Bank of Canada Increases Prime again Sept 2017
Many of us were surprised today when Bank of Canada Governor Stephen Poloz announced another increase in the Prime rate raising it to 3.20%. This means that your mortgage rate has likely risen by the same .25%.
The Variable rate mortgage has consistently been an excellent choice because of the savings weve generated compared to the 5 year fixed rate. Those savings have not dissappeared because of a slight increase over the past few months. The variable rate mortgage still has a spread of .40-1.20% compared to the prevailing 5 year fixed rate of 3.39% today. Meaning it is still not the right time to convert to a fixed term. That being said I would be happy to discuss your specific situation.
The recent increase in interest rates is a result of the stronger than expected performance in the Canadian economy. The year over year Canadian GDP (Gross Domestic Product) jumped 3.6% in the first quarter of 2017, to 4.5% in the second quarter. This growth rate exceeds the predictions of the Bank of Canada.
You wouldnt be wrong in assuming that the Bank of Canada is pumping the brakes on our economy. The growth was unexpected by almost all. Last month in August 2017 there was a slight dip in manufacturing numbers and unemployment continues to be low. Canada actually has the best performing economy in the entire G7, and that is factoring in the downward pressure on housing, and lower oil prices. Todays increase put prime back to where it was in January 2015 just before the crash in Oil prices.
So what will happen with housing? Well I believe that you will see a continue softening of values. The likely result of todays rate increase will likely cause housing market to decrease by another 5 to 10 percent. I estimate a more normal 3 - 7% annual increase in home values beginning next year. The days of 20% year over year price increases are done for now. And that is a good thing.
When you got your Variable Rate Mortgage we did a stress test. Even a mortgage at Prime today is still about 35% lower than what we used to Qualify you for your mortgage. So please dont worry about affordability. You can expect an increase in the interest portion of your mortgage of approx 25 dollars per 100k per month. Its not money anyone wants to spend, but it is still a far better deal than a fixed rate.
I hope this information has been of value to you. Please feel free to reach out to me directly at email@example.com or by cell at 905 334 9111.
Toronto index stopped trending down in January
In January the TeranetNational Bank National Composite House Price IndexTM rose 0.3% from the previous month, a tic higher than the historical average for January and a second consecutive monthly increase. However, only four of the 11 metropolitan markets surveyed showed gains the first time since January 2016 that a rise in the Composite Index has had so little breadth. It was due mainly to a second straight monthly jump of the index for the important Vancouver market (1.2% in January on the heels of 1.3% in December). The Toronto index rose 0.2%, the Victoria index 1.0% and the Montreal index edged up 0.1%. All the other component indexes were down on the month: Hamilton (0.2%), Ottawa-Gatineau ( 0.2%), Edmonton (0.3%), Calgary (0.3%), Halifax (-1.0%), Winnipeg (1.1%) and Quebec City (2.0%). For Montreal, it was a 13th monthly increase, and for Hamilton it was a fifth decrease in a row. The rise of the Toronto index was the first in six months. The raw (unsmoothed) Toronto index  on which it is based was up for a third consecutive month. The firming of the smoothed index is due entirely to condo dwellings. The smoothed index for non-condo units fell in January for a sixth straight month, bringing its cumulative decline to 9.6%.
Click here for full release. https://housepriceindex.ca/2018/02/toronto-index-stopped-trending-down-in-january/
2018 CMHC Prospective Home Buyers Survey
In October 2017, CMHC surveyed 2,507 prospective home buyers on-line. Respondents were all prime household decision-makers who intend to purchase a new home within the next two years, including approximately 1,500 First-Time Buyers, 500 current owners, and 500 previous owners.
The survey results highlight that:
First-Time Buyers and Previous Owners share the same top motivator to purchase a home: they want to stop renting. Improved accessibility (physical obstacles and barriers) and investment opportunity were also noted as top motivators across all groups. Changes to mortgage regulations and concerns about possible future interest rate increases were not among the top motivators.
Over four-in-ten First-Time Buyers and Previous Owners say they would delay their home purchase if they were not able to find their ideal home, with a fairly similar proportion saying they would be willing to compromise on the size of the home and location.
The majority of future home buyers intend to obtain a mortgage to finance their home purchase, with First-Time Buyers showing higher incidence compared to Previous Owners and Current Owners.
Across all future home buyers groups, more than six-in-ten say they are likely to have a financial buffer in case their expenses change in the future. Furthermore, the majority of future home buyers, especially Current Owners, agree that they feel confident they have the necessary tools and information to manage their mortgage and debt load.
Among all groups, the two most common actions completed one to two years prior to the purchase of a home were saving for a down payment and determining what type of home to buy. On the other hand, in the last three months before purchasing, about two-in ten of prospective buyers pre-qualify for a mortgage.
About one-in-four prospective home buyers stated that they would be very likely to consider delaying their purchase in the event of an increase in interest rates.