A recent report has found Canadian seniors are choosing to age in their homes for longer, with many not selling their home until their 80s and 90s.

The findings were revealed in the Housing Market Insight Report by the Canada Mortgage and Housing Corporation (CMHC), which explored some of the expected implications on housing supply in the coming years.

According to the CMHC, more seniors are potentially staying homeowners well into their later years because many are simply living longer, healthier lives and can handle the maintenance of a home.

The study, which focused on elderly Canadian households in the country’s six largest cities, also identified differences based on location. For example, households in Toronto and Vancouver are the most likely to transition to condominiums as they age, where in Montreal there’s a preference for moving to rental housing.

“In Canada, the financial wealth of elderly households may also vary from one urban centre to another,” says the CMHC in its report. “Affluent households may therefore be able to remain homeowners and purchase a home that meets their needs, rather than rent one.”

Canadian seniors are most likely to sell in their nineties

Canadian household census data show an estimated exponential sell rate trend amongst seniors from 2016 to 2021. Following consecutive cohorts over time, the data show a higher prevalence of significantly older seniors selling or giving up their homes compared to younger seniors.

CMHC defines the sell rate as the ratio of homeowners who sold their properties to the total number of homeowners for that particular demographic. For example, between 2016 and 2021, 100,500 homeowners aged 75 to 79 let go of their properties out of an initial total of 466,775 owner households, resulting in a sell rate of 21.5%.

CMHC adds that the sell rate for households aged 75 and above has been trending downward since the early 1990s, falling on average six percentage points in that time.

Based on these calculations, the data show most Canadians wait until they’re in their nineties to give up their home.

Cohorts that are approaching or in their 90s are expected to sell their homes and potentially open up additional housing supply to the market in the coming years.

“They might, for example, decide to rent private housing or, for health reasons, move into public housing (such as a care centre for seniors),” the CMHC report says. “Deaths are another factor that brings properties onto the market.”

What does this mean for Canadian housing availability?

While CMHC says it will still take a few years to have older seniors list their homes on the market, the result has the potential to eventually increase housing supply and subsequently narrow the affordability gap in Canada.

The result “seems to indicate that the number of units sold by elderly households might increase more rapidly once population aging in Canada is more advanced,” CMHC said. “In other words, when the number of households over age 85 grows larger.”

According to projections from Statistics Canada, population growth in the 85-and-over age group will rise more rapidly from 2030 to around 2040 due to the first baby boomer cohorts reaching this age group.

For now, it may be a waiting game to see if and when housing supply increases as expected.

“The big question is whether, in the coming decades, elderly households will follow in the footsteps of previous generations or go their own way,” says CMHC. “For example, will aging in place become more popular with seniors? Will the recent rise in rental housing starts in various CMAs across the country encourage more senior households to opt for renting?”

Until then, restoring housing affordability in Canada will largely depend on how senior household sales unfold in the near future.

The Bank of Canada’s six-member Governing Council believes the odds have increased that interest rates are now high enough to bring inflation back to target.

That’s according to a summary of the council’s deliberations from its December 6 monetary policy meeting.

“Members agreed that the likelihood that monetary policy was sufficiently restrictive to achieve the inflation target had increased,” the summary reads. But they also noted that upside inflation risks remain, and are therefore not prepared to rule out further hikes.

The members agreed that the Bank’s 475 basis points of rate hikes since March 2022 are continuing to work their way through the economy and are now slowing spending and easing price pressures.

“With the economy no longer in excess demand, members agreed they would be watching for signs that the slowdown in the economy was translating into further and sustained easing in inflation,” the summary said.

However, they cited ongoing concerns about the speed at which inflation was easing. Specifically, they pointed to the three-month annualized measure of core inflation, which has “remained stuck” at between 3.5% and 4% for nearly a year.

They also expressed concern that wages have continued to increase at between 4% and 5%. “If this were to continue, it would not be consistent with achieving price stability, particularly given weak productivity,” the summary reads.

As a result, members said they want to see more evidence that both of these indicators are trending “in a direction that is consistent with price stability.”

Governing council split on where home prices are headed

The council also discussed the current monetary policy’s impact on house prices.

Some members said they believed house prices would continue to ease as high interest rates continue to “weigh on the housing market.”

Others said they were concerned that prices could continue to rise due to the mismatch between housing supply and demand, and the time needed to bring new supply online.

