Best to lock in your mortgage rate now as it will probably increase in 2013
Robert Hogue, senior economist at RBC Economics, said that Canadian home buyers could be facing increased pressure early next year when he predicts the Bank of Canada will move to hike interest rates, resulting in higher mortgage rates.
"The pressure going forward is not going to come from prices per se, but is going to come from rising interest rates".
His comments follow a report he released Monday, co-authored by chief economist Craig Wright, that showed housing in Canada became less affordable during the second quarter. That follows a similar decrease in affordability seen in the first quarter.
“The deterioration in affordability in recent years has been due to rising home prices,” Mr. Hogue said. “Going forward, we expect home prices to be about flat or likely declining in certain markets. The pressure going forward is not going to come from prices per se, but is going to come from rising interest rates.”
Home prices have already been pulling back in recent months from their lofty levels. Prices across Canada declined in July by 2%, according to data released this month from the Canadian Real Estate Association. The average price of a home sold in July was $353,147, compared with $361,181 a year earlier. July’s decline followed a smaller decrease in June, when home prices dipped 0.8% year-over-year.
But the price pullback was not enough to increase affordability for Canadians. RBC measures housing affordability by looking at what percentage of household income is taken up by home ownership costs. The measure for detached bungalows rose 0.2 percentage points to 43.4% in the second quarter, while two-storey homes rose 0.6 points to 43.4%. Condos were unchanged at 28.8%.
Gregory Klump, chief economist of the The Canadian Real Estate Association, forecasts that an interest rate hike won’t come until the second half of next year, easing pressures on affordability.
“The Bank of Canada of course cannot keep interest rates at their extremely stimulative level that they are right now, but I think that the first quarter [of 2013] is likely to be on the early side of calls as to when the bank is going to act,” he said.
Source: John Shmuel, Financial Post