Good morning everyone to the first day of March. 3 weeks to official start of spring but already about 1month overdue for me!
What’s the BUZZ?
Mortgage Rates going up? / Mortgage rates going down?
Forecasts: You should always read past the headlines! It’s been over 10 years that many people have been expecting/forecasting a real estate slowdown in the GTA resulting from higher interest rates. Over the same period, we have experienced steady price growth and demand. Forecasts are just that, forecasts.
Below are some news points discussed this week regarding interest rates. Funny, RBC is now forecasting mortgage rates to go up some time this year (?). Only last month they and the other major lenders drop them. Keep in mind when they do start to increase it will be small increases over a long term. The dozen of factors effecting mortgage rates down the road may also lead to cuts after the small increases. Typically when rate increases occur they are at a 0.25% increment.
Fact: In Canada major lenders financially qualify buyers at the posted non-discounted interest rate. So there is about a 2% per annum (mortgage rate) buffer of affordability for most buyers. I.e if rates begin to increase buyers should still be able to afford their mortgage. Also consider that upon mortgage renewal, the mortgage principle to be financed will be a little less so it can help offsets some rate increases that may have occurred during the original mortgage term.
- You may have heard in the news this week that Royal Bank of Canada (RBC) Forecasts a mortgage rate Increase sometime this year.
- Just over 1 month ago (Jan 18th/2014) RBC did the following (CanadianMortgageTrends.com)
- RBC Trims Fixed Rates RBC-Bank cut a number of its standard fixed rates this weekend. It’s the first of the majors to do so following this month’s 26-basis point slide in 5-year government bond yields.
- Most other banks will likely do the same (they did on January 22nd – without any fanfare. “TORONTO — At least three more big Canadian banks have joined Royal Bank in quieting reducing some of their mortgage rates.” Financial Post Jan 22/2014
- Bank of Montreal, Scotiabank and TD Canada Trust all lowered rates this week. Like RBC, none issued a news release announcing the changes.
- Bond yields, which guide fixed-rate funding costs, have been pushed down by discouraging economic data. That’s led the nation’s second largest lender to chop its 2-, 3-, and 4-year posted rates, as well as its 4- and 5-year “Special Offer” rates — all by 10 basis points. 5yr-Bond-Yield
- RBC’s discounted 5-year fixed rate is now 3.69%. For well-qualified borrowers, it usually marks that down further to remain competitive with the typical “street rate,” which is currently 3.39% or less.
- RBC’s 5-year posted, along with the other Big 6 banks’ posted rates, form Canada’s benchmark rate. That’s the rate commonly used to “qualify” borrowers for variable and 1- to 4-year fixed terms. The benchmark hasn’t changed since August and is currently at 5.34%. If other banks follow RBC’s lead, it should drop to at least 5.24%.
- RBC did not issue a press release on these rate cuts, preferring to keep them lower profile.
Canada housing boom expected to cool?
(Reuters) By Leah Schnurr and Deepti Govind
Canada’s housing market boom will fade out over the next three years and although analysts say prices won’t fall from record highs most are at least somewhat worried about the risk of a crash, a Reuters poll found.
In the survey of 16 forecasters, eight said they were “slightly concerned” that after more than a decade of rapid increases in home prices, they may be at risk of a sharp fall.
Two respondents from the sample of top property market analysts and senior economists at Canada’s largest banks said they were “concerned” while three said they were “very concerned”. Only three said they were not concerned at all.
Still, the consensus contains no house price fall over the next three years. Instead, they are expected to rise 2.2 percent this year, 1.0 percent in 2015 and 0.8 percent in 2016.
“Outside of Toronto and Calgary, the housing market is largely cooling, though far from crashing,” said Sal Guatieri, senior economist at BMO Capital Markets.
