Ask the Expert: Steve Garganis on future bidding wars and why the feds should allow 40-year amortizations

With a major rate cut predicted for the Bank of Canada this week and market activity in some of Canada's biggest cities ever-so-slowly picking up, homebuyers and real estate watchers alike are looking ahead for a real turn in the market. Meanwhile, the government has just announced a suite of new reforms for first-time homebuyers in hopes of bringing down home affordability.

We ask mortgage broker Steve Garganis on his thoughts as we enter the fall and winter market.

This interview has been edited for length and clarity.

RATESDOTCA (RDC): What are your predictions for the fall and winter housing market? Will we see the return of bidding wars?

Steve Garganis (SG): We could see a little more activity but it won't be anything mind-blowing. The market has slowed considerably. We went from 65,000 home sales in early 2022 to 38,000 in July 2024. The average sale price went from $816,000 to $649,000 in this same period.

This slowdown was all interest-rate driven. If we look at affordability and actual payment cost, interest rates went up significantly from April 2022 to July 2023.

Meanwhile, the percentage of variable rate mortgages increased from 1.35% to 5.85%. Fixed rates increased from 1.99% to 6.34% over that same period.

Put another way, payments on a $400,000 mortgage went from $1,571 per month to $2,524 per month. People buying, renewing or refinancing their mortgages were in for a huge payment shock.

Rates have started to come down and this will help.

That being said, bidding wars really didn't go away. There just aren't as many and they aren't publicized as much. Just last week, a realtor I know had a bidding war on one of his listings in Oakville. There are still pockets of high demand areas throughout Canada.

Prices are down but not by much, at least not on single family homes. The condo market is saturated. Cottage property sales and values are way down. But demand for houses is strong. I think in large part due to our record three million plus new immigrants that have entered Canada over the past three years.

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RDC: We’ve heard that lenders are offering better rates than what’s being publicly posted behind closed doors. What are these rates like, and what can homebuyers do to access the best rates?

SG: With a much smaller number of mortgages being advanced, the banks have more money to lend. They want that anchor product to tie the client in, and they are willing to pay for it. We have seen some incredible interest rates. I have seen fixed rates as low at 4.19%. But I should also caution that last week we saw some unexpected positive economic news come out of the US.

When the US reports higher inflation or lower unemployment levels, it means the economy is stable, and interest rates are less likely to fall with positive economic news.

These numbers have put swift pressure on interest rates.

Government bond yields went up and this directly impacts interest rates accordingly. There’s no reason to panic. I believe this will be short lived. The fundamentals just aren't there for interest rates to not fall.

In fact, the forecast is for interest rates to fall throughout 2025 and well into 2026.

However, I want to caution everyone to consider all the different factors when choosing a mortgage. Everyone's situation is unique and different. Every mortgage has different terms, privileges, penalties and options and mortgage brokers can access products from dozens of financial institutions.

Being able to explore and shop around with different lenders will ensure consumers are getting the best products and options available.

A good mortgage broker who doesn't work for any one financial institution can provide unbiased advice and the most options. Doing it alone is more time consuming and unnecessary today. Let a professional do the work.

RDC: Recently, the government has announced that they’ll be allowing 30 year-amortizations for first-time home buyers and eliminating the stress test for people renewing their mortgages and switching lenders.

What other measures do you think the government could or might actually put in place to help make homes more affordable for buyers?

SG: This is good news. Removing the stress test for mortgage renewals means Canadians can shop around for the best rate and not be held hostage by their existing mortgage lender.

However, I don't think they are enough. We have to make housing more affordable for Canadians. One way we can do that is by extending the amortization period to 40 years.

By extending the amortization from 25 to 40 years, a $400,000 mortgage with a rate of 4.59% would go from $2,234 per month to $1,810 per month. And on a $700,000 mortgage that payment goes from $3,909 to $3,168.

I'd also like to see the Canada Mortgage and Housing Corporation reduce their insurance premiums. They’ve increased them many times over the past eight years.

Currently, someone buying a $900,000 home with a $67,500 down payment will have to add a 4% CMHC insurance premium of $33,000. That's a bit rich. At one point, CMHC used to charge 2.75% to borrowers with 5% down.

They generate annual profits for the Federal government. Remember, CMHC is a crown corporation with a mandate to promote housing for Canadians. Yet they’re earning $1 billion to $3 billion of net income annually. Perhaps we can give Canadians a break?

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