Spotlight on Mortgages: September 6, 2013

Spotlight on Mortgages

2014: The Next Golden Age For The Canadian Economy?

Call it procrastination, or the long-awaited fulfilment of economic promise; economic reports have made a habit of pointing to 2014 as a time for real strides in our nation’s recession recovery. Two new sets of data released this week from the CMHC and the Bank of Canada feature the same main message: look to the future for a real idea on how the Canadian housing market is faring.

Will The Bank of Canada Finally Raise The Rate?

The BoC released its latest economic update this week, which maintained the Overnight Lending Rate at one per cent, and outlined a few key reasons why we won’t see change to the cost of variable borrowing until well into next year. This isn’t much of a surprise – our expert Mortgage Rate Outlook Panel indicated across the board that rates will stay put for the time being. However, the BoC stated once again that the magic formula for a rate hike – a mix of inflation benchmarks (projected to hit 2.4 per cent next year), strengthening emerging markets and renewed business investment – will come to fruition as “[the] output gap is expected to begin to narrow in 2014.”

The U.S. Holds The Key To Canadian Recovery

The real catalyst, though, is south of the border. While the U.S. economy has experienced some gains (enough so that bond yields are rising in anticipation of a national interest rate increase), our largest trading partner hasn’t improved quite enough to spark change in Canada’s own monetary policy.

“In the United States, the process of normalization of long-term interest rates has begun in the context of stronger private domestic demand,” states the Bank in their rate announcement release. “Recent data, however, point to slightly less momentum overall than anticipated.”

Housing Market To Grow Faster In The New Year

2014 may also set the stage for a new boom for Canada’s housing market. The Q2 Housing Market Outlook from the CMHC anticipates improvement across the board in sales, housing starts and – you guessed it – prices in 2014.

The market has experienced its fair share of growing pains this year – new financing rules, high unemployment and rising fixed mortgage rates have all pushed would-be buyers out of the market. While buying conditions have defied economist expectations this year – coming nowhere close to the “market crash” forewarned by so many experts – the report indicates the near future will bring better times for all housing types and buyer segments.

A Boost in Demand Across the Board

The crown corporation forecasts 468,600 resale units will change hands next year – up from a predicted 443,400 cap for 2013, and that the average MLS resale price will hit $377,300.

Buyers who were hard hit by last summer’s CMHC amortization and HELOC caps will be poised to re-enter the market, employment rates will grow, and increased migration will further push housing demand. While single detached units – the dreamhouse epitome for many – will remain in demand, multi-family housing, which has experienced a recent slowdown due to a decreased first time buyer segment, will rebound slightly as well to 106,500 units in 2014 from 103,100 this year.

However, the report indicated that the future will also bring higher fixed mortgage rates – up to 5 – 5.50 per cent for five-year fixed posted rates this year, and between  5.25 and 5.75 per cent next. Will buyers be able to withstand these higher borrowing costs? We’ll just have to wait to see if all the pieces fall into the economic puzzle.

Week In Review

The aforementioned rate rises are already here – fixed rates rose across the board by a minimum of 10 basis points. The best five-year fixed rate has officially broached the three per cent mark – now sitting at 3.24 per cent!

Related Topics

Mortgage News / Mortgage Rate Outlook Panel / Mortgages

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