Long expected. Several banks announced thew will raise their long term rates today. Long term mortgage rates are affected by bond yields and not the prime rate set by the Bank of Canada. This is likely just the beginning of trend that should continue into 2011. The Globe and Mail reported that the TD bank and Royal bank raised their 3, 4 and 5 year rates by .20, .40 and .60 basis points making them 4.35%, 5.34% 5.85% respectively. There are still institutions who have better rates available but it is likely they will follow suit. We just funded one at 3.69% for 5 years with Merix and I've heard that National Bank has a similar special on 5 year rates at 3.69%.
The ultimate question is how will these rates affect home prices in Edmonton? Initially we should see a flurry of activity as people rush to take advantage of their rate holds. Then it will depend on a number of factors on whether the demand will level off or hold due to other fundamentals.
Values in Edmonton have surged compared to the demand so I wouldn't be surprised if we saw some pull back, especially in the second half of the year. I don't expect much of a drop in the average price unless the inventory in high demand price ranges really kicks it up.
I don’t think we are going to see the Fed’s raise the rate too much higher. Our canadian dollar is already too strong, and that is terrible for the Canadian economy. Raising the interest rates will continue to strengthen the Canadian dollar. We will see a small raise, but I believe we will see the government take to fiscal policy as well as to not affect our currency too much. Staying Long on the variable rates.
Hi there!
Long time reader and a big fan. An absolute excellent site, and I definitely appreciate the work that’s been done by Sara and Sheldon. Anyhow – I’m one of the few prospective buyers looking for a house and am cheering for interest rates to go up. Obviously I’m hoping it will drive some of the buyers out so that some normalacy can come back into the housing market a bit. I find it upsetting that I’ve saved enough for 20% down and that some yahoo comes in with barely enough for 5% down and doesn’t hesitate at grabbing a 400k mortage. It’s bananas.
But enough whining (sorry).. onto mortgage rates – I think the mortgage rates have a long ways to go. For one thing, long term mortgage rates (long term) have much less to do with government fiscal policy than to do with bond rates which have been climbing the last month or two, which is why this 60 basis point increase has occured. But with regards to the view that the fed rate won’t go any higher – I don’t think that will be the case. Government has found that our high dollar has had less impact as originally thought on industry, giving them some breathing room to work with. Further more, the BoC rate is adjusted to moderate inflation, which is higher than previously expected. And.. finally… the US 10 yr bond is climbing quite quickly – perhaps due to fears of their high debt. This means the US is likely to be forced to increase it’s interest rates as it will cost more for them to borrow, and as such, strengthening their dollar. Since our dollar is measured against the US, it means our dollar weakens (relatively) giving more room for interest rate hikes.
Translation: Don’t fool yourself – interest rates have plenty of room to go up.
This along with the new HST charge seem to be a growing trend in Canada.
Good post and good luck with the house hunting. RE your 20% down, the consolation you have is that in the long term you will be better off than the guy that puts 5% down. Probably doesn’t help with your short term pain though.
The movement of interest rates are definitely going up (Canada and around the world). Australia has had three increases since bottoming out during the GFC. The rate of increase is going to be like a game of chess for central banks. Arguements for increases are inflation and potential asset bubbles (ie housing). These are real concerns. Inflation could accelerate quickly given the money pumped into the system by all governments around the world. Asset bubbles are also showing signs of occuring due to the low cost of money.Arguements or forces which will have central banks wanting to space out any increases in interest rates are the impact it has on their currencies and exports/imports. The US and China are facing off at the moment due to the US accusing China of deliberately devaluing their currency. Should be an interesting year. In a decade from now the text books will either praise the actions of the central banks or condemn them (like Greesnpan is now held accountable for the GFC by keeping interest rates so low for so long).
In 2001, I purchased my first home, a row house unit in Klarvatten for $84500. I sold it in early 2002 for $115000… Today, the same unit is up for $ 255000… Why?
I sold another of my homes- a condo in Eaux Claires (behind the RONA) in 2008 for $140000 more than I purchased it for 5 years prior…
In the time being, I flipped two extra properties in north Edmonton and cashed in huge.
Today, there is no money to be made by flipping properties in Edmonton; the last wave got burnt when they bought in 2007. Luckily, with record low rates, they got very lucky and sold…
There is no more quick bucks to be made with real estate as interest rates climb up.
I see home resale prices go down by 30% within 12 months……………………….
