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There’s a common theme in all that’s going on in the housing market today – none of it’s good for the aspiring first-time buyer.

Prices are rising smartly in affordable Montreal and Ottawa and in the astronomically expensive Vancouver and Victoria markets. Prices are flat or weaker in other cities, but there’s little to no improvement in affordability, thanks to mortgage-rate increases like we’re seeing this week. On top of all this is the tough stress test buyers must take to ensure they can afford a spike in borrowing costs.

A full-on housing-market crash would save the day for first-time buyers who can’t afford today’s prices, but that appears unlikely without the economy stalling or interest rates surging higher. One of the good things about our slow-growing economy is that neither of these extremes seems likely right now.

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This leaves wannabe buyers at a crossroads: Either make your peace with renting, or keep saving in the hopes of getting into the market at a later date. One of the many benefits of longer lifespans is that you can push ahead milestones such as home buying and retirement. As always, our Real Life Ratio calculator stands ready to show if you can afford a house and other costs such as car payments, daycare and retirement saving.

Mortgage rates have a huge influence on affordability and, unfortunately for buyers on the fringe of affordability, they’re headed higher. RateSpy.com reported on Wednesday that some non-bank mortgage lenders and credit unions had just raised the rates on the popular five-year fixed rate by 0.1 to 0.15 of a percentage point on average, while at least one bank has increased its posted five-year fixed rate by 0.45 of a percentage point to 5.59 per cent.

No one, I hope, pays the posted rate for a mortgage any more. But posted rates play a role in setting the rates that clients negotiate with their banker and they are also used in the stress tests that gauge whether home buyers can afford to pay their mortgage if they have to renew at much higher rates in the future. Posted rates may also be used in setting penalties for breaking a mortgage.

The cost of fixed-rates mortgage rates is influenced by what’s happening in the bond market, and the news there isn’t great. The interest rate on 10-year bonds issued by the U.S. Treasury – they’re a key benchmark in the financial world – went above 3 per cent for the first time in four years earlier this week. Here in Canada, the five-year Government of Canada bond yield has doubled in the past year to 2.2 per cent or so. By bond market standards, that’s a huge move.

Bond yields reflect the expectation in financial markets that central banks will nudge interest rates higher this year as economic growth firms and inflation becomes more of an issue. Even if Canada’s economy remains soft, global pressures could be enough to push bond yields and mortgage rates a little higher.

Rising rates make it harder for people to pass the stress tests that buyers must now undergo as part of the mortgage application process. As of Jan. 1, people buying homes with down payments of 20 per cent or more have to be able to afford a rate set at the greater of the Bank of Canada’s five-year benchmark rate or the actual rate being offered plus two percentage points. People with down payments below 20 per cent already faced a stress test set at the five-year Bank of Canada rate.

The Bank of Canada’s five-year benchmark rate is based on posted five-year rates at the big banks. The benchmark rate was 5.14 per cent at midweek, but could rise if there’s a widespread move by banks to increase their posted five-year rate to 5.59 per cent.

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With rates climbing, average resale home prices in the expensive Toronto market fell 1.5 per cent in March on a year-over-year basis. Expect that small affordability gain to be fully offset by the latest round of mortgage increases. More of the same could be ahead in 2018 – rates rising a little more, prices falling some and buyers not really benefiting in the end.

The one thing that aspiring first-time buyers have going for them is time. For those willing to work to the age of 70, buying a house as late as age 40 is doable. If you’re dead set on owning, the game isn’t over.

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