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Bank of Canada

Bank of Canada holds interest rate for now, but hikes still to come

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Bank of Canada holds interest rate for now, but hikes still to come


Bank of Canada

The Bank of Canada held its target for the overnight rate at 1.75 per cent on Jan. 9, where it has been since October 2018, and is lowering its growth forecast this year for Canada and around the world.

After raising the rate three times last year, some experts expected the Bank would do so again, either in late 2018 or early this year.

So, what does this latest non-action mean, and what can Canadian consumers expect in the coming months?

“The Bank gave several reasons for its decision to keep rates steady,” says Rubina Ahmed-Haq, personal finance guru and Homes Publishing columnist. “This includes lower oil prices, a weaker outlook for the global economy and Canada’s economy slowing more than expected.

Weaker investment

“It was a surprise that market pessimism did not come up,” she adds. “Despite stock market volatility making headlines for the last two months, there was no mention of the wild swings investors have been experiencing. The Bank did talk about weaker consumer spending and housing investment. This could be because of Canadian investors watching their portfolios and not feeling as confident in their spending.”

Sill, Ahmed-Haq says, the Bank remains very rosy on Canada’s economy, noting it has performing well overall. In its statement, the Bank says, “Growth has been running close to potential, employment growth has been strong and unemployment is at a 40-year low.” But still not enough to raise rates at this time.

Energy sector a concern

“The energy sector has been a concern for the Bank for some time now, but there seems to be a new focus on the housing sector, especially on the impact of mortgage guidelines changes and the five rate increases that have happened in the past 18 months,” James Laird, co-founder of Ratehub Inc. and President of CanWise Financial mortgage brokerage, told Homes Publishing.

Ahmed-Haq and Laird agree we should still expect higher rates in the coming months.

“The policy interest rate will need to rise over time into a neutral range to achieve the inflation target,” says Ahmed-Haq.

Rate hikes to come

Forecasters are now predicting two rate hikes this year, is down from earlier predictions of as many as three rates hikes in 2019.

“The Bank’s moderated outlook in the last two announcements has caused bond yields in Canada to drop lower than any point in 2018,” says Laird. “However, we are yet to see a corresponding decrease in mortgage rates. We would advise consumers to keep a close eye on mortgage rates in coming weeks.”


Highlights from the Bank’s announcement

  • Bank of Canada maintains target for overnight rate at 1.75 per cent
  • Canadian economy performing well overall
  • Employment growth strong
  • Unemployment rate at 40-year low
  • Canadian consumption spending and housing investment weaker than expected
  • Housing markets adjusting to municipal and provincial measures, new mortgage guidelines and higher interest rates
  • Household spending to be dampened by slow growth in oil-producing provinces
  • Real GDP growth forecast at 1.7 per cent for 2019
  • Growth of 2.1 per cent forecast for 2020



Where are interest rates headed in 2019?

Homebuyers undeterred by changes in mortgage landscape

Interest rate hikes may not cost you as much as you think



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Where are interest rates headed in 2019?

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Where are interest rates headed in 2019?

The Bank of Canada has raised interest rates five times since July 2017. As of the Oct. 24 announcement, the overnight lending rate is 1.75 per cent and prime at commercial banks is 3.95 per cent.

Higher rates means money is getting more expensive to borrow and if you have a variable mortgage rate your monthly payments have gone up.

In its latest announcement the Bank of Canada indicated the various reasons they raised rates. This included the finalized trade agreement that replaces NAFTA called the United States Mexico Canada Agreement or USMCA.

In its press release after the announcement the Bank states that the USMCA agreement will help “reduce trade policy uncertainty in North America, which has been an important curb on business confidence and investment.” The trade agreement was the biggest roadblock for the Bank to raise rates. This was evident when they held rates steady for the several past announcements while the U.S. Federal Reserve continued to hike its benchmark rate. Although not always the case, in most instances, if the Fed raises rates, Canada does as well.

