RateSupermarket.ca’s Expert Mortgage Panel Believes Fixed and Variable Mortgage Rates Will Remain Level in February

TORONTO, Feb 7, 2012… Recent fluctuations in variable and fixed mortgage rates have left Canadian consumers confused about future mortgage trends.  The good news is that February should be less volatile, with RateSupermarket.ca‘s Mortgage Rate Outlook Panel anticipating both fixed and variable mortgage rates will remain level during the month.

At the end of last year lenders reduced their discounts to prime which increased variable rate mortgages due to tightening margins. Last month they dropped fixed mortgage rates to record lows to kick off 2012 and develop their sales pipelines for the new year.  So what’s in store for this month?

Fixed mortgage rates: Unchanged

The big banks recently dropped their best mortgage rates for fixed 4 and 5 year terms to record lows, causing a frenzy in the market.  Hyper competition to lock down market share early in the year has started to cool with most of the rate specials ending. Although, spreads between bond yields and current fixed rates still remain attractive (technically lenders have room to drop fixed rates even more!).

However, lenders are likely to practice caution given the continued uncertainty in the global economy and the escalating political and media pressure about low rates fuelling a housing bubble.  As a result, our Panel members anticipate fixed mortgage rates will remain unchanged in the short term.

Variable mortgage rates: Unchanged

The next Bank of Canada rate announcement will take place on March 8, 2012.  Most experts believe they will hold interest rates steady again, leaving variable mortgage rates unchanged. Given the Federal Bank’s recent announcement that it will keep US interest rates low into 2014, coupled with very weak recent Canadian economic data, our Panel members think any alternative action from the Bank of Canada is unlikely.

To read all the detailed commentary from our Panel Members, please visit: http://www.ratesupermarket.ca/mortgage_rate_outlook_panel/

About the Mortgage Rate Outlook Panel

The Panel includes some of the country’s top mortgage experts, and helps Canadian consumers make informed decisions by offering a short-term outlook for fixed and variable mortgage rates.

This month’s panel members:

• Mark Kocaurek, Senior Vice President, Treasury & Lending (Chief Lending Officer) of ING DIRECT Canada
• Dr. Ian Lee, Director of MBA Program, Sprott School of Business, Carleton University
• Wayne Spinney, Mortgage Agent, Centum Mortgage Professionals
• Dan Eisner, MBA. AMP. President, Verico True North Mortgage
• Elisseos Iriotakis, President, Safebridge Financial Group

About RateSupermarket.ca (www.ratesupermarket.ca)

RateSupermarket.ca is the largest impartial rate comparison service for personal finance products in Canada. Founded in May of 2008, their easy to use comparison engine provides much needed transparency to the Canadian financial market and allows visitors to quickly find the best mortgage rates. Their new Mortgage Tool App for the iPhone also allows house hunters to compare mortgage rates using their Smartphone. Over 1.5M Canadians have turned to RateSupermarket.ca to save money on their mortgage, insurance, credit cards and GICs.

January is turning into one of the hottest months ever for real estate sales. Realtors say they have never experienced such a busy January.

What’s Behind the Boom?

Its being fueled by BMO’s move earlier this month to lower its five year fixed rate to 2.99 per cent. That’s the lowest posted rate from a major bank in Canadian history. The other banks have followed offering their own version of fixed rates below prime.  This historic event is pushing home buyers back into the market.

Royal LePage, which franchises brokerages across the country, recently forecast the Canadian real estate market will rise 2.8 per cent in 2012. That is slower compared to 2011, when the market rose 4.8 per cent.  But that forecast did not know banks were going to move fixed rates as low as they have.

Real Estate Poised to Heat Up

In my opinion, 2012 could be one of the hottest years for real estate.  The mini boom the country is experiencing now will only grow as we move into the busiest real estate season. March is traditionally the month when inventory of homes for sale increases and more buyers are out looking for a place to buy that will close during the summer months.

