Categories: Local News

Rise in mortgage rates creates more home sales, not always for the better

St. Albert realtors expect the rise in mortgage rates across Canada will increase the number of buyers in the local housing market.

In the past nine weeks, Canadian banks raised their fixed mortgage rates from discounted rates of 2.89 per cent to over 3.69 per cent. This will force more people to look at purchasing a home, rather than waiting for another rise in their rates, said Cheryl Rolfe, St. Albert ReMax real estate agent.

“I think you will have a real push of buyers in the next little while because not only will they worry about rates going up in the near future,” she said. “But if they were given a locked-in rate by their mortgage broker or bank they are not going to want to lose that.”

Changes in Canadian mortgage rates are not surprising but a check on reality, said Carol McCaffrey, a local mortgage planner who worked in the industry for more than 30 years. McCaffrey said mortgage rates were kept artificially low as the Canadian government tried to boost the economy following the recession and its recovery.

But it won’t be long until consumers can expect a return to rates of more than five per cent, she said.

“We are going back to more realistic interest rates,” she said, adding that five per cent and higher rates were normal before the economic crash in 2007. “But I think they are doing it in smaller increments to see what happens with the market and how it reacts.”

She added that changes to the rates may create a payment shock for some homeowners, but especially first-time buyers should consider getting a fixed rate for a longer-term mortgage, rather than facing huge payment shocks in the future.

At this time the rise impacts only long-term (fixed) mortgage rates, which are controlled by the bond market. These rates rise as more people move out of the market as a result of the U.S. government signaling to investors that they may sell off local and Canadian bonds, said local mortgage advisor Mark Berry.

For now, short-term (variable) rates may seem more attractive to buyers – they depend on interest rates set by the Bank of Canada rather than bonds – but Berry expects they will also change in the coming year. While some buyers may hold off with renewing their mortgage rates (hoping that rates return to lower percentages), he said interest rates will most likely return to 5.25 and 5.5 per cent within the next three to five years.

“They raised the fixed rates and I would suspect that there will be another rate increase in the next 45 days for a fixed rate,” he said. “But they will also increase on the variable rates next year.”

He added that some homeowners may be forced to sell their home if they no longer qualify for the same mortgage rates, though he expects St. Albert’s housing market will remain fairly stable.

While the community has a higher number of outstanding debts, he said residents also receive higher incomes compared to other cities in the region. That puts St. Albertans at an advantage as they spend more money on discretionary purchases.

He said a lot of residents have the ability to cut back on vacations or the number of vehicles they own when times get tough.

“That creates its own risk but as long as income can remain high and employment can remain high the servicing of those debts should be in line with the rest of the country,” he said.

Impact on Alberta

The province should be able to absorb the impact of rising mortgage rates, added John Rose, chief economist for the city of Edmonton.

Rose said Edmonton and Calgary remain two of the most affordable housing markets in the country. On average, the Edmonton Realtors Association reports average property costs in the Edmonton area of $340,000; with an average housing cost of $438,000 in Calgary.

In comparison, the Toronto housing market sets costs at an average of $522,000, with an average of $776,000 in Vancouver. The average price of a home in all of Canada is $384,000, with some of the lowest costs in Windsor, Ontario and Saint John, New Brunswick at an average of $178,000 and $169,000.

Rose said local housing prices reflect the fact that “not only are our housing prices relatively low but incomes here in Edmonton are relatively high.”

“So the burden on individuals in terms of the share of their income they have to commit to covering a mortgage is relatively low,” he said.

He added that Edmonton’s growing labour market creates a dramatic increase in the number of people moving to the region. That puts a lot of pressure on the rental market, which will eventually spill into the housing market and push housing prices up, he said.

Those most affected by the rise in mortgage rates is the latest generation of first-time buyers, said Berry. They never experienced mortgage rates of five per cent or more and could panic about future projections. He suggests first-time buyers hold off on purchasing a home quickly though, and rather buy something they like.

“It truly is best to buy when you are ready,” he said. “Make sure you find the property you like, in the neighbourhood you want to live in, in a house you are comfortable with and a payment you can afford.”