The Bank also points to a solid global economic outlook as a reason to hike rates. Here at home it says “The Canadian economy continues to operate close to its potential and the composition of growth is more balanced… Real GDP is projected to grow by 2.1 per cent this year and next before slowing to 1.9 per cent in 2020.”

After the announcement, Bank of Montreal economist Benjamin Reitzes noted that the BoC statement shows, “Policymakers are clearly upbeat on the outlook, and assuming the economy doesn’t face any big speed bumps, expect rates to continue to push higher at least through early 2019.”

BMO economics predicts three rates hikes in 2019. In January, April and July.

So as rates are expected to rise, what costs can Canadians expect to go up?


Anyone with a variable mortgage rate or any loan with a floating rate, like a line of credit, is already seeing their costs rise. Commercial banks usually hike rates as soon as the Central Bank does. If you have a variable rate mortgage on your condominium, you may want to inquire about fixing your rate today. If you’re worried about your affordability, by fixing your rate you will know how much your payments will be for the remainder of the term.

Savings rates

One of the positives of a higher rates is we get better return on the money we’re putting away. This includes money we have in our savings account. Fixed income rates will rise as well and banks are able to offer a higher rate of return on any money you invest with them.

Stronger dollar

A rate hike almost always means our currency gets stronger. This can be great for Canadians travelling abroad as you get more money during currency exchange. But a stronger dollar can spell trouble for companies trying to export their goods and services. The stronger dollar makes it more expensive for any foreign buyer.

Life could cost thousands more

A report by Environics Analytics released after the October rate hike reveals in the long run the interest rate hike could cost Canadians thousands. They say, so far, the effects of higher rates has been limited to short-term debt and variable rate debt. But when fixed rate debt starts to catch up life will get more expensive. They say “the true long-term effect of these interest rate hikes will be approximately $2,516 a year per household or 5.0 per cent of discretionary income.”

The sense from economists is interest rates are expected to rise going into 2019. If you’re concerned you need to stress test your finances, calculate how much your debt would cost if rates were 2 or 3 percentage points higher. If you find that might be unaffordable make the changes now to prepare for what seems to be inevitable.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney


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Mortgage Rates web

Interest rate hikes may not cost you as much as you think

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Interest rate hikes may not cost you as much as you think

Mortgage Rates web

By Wayne Karl

When the Bank of Canada announced an interest rate hike  on Oct. 24 – and within hours all of Canada’s major banks followed suit in hiking their prime lending rates – consumers largely groaned.

All of CIBC, TD Canada Trust, Scotiabank, RBC Royal Bank and BMO Bank of Montreal almost immediately issued virtually the same statement, word for word: “(Insert bank name here) announced that it has increased its prime lending rate by 25 basis points from 3.70 per cent to 3.95 per cent, effective Oct. 25, 2018.”

Yes, the numbers, too, are identical.

BoC had already raised its influential overnight rate target three times since July 2017, to 1.5 per cent from 0.75 per cent, and now this most recent hike to 1.75 per cent, while hinting that further increases are likely.

For mortgage holders, though, the increases may not cost you as much as you fear.

Fixed rates

The majority of Canadian mortgage holders are on fixed-rate products, which is why a more moderate pace of rate increases likely won’t impact the market significantly, according to Canada Mortgage and Housing Corp. (CMHC).

Nearly half of existing mortgages in Canada will come up for renewal in 2018, according to a data release from CIBC Capital Markets. However, despite having to renew their mortgage in a rising interest rate environment, a borrower with a five-year mortgage rate may be able to get a better deal on their mortgage renewal today than when they entered the housing market five years ago.

According to calculations from mortgage rate comparison website  Ratehub.ca:

The best five-year fixed rate in September 2013 was 3.29 per cent. With that rate, a borrower with a $400,000 mortgage amortized over 25 years would have had a monthly mortgage payment of $1,953 over the last five years.

If that same borrower renewed their mortgage at today’s best five-year fixed rate of 3.19 per cent, their monthly mortgage payment would decrease by $17 per month to $1,936.