“Members noted that if financial conditions eased prematurely, the housing market could rebound, further fuelling shelter price pressures,” the summary noted.

The members also “discussed at length” the acceleration of shelter price inflation, which in October rose at a pace of 6.1%, contributing a full 1.8 percentage points to the overall headline inflation reading of 3.1%.

The council acknowledged that higher mortgage rates are “clearly playing a role” in shelter price inflation, but also noted strong growth in rent and other components linked to housing, such as insurance, taxes and maintenance, which they said was “unusual.”

The Bank of Canada’s next policy meeting is scheduled for January 24, 2024.

In its third-quarter earnings call, Scotiabank said it was undertaking a strategy of “customer de-selection at renewal” as part of its efforts to slow its mortgage growth and be more selective of its client base.

“I think this is a good time to drive that standard higher here because it’s a softer, slower housing market,” said Dan Rees, head of Canadian Banking. “We are also being more efficient with regards to our use of capital and using customer deselection at renewal as part of that conversation.”

With an estimated three million Canadians facing a mortgage renewal over the next 15 years, that comment has raised a very important question for many borrowers: does my lender have to renew my mortgage?

Is your mortgage renewal guaranteed?

For a little bit more context, we reached out to some mortgage professionals.

“If the mortgage is up to date, if the payments are up to date, then some renewal will be offered to the homeowner. That’s the general policy of these organizations,” says Ron Butler of Butler Mortgage.

While this is a typical practice among federally regulated banks, Butler points out that provincially regulated credit unions also tend to follow the same guidance.

From Butler’s perspective, borrowers might be refused renewal if there were major violations of the contract such as rebuilding the home without permission, or if the homeowner ended up in prison.

Frances Hinojosa, CEO of Tribe Financial, adds that there are sometimes other risk factors that lenders may consider.

“I think there’s this misconception that when we come up for renewal, the banks are going to renew regardless. And that’s not necessarily the case,” Hinojosa said.

Lenders may review multiple factors, such as the current loan-to-value (LTV) ratio or the prevailing economic environment, when they’re assessing the risk of that client, she added.

A potential misinterpretation

While “mortgage de-selection” evokes images of a lender simply refusing to renew a client’s mortgage, the process is actually more nuanced.

In no uncertain terms, Butler said the chance of Scotiabank—or any other major lender—choosing not to renew clients is a very low probability.

“I have seen nothing at all that would indicate that Scotia is sending people notices that they will not renew their mortgage,” he told CMT.

Matthew Imhoff, founder of Meticulous Mortgages, says the process more often involved a renewal offer that’s simply not appealing to the client.

“When I look at the banks, the deselecting is more [about] offering a rate that the bank is willing to accept to keep the client,” he said.

It’s also important to note that Scotiabank has been very open about its strategy to scale down its mortgage book in order to focus more on growing its deposits, whereas the other major lenders are typically still looking for both origination growth and customer retention.

A riskier rate environment

But with hundreds of billions of dollars in mortgages coming up for renewal at higher interest rates, and banks setting aside large amounts of funds in preparation for a rise in delinquencies, Hinojosa says all lenders are carefully assessing risk.

They’re also having to balance regulatory requirements that now require them to keep additional capital on hand in the event of potential future losses. On Friday, for example, the Office of the Superintendent of Financial Institutions (OSFI) maintained its Domestic Stability Buffer—a kind of “rainy day fund”—at 3.5% of risk-weighted assets. This is in addition to minimum capital requirements for Canada’s Big 6 banks to keep on hand at least 11.5% of risk-weighted assets.

“We’re seeing more complexity around [the interest rates lenders offer] especially now when we’re in a lending environment where there’s higher capital requirements,” Hinojosa said. “[Lenders] are looking more at risk levels, they’re forecasting out for if there are going to be any potential defaults.”

Additionally, Butler views the use of the term deselection to express Scotiabank’s desire to “maintain the kind of margins they felt they needed to make on mortgages,” he indicates.

In an email to CMT, Scotiabank clarified Rees’ comment from Scotia’s earnings call.

“Our mortgage portfolio remains strong and when a mortgage comes up for renewal, we continue to be committed to providing our mortgage customers with appropriate renewal options based on their individual needs and financial goals.”

The average asking rent in Canada has increased by about $175 over the past six months, and is now nearly 10% higher compared to a year ago.

As of October, the average rent price for all unit types reached $2,178, according to data from Rentals.ca‘s latest monthly data. That’s up 1.4% compared to September, but slower than the 1.8% monthly increase seen back in August thanks to seasonable factors.

