Mortgages Spotlight: August 16,2013

Spotlight on Mortgages

Mortgage Rates To Climb For At Least Two More Years

We’ve witnessed a steady upwards trajectory among fixed mortgage rates over the past few months – but what’s in store for the recent years to come? According to the Q3 2013 Housing Market Outlook released this week by the Canadian Mortgage and Housing Corporation, the average posted five-year fixed rate could jump by over 80 basis points by 2014.

The crown mortgage insurance corporation indicates a short term increase to a range of 5 – 5.50 per cent this year, and up to 5.25 to 6 per cent the next. Keep in mind though, that these are posted rates; currently, the highest on our best rates table sit at 5.14, while the lowest discounted rates can still be had in the 2.99 – 3.20 per cent range.

These increases are due to persistently high bond yields (government of Canada five-year bonds closed at a two-year high of 1.94 per cent this week!) and the challenges lenders face as a result of new limitations on their mortgage funding methods. While experts agree that rates certainly will rise, it’s uncertain when lenders will take the leap. “It will take close to a month for all the parties involved to feel their way around the new rules; this is not something all the lenders are used to like bond rate increases,” said Ron Butler, broker at Verico Butler Mortgage and a member of’s Mortgage Rate Outlook Panel. “This will take time – one lender will have to decide to jump first.”

No Slowdown In Sight

Last week, the CMHC announced it was capping securitized mortgage funds available to banks to $350 million this month. As banks rely on this secured money to lower their mortgage funding costs, the change prompted calls of skyrocketing rates and renewed fears of an impending housing market crash. However, the latest data suggests this simply isn’t the case, as housing demand continues to trump efforts to cool the market.

According to the Canadian Real Estate Association, home sales have remained stable throughout the summer months, with the national average up 0.2 per cent month over month in July, and 9.4 per cent year over year. The average sales price has also increased by 8.4 per cent, to $382,373.

“Canadian home sales have staged a bit of a recovery in recent months after having declined in the wake of tightened mortgage rules and lending guidelines last year, but the numbers for July suggest that national activity is levelling off at what might best be described as average levels,” said CREA Chief Economy Gregory Klump in a statement. “Sales dropped sharply in August last year, so we may see some year-over-year increases in sales and average prices next month that would reflect weakness in the rear view mirror.”

Western Canada Smashes Sales Records

In fact, conditions have improved so much in the wake of last summer’s CMHC affordability changes that BC’s real estate association BCREA is reporting the strongest real estate numbers since 2009, up 18 per cent year-over-year and a dollar volume increase of 32.8 per cent – that’s $4.09 billion!

The Greater Vancouver area, the infamous record holder for the highest real estate prices in Canada, arguably experienced the largest decline in sales after last summer’s CMHC affordability restrictions, which knocked a lot of would-be buyers out of the market.

“Home sales in the province posted their strongest July since 2009,” said Cameron Muir, BCREA chief economist. “After six consecutive months of rising consumer demand, it’s now clear that BC housing markets are recovering from tighter lending regulations introduced last year.”

Sustainable Sales Demand Will Be Supported By A Healthy Economy

According to the CMHC, this housing demand isn’t a flash in the pan – their Q3 report forecasts start levels of 182,800 this year and 186,600 the next. Resales will also continue to improve, with 448,900 units to move in 2013 and 467,600 in 2014.

In fact, 2014 is proving to be an economic beacon of promise, with a variety of influencers on course for improvement. While GDP is expected to grow only 1.7 per cent this year, CMHC calls for an increase of 2.4 in 2014 – hitting a benchmark that could potentially trigger a national interest rate increase from the Bank of Canada – so variable mortgage rate owners may experience a jump in their monthly payments in two years time. Economic improvement will be supported by gains business development, exports and recovering employment levels.

Week In Review

Looks like we’re still waiting to see evidence of these impending mortgage rate changes – yet another week with no change to the one-year, five-year and 10-year fixed, as well as the five-year variable.

Related Topics

Mortgage News / Mortgage Rate Outlook Panel / Mortgages

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