MARKET UPDATE: January 18, 2018
MARKET UPDATE: January 18th, 2018: Hello Again! HAPPY NEW YEAR!! I hope you are doing well this week and that your 2018 is off to a great start! The Bank of Canada (BOC) met again yesterday and as was widely expected, they raised rates for the 3rd time in about 6 months. The Bank Prime Rate now sits at 3.45% (except for at TD, who's Prime Rate is 3.60%). For every $10k you owe on a floating rate (say a variable mortgage, or a line of credit), that is now going to cost you about $2.10 more every month. So if you have a $300k mortgage, that means you will be paying about $63 a month more in interest, due to this one Quarter Percent Increase. Up until a few weeks ago, it was expected the BOC would sit tight and not raise rates at yesterday's meeting. But another amazing "Jobs" report came out, with higher than expected jobs being created in December, and that lowered the Unemployment Rate to the lowest level since 1976. That was enough to tip the scales in favor of the BOC raising rates this month. Fixed rates jumped up about 0.15% a couple of weeks ago after the "Jobs" report, in anticipation of this BOC increase. It seems likely we will now see more increases for Fixed rates over the next week or so as well. We are now seeing the 5 year fixed rate at around 3.09% for "Insured" Purchases (AKA Purchases with LESS than 20% Down Payment). For Purchases with 20% down (or more) and Refinances, rates are about a quarter percent higher than the 3.09% for Insured Purchases. So as we've seen, things can change pretty quickly! As the calendar turned to 2018, the majority of analysts thought for sure the earliest the BOC would raise rates again would be in March. Yet as of yesterday morning, prior to yesterday's meeting, I believe it was 26 out of 27 analysts asked that believed rates would go up yesterday. Only Laurentian Bank believed rates should not be increased. They are skeptical that the increase was needed at this time. (I kind of agree with them! But what do I know?!?!) SO WHAT DOES THIS MEAN GOING FORWARD?!?!? A good question! There is still a lot of uncertainty, so I'm not even going to muster a guess. I've seen some economists STILL think that there will be 2 or even 3 more 0.25% increases by the BOC this year. While other economists (e.g. TD/CIBC, etc...) have now said there won't be another increase for at least 6 months and that there will only be one more increase in 2018, followed by 2 more in 2019. This prediction could change an hour after I write this, but the latter tends to be the direction most of the main economists are believing as of the time I write this. The BOC did state they were going to continue to be cautious in raising rates. Also, higher Rates generally bring about a higher Canadian Dollar, which helps to slow the economy due to lower Exports. And while the economy is doing well, it is not yet running at full speed. The BOC believes that they will need to keep rates relatively low for the economy to continue to run well. They have revised lower their GDP projections for 2018 (2.2%) and 2019 (only 1.6% growth). BUT, if the economy continues to improve and create more jobs, and we start to see some wage growth, then rates are going to continue to increase, in order to combat rising inflation. BUT, there are some risks to the economy, that could slow down further increases to rates. If Trump cancels NAFTA, that would be awful for our economy and you will see those rate increases delayed. The BOC is also worried that Wage Growth is very slow. As I've mentioned previously, while the economy is creating lots of jobs, a lot are not of very high quality. And for inflation to take off (which is the reason why the BOC raises rates...to combat higher inflation), we need to see some more Wage increases for the masses! On top of that, the BOC is worried about the impact of all of the new mortgage rules, and the impact that higher interest will have on our highly-indebted society. So I'm hopeful that rates don't increase very fast going forward, so that mortgages remain relatively cheap!! Though I'm definitely not holding my breath on this! IN GTA REAL ESTATE NEWS: TORONTO, January 4, 2018 -- Toronto Real Estate Board President Tim Syrianos announced that Greater Toronto Area REALTORS® reported 92,394 sales through TREB’s MLS® System in 2017. This total was down 18.3 per cent compared to the record set in 2016. Record sales in Q1 were followed by a decline in Q2 and Q3 after the Ontario Fair Housing Plan (FHP) was announced. The pace of sales picked up in Q4, as the impact of the FHP started to wane, and some buyers arguably brought forward their home purchase in response to the new OSFI stress test guidelines effective January 1, 2018. “Much of the sales volatility in 2017 was brought about by government policy decisions. Research from TREB, the provincial government and Statistics Canada showed that foreign home buying was not a major driver of sales in the GTA. However, the Ontario Fair Housing Plan, which included a foreign buyer tax, had a marked psychological impact on the marketplace. Looking forward, government policy could continue to influence consumer behavior in 2018, as changes to federal mortgage lending guidelines come into effect,” said Mr. Syrianos. The average selling price for 2017 as a whole was $822,681 – up 12.7 per cent compared to 2016. This annual growth was driven more so by extremely tight market conditions during the first four months of the year. In the latter two-thirds of 2017, fewer sales combined with increased listings resulted in slower price growth. In December, the MLS® Home Price Index (HPI) Composite Benchmark was up by 7.2 per cent year over year, and the overall average selling price was up by 0.7 per cent year over year. “It is interesting to note that home price growth in the second half of 2017 differed substantially depending on market segment. The detached market segment – the most expensive on average – experienced the slowest pace of growth as many buyers looked to less expensive options. Conversely, the condominium apartment segment experienced double-digit growth, as condos accounted for a growing share of transactions,” said Jason Mercer, TREB’s Director of Market Analysis. “TREB will have much more to say about the year to come on January 30 when we will release our third annual Market Year in Review and Outlook Report. The report will feature an outlook for home sales and prices; new Ipsos consumer survey results covering buying intentions, including insights on new federal mortgage lending guidelines; new research on housing supply options surrounding the ‘missing middle,’ and important new reports on the movement of people and goods throughout the GTA,” added Mr. Syrianos. From the Realtors I've spoken to, many are expected a bit of a lull in the first part of 2018. Again, there is a lot of uncertainty around how the market will react to the new mortgage rules and increasing rates. And on top of that, buying activity tends to be slower while it is minus 20 outside and the province is all hibernating! But I'm hopeful we will see sales pick up in the spring and summer as the province thaws, and we see that the housing market, somehow, someway, keeps chugging along, despite way too many government rules and higher interest rates. AGAIN, this is just me being HOPEFUL. This is not what is guaranteed to happen. Only time will tell on this. That's it for this month! The next BOC meeting is on March 7th, so I will be in touch after that. Any questions and/or concerns please do not hesitate to contact me. Take care, Luke Lucas Preston Mortgage Agent Phone: 1-866-680-2020 Cell: 647-299-5136 Fax: 1-866-748-2627 [email protected] License #: M08003866 Your mortgage....Consider it done! PLEASE NOTE: This update is for information purposes only. Please do not rely on it to make a major decision! Everyone’s situation is different and a “one size fits all” approach doesn’t work. For information on how this impacts your situation, please contact me directly.