Edmonton Expat – Why do you expect house prices to fall 30% in 12 months? Although that would make me happier than a fat kid in a donut store, and I agree that houses are over priced significantly (how much is up for debate), I can’t figure out if I should expect houses to tank, or for houses to just level out until inflation catches up to housing values. In fact, if anyone out there could explain to me why they think the way they do, I’d much appreciate it (please substantiate it – “because I said so” isn’t much help to me. I see mortgage arrears increasing, but at 0.7% of all mortgages… its hardly enough to care about. I figure it’s gotta be something pretty bad to for houses to drop as significantly as 30% in edmonton. Then again.. nothing about this housing market makes sense to me right now, so what do I know. Thanks in advance!
Well…. for starters, I love Edmonton.
I would move back there in a heartbeat, but…. homes got too expensive and crime rates got out of whack.
Still a huge Oilers fan in Ontario…
Speculation took over from a lack of supply from 2005 on. By 2007 supply met demand and then supply was into oversupply mode by end 2007 until now…
2008 was a disaster; prices went south, specs/flippers were stuck and they rented their properties at almost a loss…
THEN 2009 came and Ottawa/BOC decided to sewer its interest rates to 0.25% almost 12 months ago which magically brought cheap money and an already fragile RE market went stupider yet.
There is NO way that I will pay $425K for a home in a trendy part of SW Edmonton when I can presently own the same, very comparable home in a very similar, as new, close to everything, but with LESS crime in the Ottawa area and still pay only $325K and I will enjoy a bigger lot. My residential cul-de-sac street get plowed in winter AS IT SNOWS as well…
Hey… I’m not bad mouthing Edmonton; I just wonder what happened to its “Alberta Advantage”.
Too bad…
30% in 12 months? Keep dreaming.
There will not be a 30% reduction in house resale prices in 12 months.
12 months? Maybe not… but 24 to 36 possible.
30% lower than February’s average?
Or 30% lower than March’s?
March will be 10% higher than last month… so you need to specific here…
I can see 20% in 12 months. 30% will come after 12 months.
How many people have attended Garth visit in Edmonton? good/bad??
What information, statistics, intuitions, or hallucinations are you all basing this 30% drop on?
And by the way…
Prices would have to decrease roughly twice as fast over the next three years as they have over the last two years to drop 30% in that time frame.
What imminent economic shock do you guys foresee making conditions TWICE as bad as the nightmare we just went through? I think your claims are a little far-fetched… but what do I know, stranger things have happened, and on that note:
GO OILERS GO! Bring the Cup home girls!
How high do you think they will go though? Wont it hurt the economy?
Ya, but you are living in smog-tario…
For all of you predicting that “interest rates will go up.” Give your head a shake. That is like betting that the oilers will make the playoffs. Interest rates only have ONE way to go- UP! So if you’re going to make a bold prediction, try going out on a limb and saying how much.
You mean be bold like your prediction?
“I don’t think we are going to see the Fed’s raise the rate too much higher.”
Nice one hellraiser.
My prediction is rates up by 1% within 18 months. What is your out on a limb prediction other than “not too much higher”?
I think we will see the Fed’s raise interest rates 1.5%, over the next 12-18 months.
The 30% decrease people have been pointing to relates to the difference between current average price and the long-term trend for appreciation.
Not sure where they’re getting their data for long term trends, but a least squares fit of an exponential trend on monthly data since 1962 indicates that today’s price should be 314k. Last month’s average was 316k.
I guess they’re right, we do have a ways to fall… a massive 0.6%!
They predict we’ll drop 30% in the next three years, but consider this: the long term trend price for three years from now is 380k. Even if we stay flat from now till then, we’ll be 18% undervalued. If their dream of a 30% decrease happens, that will put us over 42% UNDERVALUED!
Come on guys… use your heads.
Where did you get the 314k figure from? The analysis I’ve seen (from several analyst reports) shows around a 250k trend. I’d like to see where you got your model from as it’s substantially higher than the rest.
Nic,
Why did you use a least squares fit of an exponential trend? If you stick by that – how much will it cost for a house in 5 years time? 10 years time? I’m guessing at least a million bucks if not way more. If you’re going to run a curve fit, make sure what it’s extrapolating makes sense. Unless you think a 1000 sq foot house in the highly sought after city of edmonton should run you a couple million by the end of this decade, to which we’re making Dubai look like a bargain (which did end up crashing oddly enough…)And if you think oil makes us exempt, I’ll point out most of our money from this province comes from gas, which is far more expensive to extract vs. unconventional gas in other areas of north america, where there is no shortage. Oilsands are a ways off… give it another decade so that the technology makes it worth while.
Don’t patronize the opinions of readers with ‘use your heads’ because you can use a curve fitting function off of excel. It’s insulting.
Hrm… yeah.. seems reasonable. 1.5% – 2.0% in the next 12-18 months is my guess. This is just based on I think the government will be hardpressed to raise it any quicker without stomping on the economy too hard. It would be interesting to see how bond rates move and effect longer term mortgages of 5+ years.