Canada’s
housing market has enjoyed banner growth over the past few years, but the jury
is out on whether the good times will last throughout 2015. New economic risks
such as dropping oil prices and the resulting inflation lag have thrown housing
market pundits through a loop, and split the once-confident consensus on rate
growth this year.
Change
in 2015? Don’t Count on It
It’s
been widely accepted that 2015 will be the year for change in Canada’s housing
market; the expectation is that the economy will have rebounded sufficiently by
Q3 to warrant the tweaking of central rates. It’s anticipated that the Bank of
Canada will inch the cost of borrowing higher by 0.25-0.5 per cent by October,
and up to a full 2 per cent by 2016.
But
oil’s freefall has changed that according to Derek Holt, vice president of
Scotiabank Economics. He states to the CBC that, despite analysts’ best-laid
plans, the impact of oil has yet to be truly realized. He believes that the
inflation fallout will keep the BoC’s hands tied on rates, meaning no movement
whatsoever until 2016 – and perhaps beyond.
“I
think we have to entertain the distinct possibility that they are on hold
throughout all of 2015 and 2016,” he stated, predicting an onslaught of revised
forecasts in the near future.
The
US is Less of a Trend Setter
Mortgage
rates have been dropping south of the border as economic conditions improve in
the US – job numbers are encouraging and consumers have increased their
spending. Now that the US Federal Reserve’s bond buying program is complete,
the next step is to raise American central rates.
However,
as revealed this week in minutes from the Fed’s December meeting, a hike isn’t
likely before April, as policy makers look to wait out the implications of oil
and unstable European conditions.
And
when American rates do rise, it’s not guaranteed Canada will immediately follow
suit as the countries’ economies fall further out of sync.
Stated
Holt to the CBC, “What we’re arguing is a historically long gap between when
the Fed starts to raise rates and when the Bank of Canada does, in part because
our two economies are more off cycle from one another than they’ve ever been.”
Bonds
Still in High Demand
It’s
not just variable rates on hold; fixed-rate borrowing has yet to encounter any
negative effects from oil’s slide. Investors remain committed to government of
Canada bonds – yields have hit a year-long low, sliding 7 per cent to 1.21 in
January alone. This sets the stage for lenders to continue rolling out steeply
discounted fixed rates, according to RateSupermarket.ca’s monthly Mortgage Rate
Outlook panelists.
In
the past, we’ve witnessed the greatest price cuts during the peak spring
selling season, but they’ve lasted long beyond the balmy temps this year; as of
today, our site features a 2.69 per cent rate for a five-year fixed – a mere
seven basis points from the record-breaking 2.62 seen in April 2013.
Shaken
Confidence in Canada’s Housing Market
However,
lingering bargains may not be enough to prop up Canada’s housing market.
Homeowners seem to believe that housing’s incredible bull run is finally coming
to an end. Optimism in the housing market has dropped to 31.1 per cent, the
lowest since May 2013, according to the latest data from Nanos Research for
Bloomberg. Those who believe prices will continue their upward trajectory has
fallen from July’s high of 47 per cent.
Why
the about-face in attitude? The Financial Post suggests the Bank of Canada’s
assessment that Canadian housing may be 10-30 per cent overvalued has made its
mark.
Rate Supermarket
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