Friday Mortgage Roundup: January 18, 2013

This week's mortgage lowdown

Winter weather and the real estate market seem to have one thing in common lately, they’re both frozen.  Sellers, accustomed to the housing boom conditions of the past 10 years, are balking at prices set lower than the previous standard, and buyers are responding by sticking to the sidelines and holding out for a better deal, as record low interest rates are predicted to hold steady.

The Deep Market Freeze

The latest numbers from CREA show that year-over-year, sales are down 17.4 per cent in December across the nation, and prices have crept up 1.6 per cent. However, the cynical outlook assumed by media outlets should be taken with a grain of salt. These lackluster year-over-year numbers can be chalked up to a few different factors – including those infamous CMHC mortgage rule changes – but it must also be noted that the winter months are seasonally slower.

Will There Be a Spring Price Thaw?

Should there be a boost in the supply of homes on the market along with the warmer weather, we can assume that prices will have to adjust in order for sellers to remain competitive in the saturating market. Of course, there are no guarantees… and some experts have indicated the possibility that the market will stay on its current path. This is illustrated in a recent article by the Globe and Mail’s Garry Marr which states that in order for the market to crash, there needs to be some kind of spark or “event that will force people to reduce their asking prices”.  Common concerns include a sudden spike in interest rates or job losses – two unlikely triggers.

Are you getting a sense of deja vu? It’s true that a sudden spike in interest rates was the root of the United States’ woes and the driver to their out-of-control debt spiral. But these conditions fail to pose the same risk to Canadians. Unlike the States, Canada does not have a large subprime mortgage market, or teaser introductory mortgage rates that jump up overnight. Our record-low interest rates are not expected to rise any time soon, employment is stable, and the overall health of the economy is tolerable so at this point in time, people are not being forced to sell at a lower price. What we have now is a recipe for stagnation.

Commonwealth In More Ways Than One

While it’s natural to be wary of the factors that hit our southern neighbours, if we’re really going to compare ourselves to a like economy, why not look to Australia? The Aussies have been experiencing a commodity-driven boom similar to Canada’s, which has created many jobs – and home prices have soared as a result. Potential buyers down under are also feeling locked out of the market and are turning to condos as an alternative to single-family homes. More and more, developers are responding to this shift in demand, and are increasing condo starts to satisfy the appetite for more affordable housing. Keen market observers may glean some insight to Canada’s market by keeping a watchful eye on our commonwealth companions.

What the Seasons Have in Store

As for forecasted conditions back on the home front, I still stick to my soft landing guns, though I wouldn’t be surprised to witness a slightly lower than normal spring market due to the barriers facing the first time home buyer segment. While interest rates are due to rise, they’ll do so with slow, controlled movements, and people are generally optimistic about a healthy economy and strong employment. Not only is the government sure to jump back into the fray should market conditions go out of control, but consider this food for thought when it comes to urban development: When compared to other major metropolitan centres worldwide, Canada’s person to square kilometer ratio is downright puny – there is still tons of room for growth in the market.

Week in Review

Not much movement to be seen in rates this week – variable rates saw no change, and only a marginal shift was witnessed in fixed. Three-year fixed rates are down three basis points (2.68 – 2.65 per cent), Seven-year fixed is down by one (3.41 – 3.40 per cent), and 10-year fixed is down by three (3.77-3.74).

Related Topics

Buying A Home / Mortgage News / Mortgages

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