1.89% for variable mortgages to 3.89% for fixed mortgages over 5 years.

What does this mean for those intending to buy? In my opinion, waiting is a wrong decision if you are waiting for prices to drop in the coming months.. because interest rates are increasingly rising and this is what affects your monthly expenses and not necessarily the house price!!

On the other hand, the reluctance of new buyers to purchase leads to the rental market flourish, which has already started, with the average monthly rent for a family reaching up to $3200 in some cases.

To mitigate this impact, some Canadian banks have started to ease some mortgage requirements for newcomers and those who have not been in Canada for more than five years. This initiative helps new buyers enter the market as owners and not as renters. An example of this is the program offered by TD Bank targeting new immigrants, which takes into account financial conditions in the home country, recent credit records, and other red lines that were considered obstacles for

many to enter the market.

So let us summarize some current market readings:-

If you are serious about buying.... waiting is not necessarily in your favor because loan interest will rise.

Demand for apartments specifically will increase in the upcoming period.

Contact mortgage experts to take their advice first.

Choose what suits your financial situation. We cannot control market data in the end.

Try to get out of the rental cycle as soon as possible.

Rotating capital in real estate investments requires great care in selection, so don't rush and consult the wise.

I hope to meet again in other editions about the latest in the mortgage market, and I leave you in God’s care and security

Contact:

Tarek.elarkan@migroup.ca