Canada’s Excellent Track Record is Paying Off

Why are mortgage rates so low in Canada? Our country’s reputation is driving international demand for bonds from Canada’s biggest banks. Foreign investors are fleeing to safety in Canada.  In the case of BMO, it was able to sell $1.5 billion worth of five-year bonds at a rate of 2.544 per cent, this month.  Making it easy for them to offer consumers the historically low-posted fixed rate. The lower the yield the better the signal that investors have confidence in a lender’s ability to live up to the terms of the loan.

These bond sales are moving through the system and pushing mortgage rates to record lows. It means homeowners can benefit from even cheaper money as more foreign investment moves into Canadian bank bonds.  With the Europe debt problems still spiraling out of control and the U.S.economy still on shaky ground the push for Canadian bonds could continue for the long run.

A Warning About Cheap Money

But as it’s been for three years, lower rates threaten to move Canadians into dangerously high debt levels. Many may be unable to afford their homes down the road. Anyone out shopping for a home should continue to calculate their own affordability at least 2 percentage points higher than what they are being offered.

The BMO special rate offer has now ended but fixed rates still remain unbelievably low at close to 3 per cent. Variable mortgage rates continue to be offered below prime and that means anyone searching for a new mortgage can explore this option. Low rates won’t last forever, but they seem to be here to stay for 2012. And the Canadian market stands to gain from it in a big way.

This past Tuesday the Bank of Canada had their first meeting of 2012 to discuss any changes they were going to make to the overnight lending rate.  Low and behold … no change.  This came as no big surprise to Canadians and the overnight rate remains steady at 1 percent.  FYI the next meeting is scheduled for March 8^th, 2012.

How does this impact the mortgage industry exactly?

Well, the overnight lending rate (the rate at which banks lend money to each other) has a direct influence on the prime lending rate (the rate at which banks lend money to consumers).  Think of the prime lending rate like the sun in the variable mortgage rate’s solar system since all variable rates revolve around prime.  Bottom line, no increase in prime means no increase in variable rate mortgages and no increase in monthly mortgage payments.

Release the HOUNDS!

Talk about some hot competition!  Last Friday, BMO announced a special 2.99 percent 5 year fixed rate.  RBC quickly responded by offering the same 2.99 percent but only for a 4 year term.  TD matched RBC’s 2.99 percent 4 year fixed and ING is now offering a 3.99 percent not on a 4, not a 5 but a 10 year fixed (wow)!  After mulling over and digesting what this might mean for their market share and presence in the competitive mortgage market over the weekend, Scotiabank announced their 2.89 percent 3 year fixed offer on Monday.

The Three Little P’s (no, not piggys)

Given the super low rates that hit the market over this past week, it’s even more important for consumers to know what other details they need to consider before signing on the dotted line.  Think about the 3 P’s: pre-payment privileges, portability and penalties.  These options could make or break that perfectly low mortgage rate.

1. Pre-Payment Options

According to a survey conducted by CAAMP, 17 percent of mortgage holders made lump sum payments in 2011 and those who did prepaid an average of 7.8 percent.  For this to be you next year you should ensure that your ability to make lump sum payments coincides with the option to do so.  Generally speaking, pre-payment privileges are around 15-20 percent of the original principal amount, but sometimes “no frill” mortgages will offer a lower pre-payment privilege at a lower rate.

So before you get enticed by that really low mortgage rate, check out the pre-payment options.  If the low mortgage rate limits your ability to pay down your mortgage faster, it may cost you more in interest in the long run. On the same note, make sure you are not paying a higher rate for a mortgage feature that you are not taking full advantage of.

2. Portability

Really love that low 10 year fixed rate but think there is a chance you could move in the next 10 years?  If the mortgage you have is portable, you’re in good shape!  Portability can save you money down the road if your rate (a.k.a. today’s historically low rate) is lower than the rates at the time you move in the future.  A portable mortgage allows you to transfer your mortgage to a new property (subject to a credit approval and sometimes a property appraisal), avoiding any penalties of breaking your mortgage.

Not to worry if the new mortgage you need is larger than the remaining balance on your existing mortgage, you can actually apply for a larger amount and your rate will be a weighted average between your old rate and the current rates offered.