“Canadians who require a new mortgage in coming months should lock in a fixed rate as soon as possible,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial. “This includes those who are purchasing a home, and homeowners whose mortgage is coming up for renewal.

“Remember that, on average, mortgage providers will offer their existing customers a discount of 0.25 per cent off their posted rate on a renewal. However, there may be more competitive rates out there. Be sure to shop around online or use a mortgage broker to negotiate the best rate for your renewal.”

Laird says borrowers should begin shopping around 120 days in advance of their renewal date in order to negotiate a competitive mortgage rate.

A rising interest rate environment could put downward pressure on home prices, he says, but upward pressure will come from predicted economic growth, lack of housing supply, immigration and first-time homebuyers.

Variable rates

“Borrowers should expect variable rates to perfectly correlate with Bank of Canada rate increases,” Laird says. “Variable rate mortgage holders should also be prepared for several increases to their interest rate in coming months and, with general interest rates in Canada on the rise, fixed rates will rise as well. However, those currently in fixed rates have nothing to worry about until their next mortgage renewal date.”


7 factors that will affect GTA housing in 2019 – and 5 reasons to consider buying NOW





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GTA 2019

7 factors that will affect GTA housing in 2019 – and 5 reasons to consider buying NOW

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7 factors that will affect GTA housing in 2019 – and 5 reasons to consider buying NOW

GTA 2019

By Wayne Karl

GTA homebuyers, we have some good news and some bad news.

First, the good news: You live in one of the most desirable areas and housing markets in Canada – maybe even the world.

The bad news? That affordability challenge we’re all facing.

“The affordability issue is not going away,” PricewaterhouseCoopers says plainly, in its Emerging Trends in Real Estate 2019 report.

Why? See point number one.

“Potential homebuyers will need to alter their expectations and possibly delay entry into homeownership,” Dana Senagama, manager, market analysis for Canada Mortgage and Housing Corp. (CMHC), told Homes Publishing.

Not exactly the most hopeful outlook for those – especially first-timers – looking to buy a home in and around the GTA.

But it’s not all bad. Let’s look at what’s going on in the market, and what would-be buyers can do to help their cause.

1 Return to price growth

Following the introduction of the Ontario Fair Housing Plan in April 2017, recent interest rate hikes and other changes, sales and prices in the GTA have seen some moderation.

But the slowing will be short-lived, Senagama says. Key economic fundamentals such as population and employment growth will continue to drive housing market demand, but the supply of new homes is not being addressed. The result? A return to price growth.

“CMHC is working on data gaps like supply with many industry stakeholders and partners,” she says. “Currently, we are participating in a working group with the province of Ontario to find solutions and best practices.”

PwC says the region is feeling the effects of demographic shifts. Millennials have begun to compete with Baby Boomers for real estate, and over the next decade, almost 700,000 first-time buyers will target the GTA or Hamilton markets, according to a May 2018 report from the Ontario Real Estate Association.

2 Risk of overvaluation

Senagama cautions, however, that the Toronto market is still showing signs of overvaluation.

“This happens when house price growth is surpassing the population and income growth. So, despite some of the moderation you’re seeing, we’re still calling for a high degree of vulnerability in Toronto in the foreseeable future.”

3 Inelastic supply

The GTA housing market is characterized by inelastic supply. “Supply is slow to respond to any change in price, and we’re seeing that time and time again,” she says.

Recent research from CMHC and Altus Group, in fact, shows that of the lowrise new home projects that were started in 2016 and 2017, it took 15 years for those developments to go from the initial land purchase to product hitting the market.

Supply response
Source: CMHC


“We have a problem, in terms of supply.”

With very limited new home supply hitting the market, once buyers get used to temporary shocks to the system brought on by policy issues and rising interest rates, they return to buying homes, which in turn drives up prices.

4 Condo demand

With lowrise home prices enjoying spectacular growth in recent years, there was a compositional shift in demand toward less expensive product – namely condos – particular among first-time buyers.

