CREA Update: The Rate Hold Aftermath

A Rate Hold can help you afford a home with a historically low mortgage rate

Can the red hot housing demand witnessed this fall be attributed to flash-in-the-pan sales rates? The latest data from CREA seems to indicate so, as national sales dropped off slightly in October, coinciding with the expiry of bargain rate holds doled out in the summer.

Home sales cooled 3.2 per cent from September to October, though they’re still up 8.3 per cent year over year – an indicator of the market’s subsequent recovery from the affordability restrictions put in place last June.

Here is a summary of CREA’s reported highlights:

  • National home sales declined by 3.2 per cent from September to October.

  • Actual (not seasonally adjusted) activity came in 8.3 per cent above levels in October 2012.

  • The number of newly listed homes declined by 0.8 per cent from September to October.

  • The Canadian housing market remains in balanced territory.

  • The national average sale price rose 8.5 per cent on a year-over-year basis in October.

  • The MLS Home Price Index (HPI) rose 3.5 per cent year over year in October.

A Market Pushed By Pre-Approvals

Fears of a rising interest rate environment had buyers with pre-approved discounted rates moving quickly on their home purchases, resulting in sale signs flying off lawns throughout the autumn, according to Gregory Klump, chief economist at CREA. “October’s lower activity provides early evidence confirming that sales in the later summer and early fall were boosted by homebuyers with pre-approved mortgages at lower than current interest rates jumping into the market before their preapprovals expired,” he stated in a release.

No Rate Hike In Sight… For Now

However, the threat of sky high rates fizzled before they really took off. Fixed mortgage rates are being kept low by a stable bond buying market, as investors regain confidence that interest rates will remain low for the longer term,according to Mortgage Rate Outlook panelist and True North Mortgage President Dan Eisner.

“We have seen a recent lowering of Canadian bond yields as a reaction to the Bank of Canada’s desire to keep a stimulative policy in place longer than otherwise expected. This downward pressure on mortgage rates will be somewhat offset by the regulator changes set in motion by the government which will have the effect of increasing the cost of mortgage lending for Canadian banks,” he states in the panel’s November edition.

While today’s lowest discounted rate for fixed year fixed mortgages is 3.28 per cent (66 basis points higher than this summer’s record low of 2.62), most of the posted rates from Canada’s largest lenders are still under the five per cent mark, meaning it’s still a historically inexpensive time to acquire home financing.

Low Rates Take The Pressure Off Purchasers

The Bank of Canada dropping its rate bias in its last announcement further cemented this belief, and paved the way for persistently low variable rates. This has taken some of the pressure off Canadian buyers which could, Klump believes, further balance the market and cause an easing of high prices.

“Now that interest rates appear to be going nowhere fast, sales activity in the near term may be held in check by homebuyers who are in less of a hurry to purchase,” he stated. “While the Finance Minister will no doubt continue to keep a close eye on Canadian housing markets for signs of overheating as interest rates remain low, October sales results may provide him with reassurance that tightened mortgage regulations and lending guidelines are working as intended.”

Finance Minister Jim Flaherty has already stated that he will not interfere with current market conditions for the time being, but has also promised that future rate hikes will be inevitable, no matter what the current state of the Bank of Canada’s Overnight Lending Rate.

Would you buy a home at today’s current mortgage rates in response to Flaherty’s promise of future rising rates? Or are you confident that we’ll see more discounting in the months to come?

Related Topics

Mortgage News / Mortgage Rate Outlook Panel / Mortgages

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