Wishing for a crystal ball?

Who isn’t?  At least, as far as real estate markets and mortgage forecasts go.

However, the Bank of Canada gave us some guidance on October 23rd, through deciding not to raise rates (which was no suprise) but also by signalling that they are planning to maintain a neutral stance on rates for the foreseeable future.

What this means for mortgage rates and mortgage lending

Not only are mortgage rates not expected to rise much over the next few months, but there is even some potential for slight drops in rates, according to Ben Tal, Deputy Chief Economist at CIBC, speaking at an online event last week.  Canada is strongly influenced by the sluggish economy south of our border, and this is a major factor in causing our own fiscal policy to stay on the present course.  The U.S. remains extremely cautious about rising rates, so no rate increases are expected there for quite some time.  As such, Tal commented that variable rate mortgages here in Canada can be expected to continue to be “slightly” better than fixed rate mortgages.  A recent Financial Post article also is optimistic about variable rates being more attractive than fixed.

However, the Canadian government continues to be concerned about our real estate market, so what we can expect to see, since rates aren’t likely to rise much, is more tightening in lending rules.  One that’s already in place is making it more difficult for borrowers to qualify for a variable rate by requiring them to be approved at a higher artificial rate – see my article on the “qualifying rate” here.   Other ideas that have been discussed include shortening amortizations on insured mortgages even more than the current 25 year maximum, and / or an increase in the minimum down payment from 5% to 10%.  Neither of these has been confirmed, but they’re both possibilities.  So, if you’re thinking of buying a home in the next year or so, you will want to keep a close eye on this.

What this means for real estate prices

So what about real estate in Canada, particularly real estate in the greater Toronto area?   Ben Tal is not bullish about the real estate market at the moment.  However, he suggests that there is no fundamentals to support the idea that we should expect a real estate crash in Canada.  One key example, when comparing our situation to that in the U.S. several years ago, our mortgage debt is of a much better quality – the U.S. had about 33% of their mortgages as so-called “non-conforming mortgages” (those where big exceptions were made to allow them to be funded), while Canada’s current non-conforming mortgages comprise only about 6.8%.  He does however feel that we will see a bit of a “pull-back” in housing prices, particularly around Toronto’s condo market.  But how much of an increase there will be before – or if – this happens, is anyone’s guess.

So, what should you do?

My mantra is always this – buying a home is like any other long-term investment. You can’t hope to time the market exactly.  On top of that, you do have to live somewhere.  So, if your financial situation is stable, and you’ve calculated that you can comfortably afford a home and the associated expenses, and you’re not counting on quickly popping in and out of the real estate market, then buying a home is the next logical step.

What do you think?  Agree or disagree?  Please don’t hesitate to give me your feedback!

Photo credit: [c]  Salvatore Vuono for freedigitalphotos.net