But now, with price growth even in this category – with average condo prices rising 8.4 per cent year-over-year to $552,269 in the third quarter this year – and pre-construction units in the $700,000 range…

“These are not price points for first-time buyers,” Senagama says, “so we’re still looking at very high prices across the GTA.”

5 Mortgage rates

The Bank of Canada has already raised its influential overnight rate target three times since July 2017, to 1.5 per cent from 0.75 per cent. Experts expect at least one more increase this year, possibly as early as the next rate announcement on Oct. 24.

A more moderate pace of rate increases could impact the market, but not significantly since the majority of mortgage holders are on fixed-rate mortgages, CMHC research shows.

6 Rental market

Any discussion about affordability needs to include the rental market, Senagama says. “Much like the ownership segment, supply is a huge constraint in the Toronto rental market.”


With the average vacancy rate in the GTA 1.1 per cent, and 0.7 per cent for condo rentals, rental rate increases are picking up steam. “Because we have a supply problem. And because we don’t have enough supply of the purpose-built rental units, the gap has been filled in by the condo market.”

About 33 per cent of all condos in Toronto are being rented out by investors, according to CMHC. This results in renters paying a much higher premium to rent a condo versus a purpose-built apartment – on average 50 per cent more, for a two-bedroom unit.

“We talk about affordability, and this raises so many other concerns, especially in a market that is supply-strapped,” Senagama says.

7 Catch 22

investors are buying into the condo market to rent out their units, taking advantage of the tight rental market. But first-time buyers – who typically aren’t equity-rich or wealthy – have to compete for available condo product, which again drives up prices.




1 Affordability

More supply of new homes is a big part of the solution. But despite ongoing lobbying from the housing industry, and apparent increasing awareness of new elected municipal leaders, this problem won’t be solved overnight. It will take time. Lots of it. In the meantime, as PricewaterhouseCoopers says: The affordability issue is not going away. It might even get worse before it gets better.

2 Market moderation waning

With little relief on the supply side expected, price growth will continue to be strong, even if somewhat muted compared to the double-digit increases seen over the last few years. In short, the longer buyers wait, the more it could cost you.

3 Interest rates

Experts expect at least one more increase this year, possibly as early as the next rate announcement on Oct. 24. To protect yourself against a more moderate pace of rate increases, consider a fixed-rate mortgage product.

4 Pent-up demand

Buyers believe prices are going to increase, but not to the same degree we’ve seen in recent years. This will lead to pent-up demand, which when released over the next year, will contribute to increasing buying activity and rising prices. So, if you’re able to buy before then, you could beat the rush.

5 Rental market

If you’re a Millennial planning to move out of home and into the rental market, consider this: Toronto is the most expensive Canadian rental market, with average rates for one-bedroom units at slightly more than $1,900 per month (up 2.8 per cent from August to September); $2,374 for two-bedrooms (up 7.1 per cent). Try saving up for a down payment at those rates; maybe staying at home a little longer isn’t so bad after all.

Wayne Karl is Senior Digital Editor at Homes Publishing. wayne.karl@homesmag.com 


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Canada has a new trade deal. Now what?

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Canada has a new trade deal. Now what?


by Wayne Karl

Canada, the U.S. and Mexico have a “new NAFTA” deal, the so-called the United States-Mexico-Canada Agreement (USMCA).

Now what?

And what does it all have to do with real estate?

Plenty, when you consider that economic health is essential to the housing market. And though there have been some ups, downs and regional disparities, the Canadian economy for the most part has hummed along for the last 10 years or so.

So too, has Canadian real estate – again, with provincial and local variances.

Without a strong economy, you don’t have job and wage growth. Without those, you don’t have population growth, which drives demand in real estate, whether renting or buying. And without all of that, you don’t get home building and construction, both key drivers of employment and economic growth.

The U.S. and Mexico are, respectively, Canada’s first- and third-largest merchandise trading partners in the world. Canada is respectively the second- and fifth-largest merchandise trading partner of the U.S. and Mexico, and the largest export market for the U.S.

In 2017, trilateral trade reached nearly US$1.1 trillion.