3. Penalties

Your dream house just went up for sale and after years of working for the man, it is actually in your budget!  But you didn’t have this helpful blog to read when you first shopped for a mortgage and now you realize your mortgage doesn’t have a portability option.  Oops!  The good news is you can break your mortgage and get a whole new one for your dream home.  The bad news is it’s going to cost you a mortgage penalty, likely the greater of 3 months interest or the interest rate differential (IRD).

Before you commit to any mortgage product make sure you have an understanding about what it will cost you if you need to break the contract and get out early.

Today’s Mortgage Shopper

If you’re currently in the market for a mortgage, consult with a mortgage professional before making a decision and don’t be ashamed to ask a lot of questions.  You shouldn’t only consider the lowest possible rate when searching, look at the product details as well.  Also, it’s not just about finding a mortgage that meets your needs today, but also in 1, 3 and 5 years time.  Yes the 5 year rates are great, but if you’re home is only a stepping stone and you can’t port the rate later you may want to consider a shorter term.  A custom mortgage for a custom home.

Despite what all the real estate market pessimists might say in my opinion there is no condominium bubble in Canada.  All signs point to Canada’s real estate market remaining strong for this year and well into the rest of the decade. But that doesn’t mean home prices are falling. In most major urban centers the average resale price is at historic highs.  This indicates an even greater need for condominiums, which are often seen as a more cost effective alternative to single family homes. The dense makeup of multi family dwellings also allows more people to live in the core of Canada’s biggest cities.

Here are the major reasons that debunk any theory that Canadian condominium prices are bubbling.

Higher costs

The average cost of a resale home in Canada was $363,900 in 2011. Economists at the Canada Housing and Mortgage Corporation, estimate that cost will rise to $368,200 this year.

These costs are much higher in bigger centers like Toronto and Calgary. Where home prices on average are more than $400,000.   In Vancouver the average cost of a resale home is expected to climb above $800,000 this year.

This is drawing more attention to smaller family dwellings like condominiums. Especially for the homeowner who’s main factors are location and affordability.  For example, the average price of a condominium in Toronto is $234,680. Condominiums create a good alternative for anyone looking for a more cost affective alternative to a single-family home.

In its latest Housing Outlook the Canadian Housing and Mortgage Corporation says, “demand for denser house types, particularly condominiums, will reflect demographic trends such as an aging population. There are also affordability concerns and transportation considerations, as condominiums tend to be priced lower than single-detached homes, are located near major transportation routes, and can require less home maintenance.”

Immigration

According to Canada Citizenship and Immigration Canada more than 280,000 people immigrated to Canada in 2010 alone. Many of these people went to major centers such as Toronto, Vancouver and Calgary because of better job prospects and family connections.

There is an influx of a quarter of million people every year that need to find a place to live. For many new immigrants starting a new life in Canada a condominium is the first place they could land because of the affordability factor.

Low rental vacancy and ownership affordability

Rental vacancies in Canada are extremely low.  The average rental apartment vacancy rate in Canada’s 35 major centers decreased slightly to 2.2 per cent in October 2011, from 2.6 per cent in October 2010, according to a recent Rental Market Survey by CMHC. In Toronto vacancy rates are at a mind blowing 1.4 per cent.

In the meantime, mortgage rates remain near historic lows, making home ownership possible for more people.

CMHC says in its forecast for 2012 that more affordable condominium projects are now competing with the resale market and enticing some renters to move into new condominium units. It adds in 2012 demand is expected to improve with rising incomes and new household formation.

Final thoughts and observations

Anyone driving down the main highways in Canada’s major cities can see lines of cranes indicating more buildings are coming up. The forecast is that despite the high level of construction, inventory levels will remain in check, as units are absorbed quickly in both the rental and condominium markets.

As long as immigration rates and interest rates remain where they are, and every indication says they will, the notion that Canada’s condominium market is in a bubble is simply fear mongering.

Although real estate has been on a bull run for the better part of the last decade, prices are not inflated as they were in the U.S before the housing crash. As well, Canadians are still carrying significant equity in homes giving options if interest rates were to rise to sell their home and downsize.

Don’t expect to make a quick profit by buying a condominium today to sell next year, but as a homeowner planning to live in the dwelling those homes in the sky are still a valuable alternative to higher home prices on the ground.

