Each month, homebuilders receive a two-page Canadian Housing Industry Economic Update authored by Dr. Peter Andersen, consulting economist to the Canadian Home Builders’ Association. This internal newsletter tells it like it is, for better or worse, and the sub-titles in the most recent issue paint a very positive picture: Better Economic News; The U.S. Recession is Officially Over; and Homebuyer Friendly Interest Rates.
Speaking directly to homebuilders, Andersen writes, “We remain positive for the housing market outlook in Canada. Mortgage interest rates are not going up sharply anytime soon and the next recession is unlikely until mid-decade at the earliest.”
On the subject of interest rates, Andersen states that “it is important to remember that mortgage rates are determined by the bond market and not by the Bank of Canada. Media headlines that higher interest rates are a problem for housing markets are off base. Mortgage rates have been declining even though the Bank of Canada has raised its overnight interest rate target three times.
"The special offer one-year closed mortgage rate is currently only 2.90 per cent. The five-year rate is 3.99 per cent. The closed five-year variable rate is being quoted at 10 basis points under prime. It was 100 basis points over prime not that long ago.”
Andersen continues that in its press release announcing the Sept. 8 interest rate decision, the Bank of Canada pointed out that credit conditions have actually eased in recent weeks as a result of sharp declines in global bond yields.
“The new home builders’ fall selling season will be a direct beneficiary of this easing. We expect more Bank of Canada increases in overnight rates at its Oct.19 and Dec. 7 interest rate announcement dates. However, there will be little impact on mortgage rates. They will continue to be very homebuyer friendly,” Andersen said.