The Latest on Mortgage Rates and Residential Sale Prices
RISING INTEREST (AND MORTGAGE) RATES:
By now there’s a good chance you’ve heard that the Bank of Canada raised it’s interest rates by another 25 basis points on September 6th. The move marks the second hike since July this year, with the key lending rate now standing at 1%. Wasting no time, Canada’s five big banks followed suit, raising their prime lending rate to 3.2% up from 2.95% with more expected to do the same.
If you have a variable rate mortgage, it’s likely you’re already paying more. With economists predicting more rate increases in the not-too-distant future, locking in your variable rate is starting to look like a better and better option. If you’re looking to renew or get a new mortgage, you may be interested to know that this past August was the first time in over three years that applications for fixed-rate mortgages surpassed those for variable, as reported by Ratehub.
Douglas Porter, chief economist with BMO Financial Group, said there’s a good chance the central bank might raise its target rate to as much as 2.0% by the end of next year. Prior to Wednesday’s announcement, BMO had anticipated 1.5% as being the highest the central bank’s policy rate would go in 2018.
“The somewhat aggressive hike and the upbeat view on growth point to more tightening than we previously expected over the next year,” said Porter.
As for what’s next and when, the Bank of Canada has said they will base their future decisions on economic and market data while paying close attention to the potential impact of rate hikes on consumer debt. While the mortgage rates of big banks aren’t directly tied to the key lending rate, it it a heavily influential factor. There is also much for the big banks to gain from raising rates following several years of historic lows.
Dave McKay, CEO of RBC, noted that the quarter percentage point rate increase means an additional $100 million in revenue for the bank over the next year, and some $300 million over the next five years. He also, however, made a point of mentioning the potential impact this could have on on the economy.
“As rates rise ... a greater amount of disposable income is coming out of purchasing power, which will slow down economic growth in other sectors. And that's not a healthy thing in the long term,” he said.
You can try out Ratehub's mortgage rate calculator here.
DEMAND STILL FEULLING HOME SALES AND PRICE INCREASES:
Surprising some, this past August there were 19.6% more sales recorded than the 10-year average in the Metro Vancouver area. There was also a 22.3% increase over August, 2016, and 2.8% more sales that this past July. However, condos and townhouses were definitely the most sought-after properties at the moment in terms of both number of sales and the sales-to-listings ratio.
Jill Oudil, president of the Real Estate Board of Greater Vancouver, commented on this:
“First-time home buyers have led a surge this summer in demand in our condominium and townhome markets,” said Oudil. “Homes priced between $350,000 and $750,000 have been subject to intense competition and multiple offers across the region.”
“Conditions in our detached home market are distinct today from the dynamic in our condominium and townhome markets …detached homes have entered a balanced market. This means there's less upward pressure on prices and that buyers have more selection to choose from and more time to make their decisions.”
What Oudil is referring to is the percentage of sales against the total number of listings per category. For all property types, the sales-to-active listings ratio for August came in at 34.6%. However, when broken down into property type, the ratio was 16.3% for detached homes, 44.8% for townhomes, and a staggering 76.3% condominiums.
In terms of pricing, things are still moving up across all property types. The current MLS ®Home Price Index (benchmark price) for all residential property types in the Metro Vancouver region now its at $1,029,700. That’s a 9.4% increase since this time last year and a 1% increase from July. Detached homes have slowed the most, rising only 2.2% in a year and 0.2 since last month. On the other end of things, condos have increase by 19.4% over a year and 1.7% since July, while attached homes have gone up 12.8% and 1.9% respectively.
You can find the complete stats package here . If you're curious about a specific area, or have other questions, get in touch :)! You can also watch the Market Update from REBGV below.
As for the Fraser Valley, the number of sales recorded was second only to last year's record number. In that market, condos and townhouses continue to be in extremely high demand, much as they are in Metro Vancouver. Benchmark pricing increased significantly from last years numbers across all categories. It went up 10.2% for detached homes, 16.6% for townhouses and 32.8% for apartments.