Mortgage Trends

Mortgage rates in Canada have been at historic lows for quite awhile now. This helps to fuel the recovery of the Canadian economy. During the first 4 months of 2010, housing sales in Canada rose dramatically, with increases in both the average selling price and number of homes sold. The next four months over the summer were somewhat softer.

The real estate market is now becoming more balanced. There is increased inventory tempered by increased demand. The Canadian government is trying to tighten the rules to qualify for a mortgage, which caused several buyers to jump into the real estate market before the new rules went into effect. The HST tax which went into effect July 1st, caused buyers in Ontario and British Columbia to rush to buy homes. Pent up demand from the recent economic recession also spurred home sales.

Interest rates have come off their historic lows, but are still relatively low. All of the major banks in Canada are forecasting that interest rates will rise over the next 18 months. While forecasts differ as to the exact amount of an increase in mortgage rates,  the consensus seems to be, that the overnight lending rate will be between 2.5% and 3.5% by the end of 2011. Fixed interest rates are also expected to rise since they are tied to bond yields. By the end of 2011, borrowers with a great credit score may be looking at a five year fixed rate of 5.36%.

What does that mean for the home shopper? It means that the next few months are a great time to buy in Ontario, Quebec and other parts of Canada. With house prices stabilizing and more homes to choose from, there are undoubtedly homes that will be great buys. Interest rates are still very affordable despite being up slightly from their lowest points. By locking in a fixed rate for a five year mortgage, buyers can be secure with low monthly payments as variable interest rates begin to rise.

Recently, home prices have softened from overheated conditions in the Spring while interest rates remain near record lows. Even the five year fixed rate is having trouble maintaining an ascent and instead seems to be coming back down a bit. Housing inventory in Canada is still keeping pace with the lower demand as many sellers either pulled their homes back off of the market or were not eagerly listing homes at lower prices. As a result, good deals can be found right now with the benefit of very low mortgage rates making it enticing to buy..

The hot real estate market in Canada last Spring has given way to a more sanguine market today. This means buyers and sellers are closer to an equilibrium that is neither forcing prices up or causing them to fall. The current real estate market allows a qualified buyer to take their time finding the right home and a willing seller to get a fair price. Because interest rates remain near historic lows, whether you choose a five year fixed mortgage rate or a five year variable rate, the interest cost of home ownership will remain near record lows.

Where Canadian housing prices head from here is not certain, but the low interest environment coupled with softer home prices makes home buying more affordable for those considering a home purchase.

With rates due to rise, it is wise to get pre-approved for a mortgage before you start shopping for a home. Most mortgage brokers will be able to hold your low rate for up to 120 days.

Daniel Stewart

Daniel Stewart

Real Estate Broker
CENTURY 21 Groupe Opt/immo
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