If one goes, they all go!  After Friday’s rate announcements from BMO, TD and RBC, Scotiabank joined the battle by also offering a four year fixed special at 2.99% in addition to the 2.89% three year fixed special that they have previously announced.

The features for these special rates:
-          15% prepayment
-          Increase payments by 15%
-          Amortization is to be negotiated with the agent
-          Rate hold for 120 days

You can view all of Scotiabank mortgage rates here or compare the best mortgage rates in the market here.

It’s good to be Canadian. While the U.S. housing market crumbled – to a certain degree bringing the global economy along with it, after some slight hiccups, the real estate markets in most Canadian cities have continued a slow and even climb.

And where European governments have been tottering on the verge of bankruptcy, threatening the very existence of the Euro, the loonie is more-or-less on par with the once-mighty (and still default global currency), the U.S. dollar.

But only a fool would think that the Canadian economy is not heavily influenced by events in the U.S. and Europe. Here, we review what various economic soothsayers from around the world predict 2012 will have in store for the global economy.

The Outlook for the US

It’s not just a cliché to say that Americans love to shop. Consumer spending accounts for some 70 percent of economic activity in the country that receives three-quarters of all Canadian exports. So when shoppers stay home from the malls, there’s a trickle-down effect that has negative impacts across the board, and the border.

One forecaster, Macroeconomic Advisers, predicts very modest growth of just 2 percent for the first half of 2012. Mirroring that figure, Morgan Stanley and Goldman Sacks both predict U.S. GDP will average about 2 percent in 2012.

On the housing front, prices continue to drop in many regions – in some parts of Detroit you can actually buy a house for less than $1,000. And by one estimate, one in five homeowners is “underwater,” meaning the amount they owe on their mortgage is higher than what the place is currently worth.

That said, there are some promising signs of a potential recovery. The national unemployment rate was 8.2 percent in November 2011, down from 9.3 percent the previous year. That same month, new construction starts in the U.S. jumped 9.3 percent. The 685,000 homes (and condo units) that ground was broken on that month is the highest level in nearly two years.

Also in November, existing-home sales totaled 4.42 million, a 12.2 percent increase over November 2010. Helping home sales is the fact that it seems unlikely that the U.S. Reserve will raise interest rates until sometime in 2013. Adding some clarity to the situation, starting January 25, 2012, the Fed will regularly post its long-term forecast for interest rates.

The Outlook for Europe

The outlook is worse in Europe. Scotiabank predicts zero growth in GDP for Europe as a whole (with modest gains for the UK, German, and France negated by negative GDP figures in countries like Spain and Italy). The fact that there are more than 16-million unemployed people in the European Union countries certainly won’t help.

Spain enters the year on the verge of an official recession – defined as two successive quarterly contractions – and the country suffers from astonishing levels of unemployment: 22.9 percent overall, and nearly 50 percent amongst young people.

Things aren’t much better in the U.K. (Canada’s second-largest trading partner). The Bank of England predicts a mere 1 percent growth in GDP, hampered by an 8.3 percent unemployment rate – equating to 2.62 million people out of work – the highest level since 1996. And, as if it weren’t hard enough to buy a house when you’re unemployed, the British Chambers of Commerce predicts that interest rates will start to rise in August.

Even economic powerhouse Germany, with its low unemployment rate of only 5.5 percent, is predicted to have less than 1 percent growth.

Until the hard-hit economies of Spain and Portugal are stabilized, it looks like Europe as a whole will remain in flux.

The Big Unknowns

Economic stability relies in large part on social stability. It’s not a far stretch to call 2011 The Year of the Protest. In fact, Time magazine named “The Protestor” as its annual Person of the Year. From the Arab Spring, which brought down numerous dictatorial regimes across the region, to the Occupy Wall Street movement, which spawned offspring Occupy sit-ins in cities large and small across the Western world, there was an unprecedented show of dissent with the status quo.

Add in the uncertainly over how Iraq will fare after the U.S.-pull out, a relatively unknown leader taking power in nuclear-armed North Korea, the ongoing threat from global terrorism, and countless other variables that could cause wild economic swings, the short-term economic future doesn’t look too bright.

