Older millennials, adults aged 35 to 44, had debt-to-disposable income ratios around 250 per cent in 2019, while Freestone noted that metric was roughly 150 per cent for the same age group in 1999.
Can confirm we’re sitting around 250% but this is after exercising significant restraint to not take on as much mortgage as the banks would have given us. Everyone I know who bought over the last couple of years went all out and I can’t imagine them being any lower than 300-350%.
(Seriously sorry for dumb question) What does that mean for us?
Depends on where you are financially. If you have a fixed rate mortgage that is getting renewed in the next year or two - you’ll see a big jump in payments if you aren’t able to extend your mortgage.
If you’re still on variable, no real change.
If you’re renting, rents will continue to climb if interest rates go up or plateau - but don’t ever expect prices to come back down, if you’re lucky they’ll stagnate for a year but that’s unlikely because landlords are greedy shits.
Businesses are cutting jobs as there’s less money in the market (all going to shelter and food plus general Greed of making less people do the same/more as a larger group), so if you’re unfortunate enough to have a mortgage that’s renewing soon and you lose your job and EI can’t cover the difference, you’ll probably have to sell or lose your home… And still be unable to afford rent.
This has been the goal of every level of government for a while, municipalities refused density, provinces refused to prioritize any public housing (Doug in Ontario is sitting on 22 Billion as education, healthcare, and housing are floundering, so he gifts developers billions in prime Greenbelt lands for single detached millionaire homes) and the Feds can’t really do much with provincial and municipal governments running interference - aside from use their own central banks to get essentially interest free loans and build federal public housing. Which they should but certainly aren’t.
Oh, and the Bank of Canada is crushing developers with interest rates so they’re cancelling or pausing projects because they’re unprofitable with these interests rates - or they’re colluding and holding us over a barrel because our government cannot successfully accomplish anything without overpaying a private business who underpay their workers to do it for them.
If you keep your job and bought a home within your means, it’ll be lean times but not impossible to overcome. Don’t be afraid to use food banks or anything to keep yourself afloat. Times are tough af and there is little relief on the horizon.
This really helps me understand the situation better. I appreciate the time and thought put into this response. It’s times like these I am thankful I didn’t overspend. I listened to my parents and bought a house that wasn’t flashy but was suitable for my situation. Most people I know did not do that, and I constantly wonder how they are making ends meet. Some of them make less than I do.
Just imagine how young people are coping in other countries without 30 year fixed mortgages. Many of them are coming up for renewal with big rates rises.
The US has 30 year fixed mortgages. We don’t. Ours are typically fixed for up to 5 years. Then you get renewed at whatever the current rate is for the remainder of the mortgage.
We actually do have 30 year mortgages too, they just arent common because they cant be insured and you need to have a larger down payment (I think its 20%). The US hands them out like bubblegum. We all know how diligent they are with their lending, but it’s not like we are really any better here either.
I’m aware we have 30 year amortization mortgages. When you say 30 years, do you mean that the term is 30 years? That is, the interest rate is kept fixed for 30 years?
We need McMansions in the greenbelt to solve housing!!! /s
Au contraire. It would blow your mind how many people are on these bullshit fixed payment variable mortgages. There’s people that unknowingly have these weird scenarios like effectively 60+ year amortizations now, due to the sharp increase of interest this past little while and the fact their payments haven’t even been covering their interest for some time, let alone the principal. The banks won’t actually spill the numbers as to how many of these types of mortgages there are, but thats all banks peddled the past decade.
I renew next year on a fixed mortgage. To be fair, I’ve also known that this has been a loooooooong time coming, and hence didn’t overspend when we bought in 2019. The pressure sure as fuck was there, the realtors like you can afford way more, the mortgage people were like spend spend spend. Even our boomer parents, who don’t live under any sort of modern economic reality, were trying to push us towards the bloated mcmansion end of the spectrum, market never goes down, maximize, blah blah blah.
Anyone with half a brain had to have known this was coming. I’m actually for real surprised it took this long. While nobody could have forseen COVID, or the super sharp inflationary spike that resulted, even as far back in 2019 I suspected inflation and higher rates were soon going to be creeping in. It wasn’t rocket science. While I didn’t exactly predict >7% interest, at the same time I honestly had 0% expectation I’d be renewing for the one point whatever our current mortgage is at.
In fact, I’m doom and gloom on our country as a whole. I think we’ve been glutenous little piggies for far too long, and the central banks have already gone way too far overboard trying to get to their imaginary little targets. I think they’ve already popped the bubble, and we just won’t know this for sure until defaults start to really spike by Q3 2024. Anyone in Toronto or Vancouver renewing on these bullshit fixed payment plans maybe is just going to walk away, it’s probably going to be too much payment and amortization to overcome in some of these overheated markets, against rapidly declining values. Toronto and Vancouver have already flattened out, which might be indicating a large correction on the horizon. Rentals are going to spike, already have in most markets, and that’s going to push all the renters out. Basically I think it’s going to be a fucking disaster. Hope I’m totally wrong, but I’m not 100% sure I am just yet.
The way I understand it, there are two main implications. First, the higher the debt load, the less people will spend in a rising interest environment. As their (our) mortgage payments go up, we’ll spend less on anything else. The larger the effect, the more significant it is for the rest of the economy. Second, the higher the load, the more people will default or sell in a rising interest environment. The consequences of this one are more varied.
Probably a good time to buy bank stocks, and also build up your emergency fund.
If you have a mortgage, make prepayments as they go straight to principal and will reduce your amortization and exposure to rate increases.
I suggest you also run through your current mortgage in a mortgage calculator and use ratehub to get a good idea of what your upkeep will be, and use that to figure out your cash flow for post-renewal.