One-bedroom rent prices were up a whopping 29% year-over-year in Red Deer, Alberta, while Halifax, NS (+20.6%) and Markham, ON (+20%) also saw outsized gains.

The national average rent for two-bedroom units has now surpassed $2,300 a month, up 1.7% from September and +11.7% compared to a year ago. The largest increases were seen in Oakville, ON (+23.5%) and Quebec City, QC (+17.6%).

High rents are contributing to inflation

Average rents in Canada are now up over 31% compared to the low of $1,662 reached in April 2021.

This steep rise means rent prices are now a leading contributor to the country’s headline inflation rate, which the Bank of Canada is desperately trying to bring back to its target rate of 2%.

As of September, rent inflation has shot up to 7.3%, according to data from Statistics Canada—the fastest pace since 1983. It’s now the second leading contributor to overall inflation, after mortgage interest cost, which is up 30.6%.

On a monthly basis, rent inflation from August to September was 0.8%. That means that of the headline CPI inflation reading of 3.8% in September, 0.8% came from rent inflation alone. Another 2.6% came from mortgage interest cost.

“It’s a big issue,” noted analyst Ben Rabidoux of Edge Realty Analytics. He pointed to the more than 700,000 non-permanent residents added to the population over the past 12 months—which includes international students and foreign workers—as a major contributing factor to the upward pressure on rent prices.

In response to housing affordability concerns, the federal government recently announced it plans to level out its targets for new permanent residents coming to Canada. The target for 2024 and 2025 will increase as planned to 485,000 and 500,00, respectively, and hold steady at 500,000 in 2026.

“These immigration levels will help set the pace of Canada’s economic and population growth while moderating its impact on critical systems such as infrastructure and housing,” Immigration Minister Marc Miller said.

Alberta leads the provinces in rent price growth

Rentals.ca reported that Alberta once again posted the fastest year-over-year increase in rent prices, which were up 16.4% in October to $1,686.

Rents were also up sharply in Nova Scotia (+13.6%) and Quebec (13.3%), thanks to both strong population growth and “large infusions of new rental supply priced at above-average market rents,” Rentals.ca noted.

The slowest annual increases were once again seen in Manitoba (+5.5%) and Saskatchewan (+4%).

Calgary and Montreal lead rent growth in Canada’s largest cities

Calgary continued to lead rent price growth in October, with an average year-over-year increase of 14.7% to reach $2,093. Montreal saw the second-fastest pace of growth at 10.8%, with an average price of $2,046.

Here’s a look at the year-over-year rent increases in some of the country’s key markets:

• • Calgary, AB: +14.7% ($2,093)
  • Regina, SK: +13.7% ($1,273)
  • Montreal, QC: +10.8% ($2,046)
  • Ottawa, ON: +10.6% ($2,197)
  • Halifax, NS: +9.5% ($2,017)
  • Winnipeg, MB: +7.4% ($1,521)
  • Vancouver, B.C.: +4.4% ($3,215)
  • Toronto, ON: -0.8% ($2,908)

Canada’s banking regulator confirmed today that it will no longer pursue at least several of the proposed mortgage regulations it had introduced earlier this year after they were met with widespread concern and criticism during its public consultation period.

Nine months after the Office of the Superintendent of Financial Institutions (OSFI) unveiled its proposed measure related to debt serviceability and kicked off a public consultation period, the regulator today released the results of its discussions with industry stakeholders.

“The majority of stakeholders agreed that risks to lenders arising from high household indebtedness are important,” OSFI concluded in a report published today. “However, stakeholders were generally not supportive of additional debt serviceability measures.”

Respondents warned that OSFI’s latest proposed measures would have a disproportionate effect on smaller institutions with unique business models and wouldn’t adequately address the root cause of Canada’s household debt problem.

However, OSFI confirmed that it would no longer pursue two of its proposals at this time: debt-to-income (DTI) restrictions (while keeping LTI restrictions on the table) and debt service loan coverage restrictions.

While these comments were included in OSFI’s consultation feedback report, it hasn’t yet made final decisions in terms of the implementation of its remaining proposals.

In January, OSFI asked the public for feedback on three new regulatory changes to Guideline B-20 which were intended to restrict mortgage lending in response to record levels of household indebtedness.

