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.
Canadian home sales fall in April
Statistics released today by The Canadian Real Estate Association (CREA) show national home sales fell from March to April 2018.
National home sales fell 2.9% from March to April.
Actual (not seasonally adjusted) activity was down 13.9% from April 2017.
The number of newly listed homes declined 4.8% from March to April.
The MLS Home Price Index (HPI) in April was up 1.5% year-over-year (y-o-y).
The national average sale price declined by 11.3% y-o-y in April.
National home sales via Canadian MLS Systems declined by 2.9% in April 2018 to the lowest level in more than five years (Chart A). About 60% of all local housing markets reported fewer sales, led by the Fraser Valley, Calgary, Ottawa and Montreal. Actual (not seasonally adjusted) activity was down 13.9% compared to April of last year and hit a seven-year low for the month. It also stood 6.9% below the 10-year average for the month. Activity was below year-ago levels in about 60% of all local markets, led overwhelmingly by the Lower Mainland of British Columbia and by markets in and around Ontarios Greater Golden Horseshoe (GGH) region.
The stress-test that came into effect this year for homebuyers with more than a twenty percent down payment continued to cast its shadow over sales activity in April, said CREA President Barb Sukkau. Its impact on housing markets varies by region, she added. A professional REALTOR is your best source for information and guidance in negotiations to purchase or sell a home during these changing times, said Sukkau.
This years new stress test has lowered sales activity and destabilized market balance for housing markets in Alberta, Saskatchewan and Newfoundland and Labrador Provinces, said Gregory Klump, CREAs Chief Economist. This is exactly the type of collateral damage that CREA warned the government about. As provinces whose economic prospects have faced difficulties because they are closely tied to those of natural resources, it is puzzling that the government would describe the effect of its new policy as intended consequences.
First quarter: The value of multi-family dwellings leads the rise
Canadian municipalities issued $24.9 billion worth of building permits in the first quarter of 2018, up 3.3% compared with the fourth quarter of 2017.
Construction intentions for residential dwellings led the national increase, rising 6.9% from the fourth quarter of 2017 to $15.9 billion in the first quarter of 2018. The 18.4% increase of the multi-family component more than offset a 3.5% decline in the single-family component.
On the other hand, the value of non-residential building permits fell 2.6% from the fourth quarter of 2017 to $9.0 billion in the first quarter of 2018. The drop was the result of lower activity in both the industrial and institutional components.