Mortgage rates effect spring home sales

spring-home-salesMagnifying glass

In May, sales of existing homes in Canada rose 3.6 percent, marking the biggest monthly gain in two-and-a-half years. But with Canadian mortgage rates likely to rise, and some doomsayers predicting a housing bubble, the question is whether that growth is sustainable.

Rising interest rates pushing people to buy now?
Many buyers, realtors and investors are trying to figure out how much of a role the expected rise in interest rates is playing in the heating up of the housing market. With the U.S. set to begin slowing down its reliance on quantitative easement – a policy it has been following for some time now, where the Federal Reserve keeps interest rates low in an effort to stimulate borrowing – Canada is likely to follow suit. That likelihood adds immediacy to potential homebuyers who will look to lock in mortgage rates while they're still low.

Potential buyers like Daniel DiManno, a Toronto accountant who recently sold his home, and was originally planning to wait before buying a new one, are rethinking their strategy, getting the best mortgage rates they can find before beginning their search.

"I saw that they are going to increase rates," said DiManno, "so I called my bank last Friday and locked in 2.5 percent for 120 days."

Getting in the market in the near future, while it still presents low-interest opportunities, seems like a smart move, especially given the volatility of the North American housing market over the past five years.

Signs of market resilience
Canada Mortgage and Housing Corp. (CMHC), the federal housing agency that insures a majority of mortgages Canadian banks issue, is predicting a continuing modest rise in average national housing prices of 1.6 percent in 2013 and 2.1 percent in 2014. Those numbers represent the kind of sustainable growth the government had been hoping for, and are especially encouraging given that many experts have been predicting a housing bubble collapse.

"I'd say we feel good," said Brian Hurley, chief executive officer of Genworth Canada. "I mean, we're not out of the woods yet, but we feel good."

Despite worries of a possible downturn, demand appears to be robust. How long that will continue is another matter. But with luxury properties continuing to do well throughout the country, and housing prices up 5 percent over May 2012, the current optimism in the housing market seems warranted.

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