Twelve dollars for grapes? O.K. maybe not yet, but many people are feeling frustration, anxiety, and lots of other emotions about inflation. So what better time than now to provide a housing and market update. This is where we offer a review of the latest housing and economic data and rate trends. We’ll break down what the data means and spells out the implications for Canadian consumers and our Edmonton clients.
As most Canadians are already aware, The Bank of Canada raised its key interest rate by 0.25% in early March, bringing the overnight interest rate to 0.5% and pushing the prime lending rate at big banks to 2.7%. In the press release, the Bank noted that “As the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further.”
That hint of further rate hikes to come, as well as stubbornly high inflation, which came in at a fresh 30-year high annual rate of 5.7% in February, are pushing up bond yields and affecting fixed mortgage rate pricing as well. The important 5-year Government of Canada bond yield is now over 2% for the first time since late-2018.
What it means: Higher rates are already being felt by consumers. The effective interest rate paid by households across all credit products has risen by 60 basis points (bps) since the start of the year and is nearly 80bps higher than last year at this time…the steepest annual increase since 2006. Still, consumers remain in relatively good shape.
• The household savings rate was 6.4% in Q4 compared to less than 1% pre-pandemic.
• Household net worth jumped by 16% in Q4.
• Consumer insolvencies remain 40% below pre-COVID levels.
There are some subtle signs of a shift in Canada’s housing market. For instance, home sales nationally jumped 4.6% month-over-month in February and remain 25% above average levels on a population-adjusted basis.
What it means: This strongly suggests that we are still seeing significant demand pulled forward, likely as buyers attempt to front-run further Bank of Canada rate hikes, and it hints at a potential demand overhang with weaker sales activity in the back half of the year as rising rates and weaker discretionary income trends take a bite out of demand.
On the pricing side, February saw the single-largest monthly increase in the seasonally adjusted national House Price Index on record at 3.5% m/m. House prices are now 29% (or $200,000) higher than they were last year at this time, a trend that will no doubt have policy-makers seriously contemplating measures to cool demand: On the supply front, February saw a massive 23.7% m/m jump in new listings coming to market, which helped push the sales-to-new listings ratio down to 75% from the crazy highs of nearly 90% seen in January.
This indicator remains well above the “balanced” territory of 50%-60%, but the fact that so many new listings came to market last month suggests that we may see some pent-up selling pressure materialize via higher listings this spring. If so, it could hopefully take the edge off some of the recent price moves and give policy-makers a little more breathing room.
Now if all this market jargon, analytics, and graphs have got you scratching your head in bewilderment; fear not! Our locally Edmonton-based family-owned mortgage team is here to help. Just reach out and let us know what’s on your mind and we’ll explore all the solutions available so you can have complete confidence in your mortgage strategy.
P.S. Have you heard about our Rate Freeze Mortgage? If you’re feeling inflation frustration over the rising cost of gas or groceries, and well, just about everything then you’re not alone. While we can’t control the price of everyday essentials we can help with protecting you from rising interest rates. How is this possible you ask? Well, first of all, we make sure to provide you with all the latest insights on our evolving market conditions here in Edmonton along with other projections that may impact your mortgage options. This way you can have complete confidence in the months and years ahead. Knowledge is power! Next, we’ll preapprove you and freeze your rate for up to 4 months; which will protect against inflation, and cause elation! We have access to a wide range of lenders and know the right questions to ask to assess your situation and make sure you have the best mortgage strategy.
Source: Mortgage Professionals Canada
Source: Bank of Canada
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About Mortgage Professionals Canada
Mortgage Professionals Canada is a non-profit, national mortgage industry association representing 11,500 individuals and 1,000 companies, including mortgage brokerages, lenders, insurers, and industry service providers. Our members make up the largest and most respected network of mortgage professionals in the country.