Then again, if you believe what Hollywood and the new age shamans tell us, it’s all a moot point: the Mayan long-count calendar ends on December 21, 2012, so we’re all going to die anyway…

The Bank of Canada announced this morning that interest rates will remain unchanged for the 11th consecutive time over the past 15 months.  The last time the BOC made a change to the overnight lending rate was in September 2010 with a moderate increase of 0.25 per cent.

The overnight rate currently sits at 1 per cent. The Bank Rate is  1.25 per cent and the deposit rate is 0.75 per cent.

The news is really no news at all, given that nearly all industry professionals and top economists were anticipating no change. But what should be of interest to consumers is the justification behind the decision.  Here’s why the Bank of Canada is keeping interest rates where they are.

Europe

• The outlook for the global economy is getting worse.
• The recession in Europe is expected to be deeper and last longer than originally anticipated.
• The BOC was coy in suggesting they had faith Europe could get a handle on the situation: “although this assumption is clearly subject to downside risks”.

The U.S.

• The U.S. grew more than expected at the end of 2011, although this is not likely to last.
• The U.S. recovery will be more modest going forward due to continued household deleveraging and negative effects from Europe.

At Home in Canada

• When it comes to the Canadian economy, little has changed.
• It is estimated that GDP grew by 2.4 per cent in 2011 and is expected to grow by 2.0 per cent in 2012 and 2.8 per cent in 2013.
• Similarly to the U.S., we experienced slightly better growth in the second half of 2011 than anticipated, which is expected to be more modest going forward.
• Little is expected from net exports in 2012, due to moderate foreign demand, increased competition and a strong Canadian dollar.

Inflation

• In 2012 inflation should remain level.
• Total and core inflation is expected to reach 2 per cent by the third quarter of 2013.
• The BOC recognizes that several significant upside and downside risks are prevalent in the inflation outlook for Canada, but they believe they have a handle on the risks and will be able to maintain their key mandate of keeping inflation under 2 per cent.
• With inflation in check there is little reason to believe that we will see a rate increase any time in the near future.

Consumer Debt Levels

One of the more worrying comments made by the Bank of Canada at today’s announcement was their forecast for consumer debt levels. With rates near all time lows more and more Canadians are taking advantage of the very favourable financing conditions.  This is expected to continue and grow.

“Household expenditures are expected to remain high relative to GDP and the ratio of household debt to income is projected to rise further.” says the BOC.

A Note of Caution to All Home Owners

Today’s announcement means that your bank’s Prime lending rate will not change, which in turn means that variable mortgage rates will not change.  If you are on a variable rate mortgage, take advantage of this low rate environment and pay down more of your mortgage principal now.  You will be glad you did when rates increase in the next few years.

It’s the time of year when we shake off the old year and look ahead to guess what the new one will bring. 2011 was a mixed bag of economic drama: real estate, stock market, jobs and other indicators seemed down as often as they were up. It was an uncertain year money wise.

What about 2012? The verdict is mixed, the debt crisis in Europe being the pivotal factor. If these nations can get a grip on their monetary problems, the rest of the world should see gradual growth. If things slip into meltdown, we could be looking at a global double-dip recession.

In Canada, the numbers over the last month or so look promising and predictors seem to be leaning towards the former, more positive, scenario — with the debt crisis worsening in early 2012 but improving by mid-year. Here’s what’s up for the year:

Economic Growth

Our economy is going to grow this year, but not by leaps and bounds. Expect about 1.9% growth in GDP, according to the Bank of Canada. RBC is forecasting as much as 2.5% growth.

At the end of 2011, the BOC had expected GDP growth in Canada for Q3 to hit 2.0%.  Actual growth turned out to be 3.5%. And in Q4 they expect 0.8% growth, while most analysts think Q4 growth in Canada was about 2%.

Only time will tell if we will once again surpass the forecasts.  And if so, for how long can  it go on?

Interest Rates

Low, low, low! With all this uncertainty, and inflation numbers looking very low, there are few plans here or south of the border to raise rates. Some are saying we won’t see a rise in the overnight rate of 1% until 2013.

