Are Mortgage Rates To Rise?
Is now the right time to buy a house? According to recent reports, mortgage rates may be on the rise after the first half of this year. What do you think?
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Homebuyers, particularly those getting into the market for the first time, can breathe a sigh of relief.
Mortgage rates, some at 50-year lows, will remain unchanged — for now.
The Bank of Canada’s head honcho, Mark Carney, recently said the overnight rate — which is used by banks to swap money among themselves — will remain just above zero, at 0.25 per cent.
That, in turn, is a sign that mortgage rates won’t be budging until at least June. That’s good news for househunters, who will still be able to take advantage of lower selling prices.
“After June, the consensus among economists is that the rate will begin rising in the second half of the year in response to the strong economic growth expected in the first half of 2010,” says Richard Corriveau of Canada Mortgage and Housing Corp.
“That said, the increase in rates is not expected to be significant, ranging from 50 to 75 basis points,” he says. One hundred basis points equals one per cent.
As is typical when economies are coming out of a recession, housing will lead the way. When people feel comfortable enough to spend on big-ticket items, good times have returned.
Corriveau says if these gains are to translate into higher mortgage rates, it will have an impact on new and resale home demand.
“CMHC research indicates that for every one percentage point increase in mortgage rates — everything else being equal — it will result in a five per cent reduction in homeowner demand,” he says.
But everything is unlikely to be equal and economic improvements will be able to offset some of the negative impacts of higher mortgage rates. Employment prospects will continue to improve this year and beyond — another sign that the recession is winding down — attracting a growing number of migrants to the city.
“Depending on the magnitude of these occurrences, they will serve as an important offset to rising mortgage rates,” says Corriveau.
Low mortgage rates have been the catalyst to a resurging housing industry right across the country.
Rates helped push existing home sales to a record total of 27,744 in December — 72 per cent ahead of the same month in 2008, when sales hit a decade-long low, says the Canadian Real Estate Association. “The continuation of unusually low interest rates may keep national sales activity near current levels over the coming months, as will a blip in housing demand in Ontario and B.C. from homebuyers motivated to beat the introduction of the HST (harmonized sales tax),” says CREA president Dale Ripplinger.
In Calgary, there were 799 sales during December — an increase of nearly 78 per cent from the same month the previous year. At the same time, condo sales were up more than 66 per cent to 341.
On the new home side, construction started on 559 detached homes in December — nearly double the December 2008 figure.
Multi-family starts, though, took a dramatic hit to just 98 starts, down from 403 the year before.
The hot real estate market will cool off as listings begin to climb and mortgage rates start to move up, says Avery Shenfeld of CIBC World Markets.
He says the economy will enter 2010 “like a lion” — adding that because of the fading benefits of stimulus measures and “lingering hangovers from the past two years’ economic turmoil,” the economy will exit 2010 like a lamb.
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Corinne Watson
CIR Realtor
Chestermere Lake Expert
