Interest Rates, Mortgages and Demographics: The Impact in the Local Real Estate Market - Issue 374

The past few weeks we’ve spent a lot of time discussing market conditions and looked at where we think this market is headed. Our intention is to provide education and evidence based interpretation of the market. Unlike major media like newspapers, television and radio we don’t have ad space to sell or need to be sensational in order to attract attention. To that end, we’ll present the positive and negative aspects of the market in order for you, our reader, to make educated decisions about real estate in our local market.

The Background:

The Guelph Census area encompasses a population of 150,025 residents according to the 2016 Census data. Connecting the Census data with known mortgage data we'll uncover insights about the population's income, age distribution, homeownership rates, and mortgage trends that collectively shape the Guelph and area housing landscape.

With a population exceeding 150,000, the Guelph Census region data reveals that of the 59,280 private households in the area, a significant majority of 41,610 are owned while 17,670 are rented. This ownership distribution indicates a strong inclination towards homeownership.

When it comes to income, the region's residents showcase a promising financial profile. Notably, over 38.8% of households earn an impressive $100,000 or more annually before taxes. Of these high-income households, 21,170 are homeowners, and 1,835 are renters. This highlights the allure of Guelph not only for homeowners but also for those seeking quality rental opportunities.

**Income Disparity and the Median Household Income**

The median household income before taxes in Guelph stands at $81,282, a testament to the area's overall economic stability. Interestingly, homeowners significantly outpace renters in terms of median income. Homeowners boast a median household income of $101,603, while renters' median income averages $45,036. This income disparity can be attributed to the financial commitments associated with homeownership, which often require higher income levels.

**Age Distribution and Moving Trends**

The area’s age demographics are equally diverse, with distinct age groups contributing to the city's vitality. Notably, the age bracket of 35-44 accounts for 13.3% of the population, while those aged 45-54 makeup 14.7%. The senior demographic, aged 65 and above, comprises 14.4% of Guelph's population. These age distributions indicate a healthy mix of generations contributing to the city's social fabric as well as the real estate market.

**Unveiling Guelph's Mortgage Landscape**

Within Guelph's housing market, mortgages play a pivotal role. Of the private households where financing details are known, 62.8% have mortgages, while 37.2% are mortgage-free. These numbers are slightly higher than the Canadian average 23.3% of homeowners being mortgage free.

According to a recent Globe and Mail study, mortgage payments account for more than 25% of Canadian household incomes. Given the median household income of $101,603, Guelph residents with a Gross Debt Servicing (GDS) ratio of 32% would have principal and interest payments capped at $2,709 per month or $32,513 annually. The Guelph numbers align with the Globe study and also point to the affordability issue that has been developing.

The next chart shows the percentage of Canadians who feel they easily manage their financial commitments without facing a major savings drain has steadily declined in the past 3 years. Another part of the lingering effects of the pandemic. Area residents no doubt feel similar to this study supplied by the Government of Canada.

Rising prices and increasing mortgage interest rates have all had an impact on affordability and, more importantly, how we as consumers feel. The pandemic has caused us to focus on things like housing and how we are living. We have become more aware of how fragile our lives truly are from a health perspective as well as financially.

Naturally on the finance side, it makes sense that this focus will now be on housing and the overall cost of real estate. We can’t tell people how they should feel about what they spend on housing and real estate. We can only be aware of the risk and how individuals make their decisions around risk and counsel our clients to make their real estate decisions based upon their comfort level and not that of any lending institution or FOMO.

Our team believes in a consultative approach to helping people with their real estate needs and take pride in the level of market knowledge we have to share with clients. At the end of the day, buying and selling a home is more than just about the numbers.

Thanks for reading.

Have a great weekend,

Paul

Sources:

Dan Johanis Pekoe Mortgages

CREA

Statistics Canada

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