The housing market remains hot in the fourth quarter as the loonie continues to be strong and the Bank of Canada announced no plans to increase overnight lending rates, putting all previous speculations to rest. This is great news for the economy and the real estate market as consumer demand continues to grow.

According to the Canada Mortgage and Housing Corporation (CMHC), single home starts climbed in September to reach this year’s highest level while urban starts declined by 5.2% and urban multiple starts decreased by 21.4%. Overall, the seasonally adjusted rates of housing starts reached 150,100 units in September compared to 157,300 units in August. But this downshift is attributed to a volatile multiple starts segment and won’t have an impact on the rise in the starts we should see in the coming months. Seasonally adjusted annual rates of urban starts increased by 11.8% in Ontario, but decreased by 20.2% in Quebec, 18.1% in British Columbia and 4.7% in the Atlantic. But went unchanged in the Prairies.

Overall sales activity throughout Canada has remained strong. With low mortgage rates and consumer confidence on the rise, homebuyers are again feeling a sense of economic security when purchasing homes. The third quarter saw seasonally adjusted sales activity rise in over 80% of the local metropolitan markets:

Resale activity in September 2009 increased, exceeding 15% from year-ago levels. Year-over-year activity increases were up in Toronto by 28% and Vancouver by 124%, causing an overall national swell in actual (rather than seasonally adjusted) national sales activity in September. Due to the increase in sales activity, the national average residential price rose 11% from the same quarter last year to $327,736.

Rate hikes are postponed as Canada decides not to follow in Australia’s footsteps.

Although the housing market is stabilizing as we dig ourselves out of a recession, we have naturally been bracing ourselves for a spike in interest rates. With the increased demand in housing, we expected the banks to follow in the footsteps of Australia, who rose their rates in September. The Reserve Bank of Australia lifted its main interest rate by 25 basis points to 3.25%, instigating a surge in its own dollar as well as the currencies of those countries with similar export-led economies.

This trend lead to the belief that the Bank of Canada would be forced to raise their rates sooner than expected as well. After all, Canada is similar to Australia as both countries’ economic growth is strongly linked to the commodity markets. But these similarities are negated by the fact that our growth is so closely tied to the economy of our largest trading partner. Canada’s deep recession has been led by the U.S. Yes Australia’s decision to raise interest rates has been seen as a good sign for the world economy, but Canadian consumers may be happy to hear that the Bank of Canada has decided to maintain current lending rates until the end of June 2010.

Bank of Canada’s decision was a calculated move.

The strong Canadian dollar is seen as an impediment to the country’s economic recession recovery as it hurts exporting to the U.S. Because of this, the Bank of Canada declared in its Monetary Policy Report October 20th, that it has decided to maintain its lending rate steady at 0.25%. The trend-setting bank rate, which is set 0.25 percentage points above the overnight lending rate, remains at 0.5%.

The Bank admits that recent indicators point to the start of a global recovery, and that economic and fiscal growths have turned more encouraging than previously anticipated. While acknowledging that the Canadian economy is rebounding, it expects the recovery to be weak by historical standards.

The Bank downgraded its forecast for Canadian economic growth this year, while keeping its forecast unchanged for 2010. It also lowered its forecast for economic growth in 2011.

In its September announcement to hold interest rates steady, the Bank forecast that inflation would return to its two per cent target in the second quarter of 2011. The Bank has now moved that date out to the third quarter of 2011.

The current overnight rate remains conditional on the outlook for inflation but should remain until the end of the second quarter in 2010. Regardless, banks will continue to promote longer term purchase and resale agreements.

It’s apparent when we look at the September CMHC stats that consumer confidence in the real estate market remains strong. While there are speculations that the housing market may cool down in 2010, for now, lenders are reintroducing discounts off posted mortgage rates due to improving credit market conditions. Take advantage of the low rates while you can because mid 2010 could see a dramatic increase in interest rates as Canada’s economic condition improves.

Caroline
PR@RateSupermarket.ca

Related posts:

1. Canadian Housing Market Strong Compared to Foreign Markets
2. Bank of Canada Believes Housing Market Will Slow Before a Bubble Forms
3. Former Bank of Canada Governor Believes Feds Should Cool the Housing Market
4. Canadian Housing Market Update – Dec 2008
5. Canadian Housing Starts Decline 3.1% in October

Tags: bank of canada, Housing Market, Interest rates, mortgage, mortgage rates