What’s Next For the Canadian Housing Market?
After a year of trending low mortgage rates, a feeling of uncertainty hangs over the Canadian housing market. With the typically hot spring selling season around the corner, new home buyers can’t help but wonder if rates will be pushed even lower – and headlines muse over the direction markets will take next. While we can’t predict a rate hike or cut, there are a number of factors influencing today’s record lows that we can take our cues from. Let’s break down current conditions affecting the market.
Fewer Buyers Influence The Market
As we’ve witnessed over the past year, lenders continue to push the precedent of low mortgage rates, particularly in regards to the five-year fixed which is the most popular rate among buyers. Banks and brokers are competing over a shrinking buyer pool – a recent Ipsos Reid for RBC poll indicates only 15 per cent of Canadians plan to buy a home over the next two years, down from 27 per cent. To capture the attention of this dwindling group, lenders are pushing their rates lower basis point by basis point in attempts to one up their competition. Indeed, rates for mortgages have trended lower than 2.80 for the past few weeks, with today’s best five-year fixed sitting at 2.77 per cent.
A main factor behind fewer buyers is last summer’s CMHC mortgage rule changes, which made home ownership affordability slighter harder to achieve, especially among first time buyers.
But are we in for a dramatic precedent-setting dip? While lenders take their cues from competition, they may also take heed of Finance Minister Jim Flaherty, whose voiced disapproval over BMO and Manulife’s recent rate cuts sent a message to the mortgage industry – it’s time to get on board with efforts to minimize Canadian household debt.
The European Impact
Another factor to always consider are Government of Canada bond yields, which correlate directly with fixed mortgage rates. These have been trending low as investors turn to stable Canadian bonds in response to ongoing European fiscal drama. With Cyprus making headlines as the latest EU nation to require emergency financial intervention, it’s likely investors will continue to stick close to Canadian soil, contributing to our nation’s “safe haven” status.
Slow Canadian Economic Growth
As we reported earlier this month, the latest Statistics Canada numbers showed Canadian economic growth has been lackluster over the past two years. The revelation prompted questions as to whether the Bank of Canada would respond by lowering its Overnight Lending Rate, and ultimately variable mortgage rates. Again, it comes down to the Department of Finance’s agenda against consumer household debt – while a rate cut would encourage stimulus in the form of consumer spending, it’s unlikely any measures will be taken that could deepen our national debt levels.
And, while a rate hike has been forewarned for months, it’s also unlikely that the bank will instill measures that could hinder fragile economic recovery. As our Mortgage Rate Outlook panelist Dr. Ian Lee puts it, “It is equally clear that the Bank of Canada will not increase the central bank rate when the economy is so weak,” adding that this won’t turn around until both GDP and inflation perform over the two per cent mark.
What Home Buyers Think
The latest numbers from the annual RBC Home Ownership Poll show buyers across the nation are divided on their mortgage rate predictions. Ontarians believe that while the housing market in their community is overpriced (73 per cent), 49 per cent expect rates to remain at the same levels next year as they are today. Almost half of British Columbians, who have arguably seen some of the most dramatic market softening over the past year, also believe rates will remain at record lows (46 per cent). The slight majority of Albertans, who lead the nation in home buying confidence (89 per cent) also believe rates will stick to current levels for the long term (46 per cent).
It shows that consumers in general aren’t convinced of rate stability – and they’re locking in now to avoid the worst of potential market shock and taking advantage of the opportunity offered by today’s rates.
RateSupermarket.ca Week in Review
Nothing new to see this week, folks! There has been zero movement for one, five and 10-year fixed mortgage rates, the lowest of which are sitting at 2.29 per cent, 2.77 per cent and 3.60 per cent, respectively. Five-year fixed variable rates are also unchanged, remaining at 2.50 per cent.