The recent changes in mortgage qualification rules are a step in the right direction, but they don’t solve the core issue: rising consumer debt.
Life is becoming increasingly unaffordable for Canadians, who are now spending $1.80 for every $1.00 earned. This gap is often filled through credit and tapping into home equity.
So, what impact will these changes have on the average Canadian?
Builders may have a better chance to sell pre-construction inventory, especially condos and single-family homes where original buyers walked away due to value deficits. However, a further 10% price drop may be needed to move the existing inventory.
A 30-year amortization can lower monthly mortgage payments, but property taxes, condo fees, and maintenance costs remain unchanged.
Qualifying for a larger mortgage is possible, but without an increase in after-tax income, it will be challenging to sustain. With unemployment rising, many are fortunate to simply keep their jobs.
On a positive note, owning could become more cost-effective than renting as rent prices continue to rise.
The government can’t lower rates fast enough for the average Canadian to feel the impact. Real affordability improvements will take 2-3 years and require significant changes in consumption and lifestyle. Unfortunately, more bankruptcies may be on the horizon.
Radical changes are needed. Every problem takes time to solve, but we need to act quickly to avoid even bigger economic issues ahead.
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