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Brad Currie
-Mortgage & Real Estate Specialist
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BLOG / NEWS Updates
Mortgage Rate Forecast - May 2020
Mortgage Rate Forecast
May 2020
Mortgage rates are expected to remain stable over the coming months. We may see continued reductions to rates are the financial markets begin to stabilize.
The Bank of Canada prime rate remains at %. There has been 3 drops in the Prime Rate in the month of March. Each drop was %. These changes were made as a direct result to add stimulus and support to the anticipated economic challenges caused by the COVID-19. In addition, the Bank of Canada has provided billions of dollars in Quantitative Easing. The purpose it to provide confidence and reduce risk to the participants in the financial markets.
Fixed mortgage rates have been extremely volatile with significant declines in rates, then rapid increases to rates to levels slightly higher than when the pandemic occurred. We are currently seeing fixed term mortgages settled into more normal levels based on more typical cost of funds. Expect fixed rates to remain at current level in the next few months, with a slight bias to declining more.
It is important to remember the economic stress we are experience is due to a health crisis. Once the COVID-19 virus can be effectively managed, our economy will begin to return to pre-pandemic levels.
Brad Currie
604.727.6111
brad@bradcurrie.com
Index growth slows further in January
In January the TeranetNational Bank National Composite House Price IndexTM was up 0.3% from the previous month. It was the third consecutive month in which the index rose less than the month before. The increase was led by five of the 11 constituent markets: Hamilton (2.0%), Montreal (1.0%), Victoria (0.6%), Halifax (0.4%) and Vancouver (0.4%). Rises of less than the countrywide average were reported for Quebec City (0.3%) and Ottawa-Gatineau (0.1%). Indexes were down from the month before in Toronto (0.1%), Calgary (0.2%), Edmonton (0.4%) and Winnipeg (0.4%). After three months September, October, November in which all 11 markets of the composite index were up from the month before, it was a second consecutive month in which one or more markets were down on the month.
The price rise is consistent with the rise of home sales volume over the last several months as reported by the Canadian Real Estate Association. For a fifth straight month, the number of sale pairs[1] entering into the 11 metropolitan indexes was higher than a year earlier. The unsmoothed composite index, seasonally adjusted, was up 0.9% in January, suggesting that the published (smoothed) index could continue its uptrend.
Canadian home sales continue their momentum to start 2021
In January, Canadian home sales increased 2.0% month-on-month, building on Decembers 7.0% gain. On a year-on-year basis, they were up 35.2%.
Provincially, sales were up in 8 of 10 provinces in January, with strong gains recorded in PEI (+20.5% m/m) and Alberta (+11.9%). On the flipside, a relatively steep decline was recorded in Nova Scotia (-8.3%).
New listings dropped by 13.5% m/m in January. The combination of rising sales and falling new listings brought the months supply of inventory measure to under 1.9 months.
The national sales-to-new listings ratio also increased to 90.7% its highest level by far. Every province was in sellers territory in December, and many of those in the eastern part of Canada had ratios over 100% (Quebec: 128.3%; New Brunswick: 116.0%; Nova Scotia: 114.3% and PEI:101.5%). This means that there were more sales than new units listed last month in these provinces. This is a rare situation, but has occurred before in the Atlantic Provinces. However, January marked a first on this front in Quebec. Elsewhere, ratios were particularly elevated in Manitoba (86.1%) and Ontario (88.6).
Strong demand and historically tight conditions were reflected in prices. Indeed, Canadian average home prices surged by 4.7% m/m in January. On a year-on-year basis, they were up 22.8%, marking an acceleration from December. However, prices were up in 8 of 10 provinces during the month, with the largest gains occurring in Alberta (+8.1%) and Ontario (7.4%).
Compared with the average sales price, the MLS home price index, a more like for like measure, increased 2.0% m/m. Single family home prices rose 2.6% m/m (and a robust 17.4% y/y), whereas apartment prices advanced by a smaller 0.2% m/m (and decelerated to 3.3% y/y). In Toronto, apartment prices increased 0.4% m/m, the first gain in 4 months.
Key Implications
Home sales picked up right where they left off to start 2021. Demand was likely given a lift by ultra-low mortgage rates, which dropped again during the month. Januarys robust gain coupled with a strong handoff into this year virtually ensures that sales will increase in the first quarter. However, with sales likely running above fundamentally-supported levels, we think some cooling in activity will take place, especially in the second half. A dwindling supply of inventories, when benchmarked against the current sales pace, could also weigh on activity moving forward.
With todays data showing a solid gain in prices last month and new supply collapsing across nearly the entire country, markets were historically tight. This points to further strong price gains ahead in the near-term.
Also notable was that benchmark condo prices grew for the first time in several months in Toronto. Although supply remains elevated, conditions are becoming tighter than what we saw last fall. This suggests that further gains are in store.
Source: https://economics.td.com/ca-existing-home-sales