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.”
 

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