Anything that affects all of that, understandably, makes people nervous.

In its Canadian Outlook Executive Summary, Autumn 2018 – published pre-USMCA – the Conference Board of Canada cited concerns over trade negotiations for a lack of business investment and other risks to the economy.

The new USMCA, our federal government says, offers crucial predictability and stability for Canadian businesses, investors, traders, workers and innovators. The deal will “create good, well‑paying, middle class jobs, strengthen economic ties and expand Canada’strade in North America.”

The Canadian auto industry, for one, is pleased with the new trade deal.

“The (Canadian Vehicle Manufacturers’ Association) congratulates the Canadian government in finalizing the new agreement on a trilateral North American basis,” the CVMA said when the deal was announced. “While we look forward to reviewing the details pertaining to automotive trade more closely, the Canadian negotiating team is to be commended on reaching a modernized agreement which provides certainty and builds a strengthened platform for trade across the industry. We look forward to updates and working with government towards finalizing and implementing the USMCA.”

More than 136,000 jobs are directly tied to vehicle assembly in Canada, the CVMA says. All told, direct and indirect jobs associated with vehicle manufacturing in the country are estimated at more than 792,000.

Anything that risks employment– in Ontario cities such as Oakville, Oshawa and Windsor – understandably, makes people uneasy.

“The completion of the USMCA agreement may not be perfect, but what it does is bring is a level of surety,” Don Campbell, real estate investor, researcher and author told Homes Publishing. “Companies now know the new rules and can adjust their plans accordingly. They’ve been sitting and waiting to finalize plans, investment strategies, manufacturing plant building or renovations. They can now spend the next few months analyzing and planning for capital deployment for 2019.

“It also brings a sense of relief for those in the automotive cities in Ontario, and in fact could move some lost manufacturing back to Canada due to the “minimum auto wage” clause. That won’t be immediate but something to watch.”



  • A perennially strong performer in the GTA housing market
  • One of the priciest markets in the GTA, with median aggregate home price of $1.01 million for Q2 2018, according to the latest Royal LePage National House Price Composite
  • Increasingly diversified economy, not just dependent on the auto industry



  • One of more affordable markets in the GTA, especially for detached homes
  • Median aggregate home price of $533,888 for Q2 2018, according to Royal LePage
  • Hot bed for new home development at the moment
  • Though dipping slightly from 3.2-per-cent GDP growth in the last two years, Oshawa’s economy is forecast to advance a still healthy 2.6 per cent this year, the Conference Board says



  • One of the hottest housing markets (yet very affordable) in Ontario, in terms of price growth
  • Median aggregate home price of $241,081 for Q2 2018, according to Royal LePage
  • 4.5 per cent median aggregate home price growth from Q1 to Q2, 2018 – and 16 per cent year-over-year
  • Local economic growth may slow to two per cent for 2018,after exceeding three per cent every year between 2014 and 2017, according to the Conference Board


“The lack of a free trade agreement between Canada and the United States brought about a high degree of economic uncertainty in Canada in recent months,” James Laird, president of CanWise Financial and co-founder of Ratehub.ca, told Homes Publishing.

“With the USMCA providing a level of trade certainty, Canada’s economy is free to expand at its natural pace. The dominant variable under consideration by the Bank of Canada will now become inflation, and the Bank of Canada will likely use interest rate hikes to keep rising inflation numbers in check. It will be a shock if the Bank of Canada chooses not to increase interest rates on Oct. 24. Canadians should also expect a greater frequency of interest rate hikes in 2019, starting with a rate hike early in the new year.”

Wayne Karl is Senior Digital Editor at Homes Publishing. wayne.karl@homesmag.com 


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GTA housing market correction coming to an end, ReMax says



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Toronto fall cityscape Web

GTA housing market correction coming to an end, ReMax says

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GTA housing market correction coming to an end, ReMax says

Toronto fall cityscape Web

by Wayne Karl

Get ready for a busy GTA housing market this fall and into 2019, as the recent correction is coming to an end – especially for single-detached homes – according to a new report from ReMax Integra, Ontario-Atlantic Canada Region.