Stakeholders expressed concerns over the proposed changes

The proposals included loan-to-income (LTI) and debt-to-income (DTI) restrictions, debt service coverage restrictions and more “risk-sensitive” interest rate affordability stress tests.

The following is the feedback OSFI received in response to each proposal.

Loan-to-income (LTI) and debt-to-income (DTI) restrictions

Specifically, the proposed LTI and DTI restrictions would limit lenders to a certain volume of loans that exceed a “prudent” threshold “to help financial institutions better manage the risks associated with significant buildups of household debt in their loan books,” according to OSFI’s Annual Risk Outlook semi-annual update. This would effectively cap 75% of all mortgage customers to loan amounts of up to 450% of their income.

According to the feedback published on Monday, respondents were generally not supportive of the measure, suggesting some would be redundant, too late to implement effectively and would disproportionately impact smaller lenders.

OSFI’s response:

“We consider a DTI (total indebtedness) restriction to be too complex to implement at this time,” it said in the report.

“We agree that debt service ratios (i.e., GDS and TDS), under certain conditions, can produce similar outcomes to LTI/DTI although they are focused on debt affordability as opposed to limiting exposure to high indebtedness. We also acknowledge that most lenders do not use LTI/DTI measures in underwriting,” it added. “We also believe proportional implementation, versus a one-size-fits-all approach, would be most appropriate given differences in FRFIs’ business models.”

“We appreciated lenders’ analysis on predictors of default and agree that credit score and other factors can be better predictors than high LTI or DTI,” OSFI noted. “That said, high household indebtedness is still relevant to credit risk, the safety and soundness of FRFIs, and the overall stability of the financial system.”

Debt-service coverage restrictions

This would involve measures that restrict ongoing debt service (principal, interest and other related expenses) obligations as a percentage of borrower income.

Respondents expressed “mixed views,” with some supporting a qualifying amortization limit but most expressing opposition to regulatory limits and alignment with insured mortgage criteria. Instead, the feedback found strong support to preserve the lender-determined risk-based limits and criteria for debt service coverage.

OSFI’s response:

“We believe there is merit in lenders applying an explicit, qualifying amortization limit and we will continue to evaluate this proposal,” OSFI said. “Such a limit would add more rigour to qualifying debt service calculations while still permitting lenders flexibility to offer a longer contractual amortization to some qualified borrowers.”

However, OSFI added that “After careful consideration of stakeholder feedback, we agree that regulatory limits on debt service coverage should not be pursued. While such limits could result in greater consistency, they would remove too much risk-based decision-making and risk ownership from lenders.

Interest rate affordability stress test

This measure would impose a more “risk-sensitive” test beyond the current Minimum Qualifying Rate (currently 5.25%), including implementing different MRQs for different product types, such as mortgage terms.

Respondents were similarly opposed to MQR adaptations and other affordability tests, specifically due to the negative effect on other public policy objectives and concerns over unintended consequences.

OSFI adds that any regulatory measures it considers would be implemented “incrementally and sequentially” with debt service coverage measures taking the priority, followed by adjustments to the MRQ, with an LTI limit as a last resort.

OSFI’s response:

“We will continue to reflect on how best to encourage lenders to apply more rigorous affordability tests, especially when higher risk attributes are present in a mortgage application. We should be able to observe variation in qualifying debt service ratios as evidence of this,” OSFI said.

“Encouraging longer borrowing terms and payment stability through MQR design has merit from a risk perspective.”

Other feedback

In addition to feedback specifically on the three proposals, respondents also commented on the importance of improved income verification in deterring mortgage misrepresentation.

They suggested that OSFI could work with the Canada Revenue Agency (CRA) to allow independent income verification, something Mortgage Professionals Canada has identified as a priority as part of its advocacy initiatives.

“We welcome any initiative that advances our B-20 expectation that FRFIs use income sources that are independently verifiable and difficult to falsify. We and our federal financial sector partners are aware of ongoing CRA efforts in this regard,” OSFI said.

Respondents also encouraged a focus on higher risk markets like the Greater Toronto and Vancouver markets, though OSFI said it’s against any geography-based measures, as vulnerabilities and risks are common regardless of geography.

At the end of the day, OSFI agrees with other industry watchers in acknowledging the only real way to address Canada’s housing affordability crisis is by addressing supply shortages.

“We believe that housing market imbalances are driven by both demand and supply-side factors,” the report states. “Adequate housing supply that keeps pace with demographic needs supports a stable, well-functioning mortgage market and the broader Canadian economy.”