Until the worldwide economy has truly stabilized, you’ll be able to get those dirt-cheap mortgage rates and loans, so enjoy them a little longer.  Experts predict that once rates start to raise at the end of 2012 or in 2013, the increase will be slow and steady, going up 1-3% by the end of 2013.

To keep on top of interest rate changes, check out the Mortgage Rate Outlook Panel for a monthly prediction on whether or not rates will go up, down or stay the same in the short term.

Real estate

The predictions, of course, depend on where you live. Experts are saying the high-flying Vancouver and Toronto markets are overvalued and we should see a correction. But with high gas prices and job growth focusing on cities, there’s still a lot of interest in living in our biggest centres.

One thing the experts seem to agree on is the oversupply of condos in these cities. They’re expecting a dip in prices and buyers getting pickier about location, square footage and outdoor space.

Check out Melanie’s post from yesterday to find out more about what’s in store for Canadian’s when it come to home prices, home sales and housing starts in 2012.

Currency

With ongoing problems in the US and overseas, economists are predicting weakness in the US dollar and the Euro throughout the year. As a result, the Canadian dollar is expected to stay high in 2012.

Employment

The jobs story has been much worse in the US than it has been here. Already in late 2011 the US jobless rate moved down and is around 8.6% right now. Experts are predicting a modest descent through 2013 to around 8%.

Here, our situation is better, and we’re hovering around 7.4% unemployment right now. It’s predicted Canada will see a jobless rate of about 6.9% by mid 2013. Better news still: those experts think wages will start to rise and skills shortages will make looking for a well-paying job easier for some.

Regions

The prairies are so hot right now. Alberta and Saskatchewan have low employment rates and high growth, and those are expected to continue into 2012.

All in all, I’d say it’s not quite time to break out the champagne over the economy. 2012 promises to be another roller coaster ride of ups and downs, but those who can manage their money wisely and keep their debt to income levels in check, will come out on top.

It’s the beginning of a new year and everyone’s dying to know; how will the real estate market fare in 2012? Will home prices continue to escalate? Will housing starts continue to rise, or will they slow this year? And what will home sales be like this year?

To answer these questions, I’ve done extensive research, gathered the thoughts of some of Canada’s top economists and compiled them here. Please feel free to share your thoughts on our real estate market for the upcoming year in the comment space provided at the bottom.

Home Prices

As of November 2011, the average selling price of a Canadian home sat at $360,396, a 4.6% increase from November 2010. Canadian home prices might be currently overvalued by as much as 15 per cent, says CIBC economist Avery Shenfield. He doesn’t expect to see a major correction this year, though, especially since Canada’s economy and the job market both remain fairly strong.

“The catalyst for correction just isn’t there,” he says. “We’ve largely lent to those who have the income and ability to pay.”

It is said that home prices are rising much faster than income. Shenfield hopes to see zero growth in 2012. Zero growth could effectively give the market an opportunity to let off a little steam, allowing incomes to catch up to overinflated prices.

Low mortgage rates, employment opportunities and immigration will continue to support Canada’s housing market. But It is expected that home prices will stabilize in 2012.

Housing Starts

Last year, housing starts (the number of new homes being built) showed an annualized reading of approximately 190,000 units, says the Globe and Mail. CIBC World Markets economists Emanuella Enenajor says, “Analysts in recent months had been expecting housing construction to slow, led by weaker multiples construction – with the heated condo market losing its affordability edge over detached properties.”

CMHC also expects housing starts to decrease this year. They estimate that new housing starts will fall to 186,750 units from an estimated 191,000 in 2011 – a 2.2 per cent decline.

Some cities, such as Montreal, Regina and Saskatoon, already have a high inventory of new homes, which will definitely limit new starts there. In Manitoba, however, housing demand continues to be fuelled by strong levels of migration, according to one report.

Home Sales

The Globe and Mail reports that economists think that the Canadian housing market will lose steam overall in 2012. Although they don’t predict a bust, they do predict that valuations will be a main concern. In particular, TD predicts that both B.C. and Ontario could see real estate troubles over the coming years.

According to senior analyst Jacques Marcil, B.C. could have it worse. He says that the Vancouver housing market likely reached its peak, and predicts that they will probably see “a significant correction” this year.

