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.