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High interest rates, utility bills prompt homeowners to downsize

Real estate market attracting more buyers outside Alberta
High interest rates have "been hard on families" but haven't "pushed them over the edge yet" says real estate agent. UNSPLASH/photo

Some St. Albert homeowners facing the prospect of mortgage renewal at higher interest rates are looking to downsize, according to local real estate agents.

Real estate agent Sam Elias said although he hasn’t been seeing foreclosures because of higher interest rates, he has noticed homeowners are “thinking more economically.”

“I have seen people say, ‘You know what? We live in a 2,500 square feet home; there's only two of us. I don't think we need to live in this big house,’” he said. “That's not a panic sell — that’s a reasonable financial decision to make throughout your life.”

He said the decision is influenced not only by interest rates, but also by homebuyers hoping to spend less on utilities, taxes, and on their mortgages.

Agent Don Cholak said although the increase has been difficult for most families, he doesn’t think “it’s pushed them over the edge yet.”

“It’s different this time,” he said.

Thanks to the “mortgage stress test,” which ensures that borrowers can still afford their payments if interest rates rise, homeowners have had an easier time absorbing the cost in comparison to past economic downturns, he said.

At the same time, the market in St. Albert and the rest of the province is seeing lots of interest from potential buyers.

“The migration is really helpful because we’re getting a lot of inquiries from Ontario and BC, so that’s helping, [as well as] the immigration that’s coming in [from outside of Canada,” Cholak said.

Mortgage broker Tara Borle said September was the busiest month her office has seen in the 26 years she’s been at the job.

The demand is being driven not only by people looking for the best deal renewing their mortgages, but also by people looking to purchase or refinance homes.

“I feel like the majority of people have done some research before their mortgage is up for renewal, so they're not shocked at what the rate is or what their new payment is,” she said.

The choice to go with a fixed or variable rate will depend on homeowners’ circumstances, Borle said.

“If they renew to a variable and sell their house in the next few years, they’re not going to have a massive payout penalty,” she said. “If they renew to a fixed rate and lock in for five years, and then find out, ‘Oh my goodness, this is a really high payment; we need to sell our house and go rent,’ the payout penalty could eat up a big chunk of their equity … They might be in a position where they can’t even sell the house because of the payout penalty. So, it’s important to look at both options.”

She said some banks are offering 5.69 per cent on a renewal for five years.

Borrowers with fixed rates are expected to see an average payment increase of between 14 per cent and 25 per cent next year compared with early 2022 costs, according to the Bank of Canada. In 2025 and 2026, payments should rise between 20 per cent to 25 per cent.

Home prices in Edmonton predicted to rise three per cent

A report by Royal LePage released last Thursday projects home prices in Edmonton will increase by three per cent in the fourth quarter of 2023 compared to the same quarter last year.

Cholak said prices in St. Albert are comparable to Edmonton, and have remained relatively stable, rising only slightly since a dip in the summer months.

“The trick here is that the inventory levels are holding; they're not increasing. So, that's what's helping keep our prices where they are,” he said.

But looking at home prices in Calgary, he is expecting a busy year.

“[Calgary] is about $200,000 higher than us on average,” he said. “It’s never been that high.”

Where Calgary goes, Edmonton and surrounding areas tend to follow 10-12 months later, he said.

“We are expecting a very good year next year, that would be my prediction.”

About the Author: Riley Tjosvold

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