As interest rate hikes destabilized Canada’s housing market over the last year, a new report from RE/MAX offers some reassurance to anyone who’s concerned about a housing market crash.

Despite the difficulties of the last year, homeowners are well-prepared to weather the storm. As such, a 2008-esque crash just isn’t in the cards for the Canadian market.

According to the real estate firm, loan-to-value ratios declined in 67 percent of Canadian markets over the last decade – meaning homeowners own more of their homes outright than ever before.

The lowest loan-to-value ratios were observed in some of the country’s most expensive markets – with Vancouver, Toronto and Hamilton all having averages of over 50 percent.

Regina and Edmonton had high loan-to-value ratios at 88 and 83 percent respectively – but those figures are expected to change as Alberta and Saskatchewan’s economic engines gain momentum and drive homebuying activity.

On a national basis, loan-to-value ratios hovered around 57 percent.

“While challenges certainly exist in today’s high interest rate environment, risk factors for the overall housing market are greatly reduced when homeowners own a larger portion of their homes,” Christopher Alexander, president of RE/MAX Canada, said. “With half of loan-to-value ratios within the 50- and 60- percent rage in Canadian markets, homeowners are better able to withstand downward pressure on housing values and fewer will find themselves underwater, carrying upside down loans.”

RE/MAX cites three key reasons for the downward pressure on LTV ratios over the last decade:

  1. Equity gains
  2. The pandemic facilitating the rise of remote work in smaller markets
  3. The transfer of intergenerational wealth

Canadian homebuyers are much better qualified as a result. The number of buyers with credit scores below 660 has dropped significantly in the last 10 years and fell to 4.7 per cent in Q3-22.

Mortgage delinquency rates also fell in most markets across the country, with the national percentage sitting at 0.14 per cent – down over 63 per cent from 2012. Ontario and British Columbia had the lowest rates of delinquency at 0.08 per cent.

Overall risk for the market remains low, thanks in part to the stress test.

“Government implemented measures to reduce risk to the country’s housing markets, including the much-maligned stress test, have also gone a long way in maintaining the overall health of the Canadian market,” Elton Ash, Executive vice president of RE/MAX said. “The housing market in Canada has a reputation for stability relative to other international markets, and prudent policy plays a substantial role.”

According to RE/MAX, population growth drove homebuying activity over the last decade. The quarterly population estimate has risen by 12 per cent on average from Q3-2012 to Q3-2022, and population growth isn’t expected to slow down any time soon.

Looking towards the rest of 2023, the real estate firm expects smaller markets across the country to grow as consumers turn their attention away from expensive urban markets.

“As we head into 2023, there are likely to be challenges, but a healthy number of homebuyers are expected to continue to enter the country’s housing markets from coast to coast,” Ash said. “The trend towards smaller markets should continue to play out in Atlantic Canada, Ontario and Western Canada – areas where in-migration from more expensive markets has occurred recently.”

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