Homeownership about to get pricier?

by Justin da Rosa23 Sep 2016
It may become harder for your clients to qualify to buy a home next year, according to one real estate association.

There will likely be upward pressure on mortgage rates in the coming months -- which will impact affordability -- according to the British Columbia Real Estate Association.

“In addition to pressure from potentially higher US rates, Canadian bank regulators have proposed stricter capital requirements to shift the burden of housing market risk away from taxpayers and onto financial institutions,” the association said in its latest mortgage rate outlook. “That could in turn mean higher funding costs for banks and credit unions, which could be passed through to mortgage rates.

“Overall, given those upward pressures, we anticipate that mortgage rates will rise from their current lows with the five-year qualifying rate reaching 5% by the end of next year.”

Canada has been in a record-low rate environment since the global financial crisis.

And while rates are expected to rise in the coming quarters, major hikes likely won’t be seen until 2018, according to the BCREA.

Projecting the natural rate of interest as a function of potential growth, the natural rate is on a path to about 1 per cent in real terms, or 3 per cent in nominal terms given the Bank’s 2 per cent inflation target,” it said. “Based on historical averages of interest rate spreads, that implies that the five-year fixed mortgage rate would equal about 6 per cent once the Bank of Canada closes the gap between its overnight rate and the natural rate.

“However, it could take quite some time to get there,” BCREA said. “Given the Bank’s current forecast, the economy is not expected to reach its full-potential until 2018, at which time interest rates would be expected to rise, albeit slowly.”


  • by Oscar Vidal-Calvet 9/23/2016 10:51:13 AM

    I should say beforehand, that I'm not an economist, but I do have an opinion. . .
    - Interest rates are a vital factor in the equation of real estate, as well as are employment and inflation.
    - Interest rates have an effect on the value of our currency and therefore on import and export of our goods http://www.statcan.gc.ca/start-debut-eng.html.
    - Interest rates are always under the microscope of local or foreign investors.
    - Let's say that two years ago, the Canadian Dollar was almost at par with the US Dollar; nowadays we as Canadians pay 32% premium on the exchange for US Dollars, it means that we lost 32% value on all our assets (home value, RRSP's, savings, and all sort of investments in Canadian Dollars) including our income.
    - We accept paying more for everything (local or imported), but according to the government, the inflation rate is below two percent and well under control.
    - What is going to happen next in real estate ?
    - I have noticed, as you probably did, that last year in GTA we had a multiple offer situation in almost every real estate transaction; well the second part of this year we do not have the needed inventory and neither the number of purchasers.
    - I also believe that new government regulations, changed something in the lenders' mind making them more exigent and demanding; the current lack of inventory will put a brake on our yet active real estate market, when this happens, a great sector or our economy will too, slow down. (As per the Toronto MLS Historic Residential Data, taking the month of July '12, I noticed that "Sales / Active Listings" had a ratio of 36.11% this past month of July '16 "Sales / Active Listings" had a ratio of 87.8% furthermore, the calculated ratio of Sales / New Listings for the month ofJuly '12, was 53.2% and Sales / New Listings for July '16 was 73.8% . Now while in July '12 we had 13,796 new listings inJuly '16 the New Listings were only 13,490)

    - The would-be sellers, in the real estate market, know they could get a good buck for their property but also feel there is not inventory and do not want to risk their stability in an uncertain gamble of becoming purchasers.
    - It is understood that the higher price of the houses is also in play and limit the buyer's ability and qualification for a mortgage.
    - We all agree, borrowing money must have a cost, but I do not think that interest rates have to be un-affordable in a way that it pushes people to borrow money on the black market.
    - All of the above is indicating me that the real estate market is already up to a level where it will stay like that until real employment growth happens until our currency gets back its strength and stops depending on oil prices, and interest rates remain still affordable.

  • by LanceH 9/23/2016 11:42:13 AM

    This is pure propaganda! Rates are going nowhere! I remember during the credit crisis of 08/09, one pundit said it would take 15yrs to recover. A view that I heartily agreed with then, and now. We're only half way there. What's affecting prices most is in the GTA is; A) the Greenbelt Act(s), and B) the Toronto Land Transfer Tax. Continuing on down the list is local immigration to cities, foreign investors, foreign immigration, Wynn's social engineering (all the stuff she's doing beyond the Greenbelt Act(s) to drive ppl out of rural Ont and into cities), Air BnB, etc. Oh, and interest rates - dead last!


Is a Toronto foreign sales tax a good idea?