Mortgage Rate Hike

Now, what?! Just as we think we’ve got things figured out in Toronto, the government throws something new at us. Last Wednesday’s mortgage rate increase of .25% has got the media all in a tizzy, again. Royal LePage released it’s second quarter House Price Survey at the same time so I’ll summarize some of those details and let president and CEO, Phil Soper, speak to the new changes.

The average price of a home in Canada rose to $609,144 between April and June compared to the same period last year – a jump of almost 14%. Royal LePage does not believe the Canadian market will be able to keep up that pace of growth in the second half of the year, but prices will still rise. They forecast the national aggregate price of a home will rise to $617,773 by the end of 2017, a 9.5% increase for the year compared to 2016.

Another mortgage rate increase is expected for October but Soper does not think it will trigger a rush of buyers locking in fixed rates. “If Canadians didn’t panic then (during the financial crisis), they won’t either at the current cycle of rate hikes, which is widely expected to be slow and gradual” said Soper. Prices are on the rise again in Vancouver and are expected to have modest single digit increases in 2017 which bodes well for Toronto’s recovery from the foreign buyer tax here. Prices still rose 24% in the GTA in the second quarter but that is expected to slow for the second half of the year to 18% year over year.

The GTA, which Soper characterized as “Canada’s least healthy” market in the first quarter, saw a calming, as affordability and legislation pushed buyers to the sidelines. “Following a period of unprecedented regional disparity in activity and price appreciation, we are now seeing a return to healthy growth in the majority of Canadian housing markets,” said Soper. “The white-hot markets are moderating to very warm; the depressed markets are beginning to grow again. Canadian housing is in great shape – a statement that I certainly did not make last quarter.”

The mortgage rate increase “The rate of national house price appreciation that we experienced in the second quarter continues to be above what we would consider a normal range, driven primarily by very strong year-over-year price growth across much of Ontario,” continued Soper. “Yet the GTA’s recent drop in sales activity may well signal calmer waters ahead for the province. The 20 to 30 per cent year-over-year increases in home values that characterized Toronto and its adjoining areas in recent months are not, in our view, sustainable or healthy. Now, as inventory inches higher and demand slows to a more orderly pace, some much needed balance has been returned to the market. For the first time in years, buyers are able to include reasonable conditions in their offers and multiple bid situations are somewhat less frequent.”

Our strong, stable economy is a great sign for all Canadians, not just Toronto. Our GDP is expected to exceed the 2.6% growth predicted by the Bank of Canada. Our unemployment rate at a 9 year low of 6.6% This is the first interest rate hike in 7 years. “Since the financial crisis took hold nearly a decade ago, Canada’s economy has been supported by what amounts to crisis-level monetary policy. While many commentators have feared the effect of an interest rate hike, we believe that the market is better served by a healthy economy that requires a return to normal conditions. Canadian homeowners are prepared for the marginal increase in mortgage rates that the most recent Bank of Canada rate hike will bring,” concluded Soper.

Bottom line, Toronto is still one of the best places in the world to live and raise a family. “In Vancouver and Toronto, we have buoyant economies that are attracting thousands of new residents each year. These people will need a place to live and no amount of initiatives aimed at quelling demand will change that. Like public transit, housing policy is something which needs a persistent, long term focus.” If you are buying a house with plans to make it into a long term home, it is always a good time to buy. Also, with so many nervous sellers hesitant to put their place on the market, now is a great time to sell to those buyers who need to move. If you have questions, give me a call! I love talking houses!

P.S. Here is a link to an interesting Globe and Mail video facebook interview with Soper – you’ll need earphones because the sound is really low.