Mortgage Rate Outlook
Although there have been a number of ups and downs in the Canadian mortgage market over the past 12 months, there was very little movement in posted mortgage rates. In fact, volatility in mortgage rates, as measured by a rolling 52-week standard deviation of posted five-year rates, is at a multi-decade low. With growth and inflation remaining relatively subdued and the Bank of Canada on the sidelines for all of 2013, the unprecedented low volatility in Canadian mortgage rates is likely to continue for much of the year.

While posted mortgage rates remain relatively constant, some chartered banks have recently re-ignited a small furor by again offering below 3 per cent five-year fixed rates to help spur spring-time demand following a nationwide slowdown in home sales activity. We expect that, disapproval from Ottawa notwithstanding, lenders will continue to offer steeply discounted rates to their most credit worthy borrowers while leaving their official posted rates constant. We are forecasting that thefive-year fixed rate will remain at 5.24 per cent, and the one-year rate at 3 per cent for most of 2013 before gradually rising toward the end of the year as the outlook for economic growth improves.

The primary risk to our outlook is that growth in the global and Canadian economy will outperform current expectations. Faster growth could cause bond yields to quickly rise off of their current near historic lows, thereby forcing banks to re-price their mortgage offerings.


Mortgage Rate Forecast is published quarterly by the British Columbia Real Estate Association. Copyright British Columbia Real Estate Association. Reprinted with permission.



Updated: Fri, 15 Mar 2013 09:00:00 GMT | By Romana-King-Blog

Putting real estate overvaluation in perspective

Canadian real estate is overvalued by 20%. This doesn't mean your home is worth 20% less. If prices do drop, it will be closer to 10%, and in certain parts of the country it's already happening.


More than a few media headlines are focusing on Canada's overvalued real estate. According to Fitch, an American-based ratings agency, housing prices in Canada are 20% overvalued in real terms. The fine print, however, is that this overvaluation only applies to a couple of major urban centres, such as Toronto, Vancouver and Montreal.


In their new financial model report, Fitch analysts noted that housing prices in Canada have continued to climb since 1996 and, while small corrections have occurred, these prices have risen without the support of underlying financial fundamentals.


For that reason, the ratings agency suggests that the overvaluation of real estate in certain provinces is in the double digits. For instance:

* Ontario is overvalued by 21%
* Alberta by 15%
* British Columbia by 26%, and
* Quebec by 26%


Still, Fitch analysts don't believe the overpriced real estate markets will result in price declines that equal or exceed the overvaluation rates.


"Actual nominal [price] declines could range from the low single digits for Alberta, up to more than 15% for B.C. and Quebec."


The key: these declines will occur over the next several years. More importantly, the price decrease will be closer to 10% of home prices not 20%, explain Fitch analysts.


Of course, certain markets have already felt the pinch. In Alberta, low crude oil prices in 2008 forced a price correction. In B.C., there was a 29% drop in year-over-year sales in February-signalling a cooling in what is considered Canada's most overvalued market.


For buyers willing to sit out another five or so years this could mean a drop in home prices. For example, a home listed for $450,000, today, could drop in cost to $405,000 within the next five years.


Good news for the patient homebuyer, but the decision to wait and buy should also factor in potential rising interest rates as well as job security and economic growth. If discounted five-year posted interest rates go up to 5% in the next five years-an increase that’s not out of the realm of possibility-then you would pay $2,249 per month (based on a 5% five-year fixed rate for a 25 year amortization on a $405,000 home, with 5% down). If you bought now, you’d be paying $2,025 per month (based on a 3% five-year fixed rate mortgage for a 25 year amortization on a $450,000 home, with 5% down).

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