Bank of Canada Governor Mark Carney held his benchmark interest rate at 1 per cent Tuesday, pointing to global threats on both sides of the Atlantic and weaker-than-expected exports, while also signalling that the domestic economy’s strength is moving him closer to higher rates.
The Canadian Real Estate Association blamed new mortgage rules for taking first-time buyers out of the market, as it reported sales slipped 14 per cent in April from a year ago.
The new rules brought in by the federal government, which took effect at the end of March, eliminated 35-year amortizations as a financing option. The trade association said that likely caused people to beat the change as they looked to lock in lower monthly payments.
Several of Canada's big banks are raising most of their fixed-term mortgage rates ahead of the busy spring real estate market.
Toronto-Dominion Bank said the biggest increases will be for mortgages with terms of five to 10 years, which will all go up by 0.35 of a percentage point starting Tuesday.
The move was matched by Canadian Imperial Bank of Commerce.
Royal Bank of Canada raised its rates on mortgages for five and 10-year terms by 0.35 or a percentage point, and its seven-year rate by 0.15 of a percentage point.
How to market a budget
Markets care largely about deficit-reduction in this post-recession era of fat government debts. Yesterday’s budget was all about that, but like any good marketer, Finance Minister Jim Flaherty went with a title that sells: “A low-tax plan for jobs and growth.”
Keep in mind that heading into the budget, the Tories were in the enviable position of being able to boast a solid economy and strong fiscal plan relative to other governments in the industrialized world. So how do they stack up on jobs and growth?
A stronger economy will offset the effects of higher mortgage rates and keep Canadian house prices stable over the next two years, according to the Royal Bank of Canada.
In a market update that has the bank forecasting price gains of 0.5 per cent in 2011 and 1.3 per cent in 2012, economist Robert Hogue said that after two years of “gyrating wildly,” the Canadian housing market is likely to be a much less interesting place for the next several years.
The Canadian Real Estate Association has cautioned the federal government to stay out of the mortgage market until the effects of recent changes can be gauged, as it suggested buyers are racing to secure 35-year mortgages before they are banned in late March.
The federal government recently announced the end of insurable 35-year mortgages, leaving new buyers to take on amortization periods of 30 years or less. The move was made to help lower household debt in Canada, and makes it more expensive on a monthly basis to own a home.
Higher interest rates could “easily” cause Canadian home prices to collapse, Capital Economics warned in a bleak report that suggests the housing market is likely to suffer the same sort of crash that has plagued countries such as the United States.
The report suggests that house prices in Canada have climbed at the same pace as the United States, but have not fallen at the same rate. In the United States, some markets have seen prices fall as much as 50 per cent through the recession.
Finding a neighbourhood strip mall where you can grab milk, a DVD and your pressed suits on your way home from work is set to get harder in the future.
With mixed-use residential-commercial condo developers having eaten much of the available surface parking lots as they build skywards, strip malls are emerging as their next targets.
The U.S. housing market will remain depressed, with record high foreclosure levels, rising mortgage rates and a glut of distressed properties dampening the market for years to come, industry experts predicted on Tuesday.
“We don’t see a full market recovery until 2014,” said Rick Sharga of RealtyTrac, a foreclosure marketplace and tracking service. He said that he expected more than three million homeowners to receive foreclosure notices in 2010, with more than one million homes being seized by banks before the end of the year.
It’s becoming more affordable to own a home, according to Royal Bank of Canada, but the high cost of ownership will act as a drag on the market and keep a lid on future price increases.
In its quarterly housing affordability report, Royal Bank of Canada said the cost of home ownership moved lower for the first time in more than a year over the summer, as low mortgage rates and prices made it easier for buyers to pay for their homes.