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Low mortgage rates keep Toronto real estate market alive

Before even get­ting to the arti­cle, let me say a few things. When mort­gage rates were 20%, house prices were $120,000. Now they are 3.48% and house prices are $444,000. Prices rise and fall based on afford­abil­ity. Yes, low mort­gage rates have had a hand in allow­ing prices to rise to where they are now, but rates and prices are always bal­anc­ing out.

Mort­gage pay­ments on $120,000 at 20% are almost $1,900 a month. Cur­rent prices of $444,000 at 3.48% are around $2,150. Not adjust­ing for infla­tion or changes in income, we can see that the pay­ments are pretty close to each other. But peo­ple make $65,000 a year these days, not $25,000.

So mort­gage pay­ments are actu­ally a smaller per­cent­age of wages than they were when prices where 1/4 of what they are now. Let’s put every­thing in per­spec­tive before we start get­ting all excited.

Tony Wong – Toronto Star

A sig­nif­i­cant drop in long-term mort­gage rates has given the Greater Toronto Area hous­ing mar­ket a timely boost, even as fig­ures show that sales are slow­ing markedly.

But even super low rates may not be enough to kick-start the mar­ket head­ing into the fall, say analysts.

Uncer­tainty over the econ­omy means the Bank of Canada on Tues­day is widely expected to take a pause on its key overnight lend­ing rate after three straight rate increases.

The rates for fixed mort­gages are just about the low­est I’ve seen in the last ten years,” says Jim Wong, a mort­gage bro­ker at the Royal Bank of Canada.

We love these rates, it will likely encour­age peo­ple to buy,” says Lois Volk, a mort­gage bro­ker with Invis.

Long term rates seem to be an espe­cially good deal, with some lenders offer­ing five-year fixed mort­gages for under 3.5%.

Vari­able rates can be had as low as 2.3%. Low infla­tion, a high loonie and a slow­ing econ­omy means the bank has less rea­sons to hike rates.

That’s good news for the Toronto hous­ing mar­ket as it con­tin­ues to feel a chill on sales.

Sales were down by 17% in the first half of Octo­ber to 3,012 sales, com­pared with 3,631 sales in 2009, accord­ing to fig­ures released by the Toronto Real Estate Board on Mon­day.

Com­ment: Slow down on the whole “mar­ket chill” thing. Let’s look at the past few months and see how sales have declined – or have they?

Jul – down 34%
Aug – down 22%
Sep – down 23%
Oct – down 17% (as of mid-month)

So the decline has slowed, markedly. We are now at half of the slow­down we saw in July. Thus, sales vol­ume is actu­ally increas­ing, not slow­ing down. Sure, there are fewer sales than last year, but we all know that the last half of 2009 was crazy. But we are closer to Octo­ber 2009 sales than July was to July 2009. And sales are still up 3% as com­pared to the mid­dle of Octo­ber 2009.

Let’s make sure to put all of the num­bers in their proper per­spec­tive and not just pick and choose to try to make a point. I have no agenda, I just want to be sure that the data is reported accurately.

Thanks to robust sales in the first half of the year, year to date sales are still up by 3% com­pared with 2009.

The GTA resale mar­ket is bal­anc­ing out from the record level of sales expe­ri­enced in the sec­ond half of 2009 and the first few months of 2010,” said TREB pres­i­dent Bill John­ston. “This is why sales fig­ures have been lower than 2009 lev­els in recent months.”

The aver­age price for Octo­ber trans­ac­tions dur­ing the first two weeks was $444,644, up 7% com­pared with the aver­age of $414,479 recorded in 2009.

We are see­ing enough buy­ers rel­a­tive to sell­ers to pro­mote con­tin­ued price growth year over year,” said Jason Mer­cer, TREB’s senior man­ager of mar­ket analysis.

Lower inter­est rates means that there are more qual­i­fied buy­ers in the mar­ket, which has been a mit­i­gat­ing fac­tor for prices falling more rapidly.

But mort­gage bro­ker Wong says buy­ers aren’t com­ing out of the wood­work solely because of rates.

For peo­ple already in the mar­ket this is a per­fect time, but clients aren’t buy­ing solely because rates are low,” said Wong. “They are still say­ing the rates are great, but they are also wor­ried that prices could drop fur­ther in the future.”

Wong says most buy­ers still go for vari­able rates because of the still greater than 1% gap between short term and long term rates.

How­ever, for buy­ers who have put less than 20% down and may be more uncer­tain of their finances, he rec­om­mends lock­ing into the five year rate to pro­vide a level of certainty.

Volk says some of her clients have already switched from vari­able to long term rates.

They’ve done well with vari­able rates over the last while, but fig­ure it can’t go down much lower,” says Volk.

The Bank of Canada was the first among the group of seven indus­tri­al­ized nations to raise its bench­mark rate ear­lier this year, steadily increas­ing it to the cur­rent 1%.

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Con­tact the Jef­frey Team for more infor­ma­tion  -  416−388−1960

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