Following a strong summer market, demand for detached homes is on the upswing, as active listings fall and average prices begin to rebound, the realty firm says.

The supply of detached homes listed for sale has gradually declined, after peaking in May, according to the Toronto Real Estate Board. Average price in the nine TREB markets has been battling back from trough levels that were reached as early as July of 2017 in Durham Region to as recently as February of 2018 in the Central Core.


“We expect momentum to build moving into the traditional fall market, and the trend to continue throughout the remainder of the year,” says Christopher Alexander, executive vice-president and regional director, ReMax Integra, Ontario-Atlantic Canada Region. “The worst is now behind us. Pent-up demand will be a factor in the coming months, as homebuyers – many of whom delayed their purchasing plans – are entering the market.”

Despite some softening in sales activity, condo prices have continued to climb throughout 2018, with the year-to-date average price (January to August) now $548,103, seven per cent ahead of 2017 levels. During the same period, average price for a detached home in the GTA has come down 11 per cent to $1.01 million. The differential – $623,288 versus $464,729 – has many buyers thinking that if they stretch their budget, they can buy a detached home, Alexander says. Condo townhouse values were on par with year ago levels ($569,103 versus $571,463), while semi-detached homes were down just three per cent year-over-year.

First-time buyers of single-detached homes in the $600,000 to $900,000 range are leading the charge, ReMax says. Since June, this segment has reported a 22-per-cent increase in year-over-year sales. Inventory at this price point in the 416 area is low, potentially prompting buyers to expand their search into the 905, where supply and price options are more plentiful.

The luxury market is also beginning to firm up, with a 16-per-cent increase in sales of single-detached homes priced at more than $2 million in July and August, compared to the same period in 2017.


“It’s been a real roller coaster for single-detached properties in the GTA over the past 32-month period,” says Alexander. After reaching peak levels in early 2017, market-cooling tactics such as Ontario’s Fair Housing Plan in April, the federal government’s mortgage stress test expansion in October of 2017, and the Bank of Canada’s interest rate hike in January of 2018 created a great deal of uncertainty in the market.

Many financial experts, however, expect another interest rate hike, possibly as early as the next Bank of Canada announcement on Oct. 24, or the following one on Dec. 5.

“There’s no question that the threat of higher interest rates has propelled more buyers into the GTA housing market in recent months,” Alexander told Homes Magazine. “We suspect that small, incremental hikes will be absorbed, especially in the short-term, as buyers take advantage of detached housing values that are off peak levels.

“While the October 2016 stress test for high-ratio mortgages had little impact on the market, the same can’t be said for subsequent interventions,” says Alexander. “Conditions had changed. Inventory levels reached their lowest point in October 2016, which contributed to a notable uptick in sales and pricing between October and May 2017. The introduction of the Fair Housing Plan set the wheels of correction in motion.”

The run-up in detached housing values between January 2016 and peak levels in early 2017 was unprecedented. The highest appreciation was noted in the city’s west end, where the average price had climbed 60 per cent in the 14-month period, rising from $763,327 at the start of 2016 to $1.22 million in March of 2017.


Durham Region, Simcoe County and Dufferin County also experienced serious gains in just over a year, with prices climbing 55 per cent, 52 per cent and 59 per cent, respectively. The average price of a detached home in the central core, home to the most expensive properties in the GTA, rose 48 per cent, jumping from $1.68 million in January 2016 to $2.5 million in February 2017. Peel Region, the city’s east end, York and Halton Regions all reported increases ranging from 38 to 47 per cent over the one-year period.

“The pace was simply unsustainable,” says Alexander. “While government intervention appeared heavy-handed at the time, in retrospect, the measures put in place served to cool down a wildly overheated market.”

