Like the hilarious commercial for Kraft Habanero Heat Shredded Cheese, Kitchener Waterloo residential MLS sale prices in February were "hot as you know what.". The average sale price climbed 7.4% to $321,947 from $299,759 in February 2012. Let's look at what is behind rising home prices.
As noted in a previous blog, interest rates are a huge factor in affordability. In early 2008, a five year mortgage was in the range of 5.75%. As those mortgages now come due, renewals are available at roughly 3% for 5 years. Let's assume a young couple with a household income of $70,000 and no other debt bought their first home in 2008. Leaving aside downpayment and assuming a 25 year amortization, they would have qualified for a maximum CMHC insured mortgage of about $300,000 with monthly payments of about $1875. They decide to upgrade this year and their household income hasn't changed. With rates now at 3%, they qualify for a maximum mortgage of nearly $395,000 or nearly 32% more. It gets better - the monthly payments actually drop to about $1869! How could you not be seduced by that? Is that what one of the big banks mean by "You're richer than you think?"
The average residential MLS property sold for $253,409 in February 2008. Using the figure above for February 2013 sales, the average sale price in Kitchener Waterloo rose 27% in 5 years while falling mortgage rates have borrowers qualifying for 32% more mortgage.
Clearly, low mortgage rates are responsible for rapidly rising prices. This begs the question - what happens when rates rise? That is a topic for another day!
On Monday, I'll look at the rest of the February sales metrics for Kitchener Waterloo real estate.
Century 21 Home Realty Inc. Brokerage
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