Vancouver remains the most expensive city for houses in Canada and the tenth most expensive city in North America, according to the 2009 Coldwell Banker Home Price Comparison Index, which looks at the prices of 2,200 square foot homes in different markets.
Vancouver’s average price was $1,262,625 (CDN) while Fort McMurray, Alta, beat out Calgary and Edmonton with an average price of $638,000 CDN. Toronto’s average price was $824,347 CDN.
“Despite record-breaking prices in many of Canada’s major markets, these homes are selling, as buyers take advantage of today’s historically low interest rates,” said John Geha, president of Coldwell Banker Canada Operations, who described the type of house surveyed in the study as the “aspirational home.” “These move-up buyers have been a critical component in our resurgent real estate market, and will continue to play a major role in Canada’s recovering economy.”
Charlottetown, PEI, remained Canada’s most affordable housing market with the average price of a 2,200 square foot home at $158,667.
It was a little less than a year ago that the global financial crisis began to hit home, which is to say that mortgage rates spiked higher.
Now, the cost of mortgages is coming down. If you’re buying a home or renewing a mortgage, it’s time to review your options.
Fixed-rate mortgages declined a little last week, but the most dramatic changes can be seen in variable-rate mortgages. Pre-crisis, variable-rate mortgages came with discounts that ranged from 0.75 percentage points to as much as 0.90 points off prime. By late last fall, crisis conditions prompted lenders to start charging prime plus a full percentage point or more. Now, some lenders are starting to unwind their crisis-rate premiums. Can variable-rate mortgages fall back to their pre-crisis lows any time soon?
I don’t think so. But could the spread get to a little below prime? That could very well happen. One thing is certain: you need someone on your side to help decide which product is best for you.
So, it’s strategy time. With prime at 2.25 per cent and fully discounted five-year fixed-rate mortgages going for something in the area of 3.9 to 4.1 per cent, you’re got some thinking to do if you’re buying a home or renewing a mortgage.
The variable rate looks tempting. Sure, the prime is going to rise in the medium term, but it’s expected to stay put until next spring at least. Some economists say that it will stay put into 2011. Even when prime does move higher, it will have to increase by roughly 1.75 percentage points to get to where today’s five-year mortgages are.
The risk is there; rates could go up a lot more. Rates went down four percentage points from December, 2007, through April, 2009. There is the possibility that they could go back up four. It could happen.
Variable-rate mortgages allow you to lock into a fixed-rate mortgage, so there’s no reason why you have to ride interest rates all the way up. Still, you have to recognize that fixed-rate mortgages could be significantly more expensive by the time you decide to lock in. However, an academic study of rates between 1950 and 2007 found variable-rate mortgages were the money-saving choice over five-year fixed-rate mortgages 89 per cent of the time.
All of this is food for thought. Needless to say, you need a qualified person on your side to help you make the best decision. I’m happy to assist and apply this information to your individual case. Call me!
Taken from Paul Vieira, Financial Post, with files from Reuters. Published: Monday, August 24, 2009
OTTAWA — Despite growing confidence that economic growth is in the offing, monetary policy around the world is likely to remain “ultra-accommodative,” perhaps until 2011, as doubt remains as to whether or not the growth expected this quarter is sustainable, analysts say.
That is the view emerging following the weekend gathering of the world’s leading central bankers in Jackson Hole, Wyo., highlighted by remarks from Ben Bernanke, U.S. Federal Reserve chairman, who warned of the uncertainties ahead, and Jean-Claude Trichet, president of the European Central Bank, who suggested he is in no rush to reverse emergency stimulus measures.
“The key message from Jackson Hole was … that monetary policy is likely to remain ultra-accommodative for the foreseeable future – at least for the next several years,” said Julian Jessop, chief international economist at Capital Economics of London.
“It seems more likely that there will be no increases in interest rates in any of the major economies over the next 12 to 18 months.”
Strategists at RBC Capital Markets concurred, adding in a note released Monday: “We continue to believe the economic backdrop will warrant a significant additional period of low rates. Indeed, even at the Jackson Hole conference, there was not even a suggestion that we should be braced for anything other than that outcome.”
This outlook applies to Canada as well. Banc of America Securities-Merrill Lynch, as part of global report on monetary policy, said it does not expect the Bank of Canada to begin raising rates until 2011 – well past its pledge to keep the key policy rate, at 0.25%, until June 2010.
Canada has a significant output gap – the difference between potential and real gross domestic product – and the rate at which money is deployed in the economy, or money velocity, has shrunk 15% since late last year even though the central bank has taken its target rate to its lowest possible level, the BofA-Merrill Lynch analysis indicates.
“To compensate, we think the Bank of Canada will probably need to keep rates lower… to ensure that money creation remains in the double-digit [growth] territory needed to re-inflate the economy and close the output gap.” the report says.
Core inflation won’t affect the 0.25 per cent interest rate the Bank of Canada said it would keep until June 2010, a new report by CIBC World Markets forecasts.
“Look for headline and core prices to cross paths in the second quarter of 2010 at a level well under the Bank of Canada’s two per cent target,” wrote CIBC economists Avery Shenfeld and Krishen Rangasamy in the report. “As a result, Canada’s inflation rate will be no threat to the Bank easily fulfilling its pledge to keep interest rates at a slim quarter point through mid-2010.”
Shenfeld and Rangasamy disagreed with the Central Bank’s expectation of growth “above the non-inflationary potential” next year, stating that the recession’s effects are likely to linger for some time, even as the U.S. stimulus spending kicks in. Along with slow growth, the report also pointed to a negative consumer price index and a stronger Canadian dollar as contributors to keeping core inflation low.
“Indeed, if as we expect, sluggish final demand keeps the economy on a tamer trajectory than the Bank hopes, it will be able to defer the first hike until early 2011,” the report said.
John says:
This is good news for those considering a variable-rate mortgage. Taking advantage of this over the next couple of years or more is a great long-term strategy. Remember: if this type of mortgage is set up correctly… you will always have the option to convert to the best fixed-rate for free down the road; if market conditions were to change. Please feel free to call me and we can discuss this further.