The TD report suggests that home resales in B.C. will fall by 3.7 per cent, and prices will decline by 3.5 per cent. In B.C. last year, sales rose by 5.9 per cent from 2010. This December, sales were down by 12.7 per cent. Prices, on the other hand, were up by 7.6 per cent – but still down from June’s highs.

Thanks to an overabundant supply of condos, buyer confidence and an unstable economy, Ontario’s housing market is expected to be sluggish as well, especially where Toronto’s condo market is concerned.

In a separate report, Sal Guatieri of BMO Nesbitt Burns says, “Outside of Toronto and Saskatchewan, home sales have moderated since new mortgage rules were introduced in March (for the third time in four years).”

“Markets are balanced in over half the country,” he continues, “But sellers still rule in Toronto, Saskatchewan and Manitoba.”

Guatieri projections: “’Modest gains’ in Canadian home sales this year, steady prices, a dip in housing starts and a moderation in mortgage growth from its pace of almost 8 per cent.”

Meanwhile, the Canadian Mortgage and Housing Corporation predicts slight gains in 2012. “Sales of existing homes will edge up to 458,500 in 2012 from an estimated 450,100 this year, a 1.9% gain, while the average price is forecast to rise by a moderate 1.2% to $368,200 in 2012 from $363,900 in 2011.”

It is their belief that buyers will likely continue to be encouraged by record low interest rates.

In conclusion

Overall, many economists see Canada’s real estate market stabilizing in 2012, especially due to slow job growth, waning consumer confidence and tighter mortgage rules. As Canadian households rack up record high debt, the allure of low interest rates is thought to be waning. For these reasons, we can expect a cooler pace in real estate this year.

In the red corner… currently weighing in just under the Canadian Prime lending rate at Prime – 0.25%… the 5 year variable rate. And in the blue corner… currently weighing in around 2.99% (new rate advertised January 13, 2012)… the 5 year fixed rate. LET’S GET READY TO RUMBLE!!!!

This will be a good fight over the next few months; but many Canadian’s are putting their money on fixed mortgage rates.

This Week – The Fixed vs Variable Debate Heats Up

Variable rate mortgages have typically been a better choice for Canadians over the last 25 years. However, with the spread between the two rates currently around 0.24%, consumers are finding it harder and harder to gamble and are turning to lenders and brokers for a fixed rate.

This trend is especially pronounced today after TD changed their special 4 year fixed rate to 2.99% in order to compete with BMO’s 5 year fixed rate, also at 2.99%. But just like any good deal, these rates won’t last forever! TD’s rate is valid until February 29th and BMO’s will only last until January 25^th.

Who will Come Out on Top?

Here’s a comparison of fixed vs variable mortgage rates over the last 25 years from FirstLine Mortgages:

Note: when you visit your bank they will typically discount the posted rate, (or at least they should) so the green line shown should be a little lower across the board

Over the last 25 years, the Bank of Canada has:

• Made changes to the prime lending rate an average of 6 times each year
• Each change to the rate has been by either 0.25% or 0.50%
• Year over year the prime lending rate has fluctuated by 1.23%

So, what you really need to ask yourself in the next few weeks if you are currently looking for a mortgage is … “Do I think that over the next 5 years, the prime lending rate is going to increase by more than 0.24%?” If the past is any indication of the future, it is more likely than not that it will. What does that mean? You would be better off going with a fixed mortgage rate!

Econ 101: Since the downturn of the market in 08/09, the Canadian economy has been moving in the right direction; however the global economy has really been holding us back from our full potential. If Canada was an island economy (meaning it was unaffected by global economies), We would likely see a rise in interest rates.  Unfortunately if we increase rates too soon our exports become more expensive relative to other competitors in the global market and that would be bad news for Canada.

Final Thoughts for the Week

Weigh out your options and play around on a mortgage calculator to see what your mortgage payment would look like if the prime rate would increase vs. what they would be at current fixed rates, you may be surprised! Ask your broker what your options are if rates do increase and you have a variable mortgage, can you lock in? And finally, stop searching for Prime – 0.90%… it doesn’t exist!!