Canada’s housing market weakened a bit in 2009, hit by the global financial crisis, but record low borrowing costs and a pick-up in the economy helped it bounce back quickly, booming again by 2012. Lofty prices and record-high consumer debt have since raised fears that once interest rates rise again, Canada’s housing market could be in for a collapse like the one the United States suffered during the crisis. Meanwhile, household debt keeps piling up. The ratio of Canadian household debt to income rose to a record high of 163.7 percent in the third quarter.
By comparison, U.S. household debt, although on the rise, remains well below its 2008 peak and reflects the extensive deleveraging by households after the housing market collapse and the financial crisis. Concerns of a similar crash in Canada prompted the government to intervene four times to tighten mortgage rules, which helped rein in the market during 2012, but the latest Teranet-National Bank data showed home prices hit another record high in January. Most respondents in the poll said that homes in Canada are overpriced, particularly in Toronto and Vancouver. Rating home prices on a scale of 1 to 10 where 1 is extremely cheap and 10 is extremely expensive, analysts put Canada at 6.5, while Toronto scored a 7.3 and Vancouver was given an 8.0. A similar poll on the British housing market also rated London house prices, where a supply shortage and a flurry of foreign investment has driven prices up sharply, an 8.0.
House prices in Toronto, Canada’s biggest city, are seen rising 3 percent, more than the rest of the country. But that will slow to 0.8 percent in 2015 and flatline in 2016.
On the west coast, Vancouver’s housing market is expected to see prices rise by 2 percent in 2014, before declining 0.7 percent the next year and falling 1.2 percent in 2016.
The five analysts who predicted outright declines in home prices saw a median 12.5 percent fall.
“We think it is a housing bubble. The symptoms are overvaluation, overbuilding and excessive household debt,” said David Madani, economist at Capital Economics, who is predicting a 25 percent drop in prices on a long-term basis, by far the most bearish forecast in the poll.
The poll also found that the pace of new home building is expected to slow, with housing starts moving from an average annualized rate of 184,000 in the current quarter to 174,000 in the first quarter of 2015. (Polling by Deepti Govind; Editing by Ross Finley and James Dalgleish)
RE/MAX Upper-End Report Indicates that Canadian Luxury Home Markets hit Record Sales in 2013
January, 31, 2014
Upper-End Report New_thumb.jpg 2013 proved another positive year, with a number of fundamentals propping up residential real estate. Yet, nowhere was strength more apparent than in Canada’s upper-end housing segment. So much so, in fact, that 2013 could easily be dubbed, ‘the year of the luxury home.’
Our RE/MAX Upper End Market Trends Report, released earlier this week, took a look at sales activity in 16 major centres across the country—and the numbers were nothing short of incredible!
In 2013, 75% of major markets reported sales above year-ago levels, including Hamilton-Burlington (+34%), Kitchener-Waterloo (27%), Greater Toronto (18%), St. John’s (7%) and London-St. Thomas (5%). More than two-thirds of markets shattered existing records for the number of upper-end transactions in a single year. Demand and confidence reached an unprecedented crescendo.
Several factors served to create the perfect storm, drawing purchasers at the top end of the spectrum—from rising Canadian and global wealth, solid equity gains and improving economic conditions to the stellar performance of US financial markets and the continuation of historically low interest rates. Add to that the tangibility and low-risk profile of bricks and mortar, and it’s clear why luxury homes have become the darling asset class of both local and international movers and shakers alike.
That’s not something to take lightly. After all, rarely do the business elite make decisions without concrete research, and that’s where Canada’s luxury home segment really earns favour:
Since 2009, luxury home sales in half of the country’s major markets have more than doubled or tripled—and in one instance quadrupled. Many of Canada’s other major centres posted solid double-digit growth over the five-year period. Impressive? Yes! But even more so, when you consider that the meteoric rise took place in a post-recession climate.
Is the momentum set to continue? With the same sound underpinnings in place, 2014 is well positioned to match and possibly eclipse 2013’s record performance.
Next week I will have the full February sales numbers and reports to share with you.
Have a fantastic weekend and great work week, Anthony