Consumer fears that mortgage rates may go up in time have been the main variable pushing sales figures up in the Canadian housing market, according to the Bank of Montreal’s latest analysis.
The August statistics analyzed by the bank show that the Canadian market “has shades of taking flight again,” in the words of Bank of Montreal economist Sal Guateri. However, Canadian experts believe that the positive momentum the housing market is experiencing may be stymied eventually by an increase in rates; rate upticks have somehow inveigled many a buyer to get off the fence sooner rather than later and buy a new home when otherwise unexpected to do so.
Looking at specific markets, Toronto improved by 21 percent year-over-year in terms of existing homes that have been sold to new owners. This was, however, quite infinitesimal compared to the 52.5 percent increase reported in Vancouver, but more in line with the 27.5 percent and 20.7 percent surges in Calgary and Victoria respectively. The Edmonton market improved 9.9 percent year-over-year last month in this particular metric.
Separate data courtesy of the MLS Home Price Index shows that the average selling price of homes in the Calgary and Toronto areas went up by 7.4 percent and 3.7 percent respectively, but decreased 1.3 percent in Vancouver. These figures take into account variance based on the type of house being sold.
Speaking in general, economists and real estate brokers see this nationwide improvement as being driven by mortgage rate gyrations. Still, rates may be the proverbial drag in business parlance on the housing market, as posited by Toronto-Dominion Bank’s head economist Craig Alexander. “We’re going to see (the housing market) cool off again as the higher mortgage rates actually have a bite,” he forecasted.
Alexander sees an increase of about 50 basis points to five-year rates by 2014, and sales falling flat for a considerable period of time, a best case scenario for the economist considering the variables that could weigh on the housing market going forward.