Yesterday, the Bank of Canada raised the prime rate by .25 to .75%, swiftly followed by the first of the Big 5 banks to raise prime lending rates accordingly. Interestingly, this development is directly on the heels of last week's announcement that unemployment in Canada is declining ahead of predictions.
This news has me reflecting upon all the changes I've seen in the market since I first bought a home decades ago, which, like many people, I found very difficult. I thought the market was very expensive then, and I was in Vernon B.C. I couldn't purchase what I wanted or thought that I should live in. But, I knew I needed to get into the market so I found something that I could afford and I got in. That is the hardest part: just starting home ownership.
I live in the Vancouver area and have done so since 1982. I lived in Toronto prior to that. I get to travel Canada and the world on a regular basis and be involved in the real estate part of the economy. I always hear about how expensive home prices are in Vancouver and Toronto and in some areas they are. But, compared to a city like Hong Kong they aren't; and if you compare the accomodation that is available, Canada is a great place to live. (See this excellent bilingual video about Vancouver.)
When I hear statistics about the percentage of Canadians who own, or are in the process of purchasing a home - compared to other areas of the world - I think that this is a place where there is opportunity and people are taking advantage of that opportunity. Our housing market is tied to the economy and if it is good, so will be real estate.
No Reason for Price Declines of Any Significance
All that said, I will weigh in with how the latest change in interest rates may affect the Canadian housing market. I think we need to step back and look at a number of things that have and are happening that need to be considered.
First, since the beginning of the year there have been predictions that rates would increase mid year, and they have. Second, the Harmonized Sales Tax (HST) was to be introduced July 1st in Ontario and British Columbia. Both of these have caused some consumers to move up their home purchase to earlier in the year than normal. This resulted in increased unit activity earlier in the year, which follows a very good year in 2009.
Comparing June data to the previous month, and to the same period last year, shows a decline. I think this will continue through the summer months which will get media attention. We may be seeing a cooling off - but at the same time, I can't see a reason for price declines of any significance. Mortgage arrears are low and unemployment is improving. These are the key items that affect price.
What do you think? Your own stories of buying and selling homes over recent decades in Canada are welcome; leave comments below.