Since then, buyers have cautiously re-entered the market, with many taking advantage of lower, post-correction detached property values. By the end of August 2018, homes in the more-affordable West and East Districts were back on the rise and within striking range of those average prices reported during the same period in 2017. Detached housing values in the city centre – the target of investors throughout 2016 and early 2017 – have been climbing, albeit at a more moderate pace, particularly north of Hwy. 401.


In the 905 areas, recovery is moving at a slower pace, but as inventory levels decline, detached housing values are expected to appreciate. In particular, Brock (Durham Region) and Essa (Simcoe County). Burlington, Halton Hills, Brampton, Orangeville and Scugog are all showing promise in detached home price growth.

“After an extended period of housing market inertia, the floodgates are breaking open,” says Alexander. “Upward movement in detached housing values and the threat of additional interest rate hikes in the future are prompting homebuyers to get off the fence and into the market. Rising consumer confidence, job security and an economy firing on all cylinders should continue to support healthy home-buying activity in the GTA for the remainder of the year and into 2019.”

Wayne Karl is Senior Digital Editor at Homes Publishing Group. wayne.karl@homesmag.com


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Interest Rate Announcement

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The Bank of Canada makes its sixth scheduled interest rate announcement of the year today. If they raise the rate, the banks will follow suit. How long can the era of cheap money last?


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Higher Rates and New Rules Cooling the Condo Market

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Higher Rates and New Rules Cooling the Condo Market

Higher Rates and New Rules Cooling the Condo Market: But It’s Not Bad News

After remaining at a record low for close to a decade, the Bank of Canada has started to raise its benchmark interest rate. A strong economy and positive job growth are some of the reasons behind the hike. This increase means anyone with a variable rate mortgage is now paying more for the same loan. Money is getting more expensive to borrow.

More Cooling Effects

Added to this, new mortgage rules brought in at the beginning of 2018 are making it harder for borrowers to qualify for more. The lender is now required to stress test all mortgages, regardless of the down payment or the amount being borrowed. These new rules mean borrowers have to show they could pay their mortgage if rates were two percentage points higher than their contract rate, or the Bank of Canada posted fixed rate, whichever is more. Overall this is keeping homebuyers away and has had a cooling effect on the housing market, including condos. One report by the Mortgage Professional of Canada claims 18 per cent of home buyers can’t pass the stress test, even though they can afford the mortgage payments.

What Industry Critics Are Saying?

No surprise mortgage brokers, and the association that represents them, are concerned homebuyers will no longer be able to borrow enough for the home they want. The recent report by the Mortgage Professionals of Canada found that, “New government policies are causing consumers to have a more negative outlook for housing and real estate in Canada.” The Report on the Housing and Mortgage Market in Canada says most consumer still see real estate as a good investment but “overall strength of consumer sentiment has been weakened by increasing interest rates and the new rules making it harder for homebuyers to secure mortgage financing.”

One Solution

The report argues that the stress test, albeit important, is too strict (or maybe too stressful), for first time homebuyers in particular. Paul Taylor is the president and CEO of Mortgage Professionals Canada. He says, “We support a stress test, albeit at a reduced rate of 0.75 per cent, as it is a useful tool to test a borrower’s ability to make future payments. However, the cumulative impact of rising rates, a two percentage or greater stress test, provincial government rules in Ontario and British Columbia, and further lending restrictions are negatively supressing housing activity not just in Toronto and Vancouver, but throughout the country.”

Managing Expectations

The Bank of Canada is hinting rates are poised to go higher. Before the end of 2018 the Bank could raise rates again, making money even more expensive. They are warning debt seeking homebuyers to pull the reigns on the amount they agree to borrow, because it will cost more when rates rise. The stress test represents where rates could be by the end of the mortgage term. They are realistic and frankly, in my opinion, they are needed. Canadians are close to a record level of debt. Statistics Canada data shows in June 2018 Canadians owed $1.68 cent for every dollar of disposable income. That is actually down slightly from the beginning of the year, indicating the new mortgage rules are already working.

Canadians shopping for a home need to be realistic about what they can now afford. Looking in the rear view mirror is not helpful. Where prices were and what you could afford then is not the reality now. Crunch your numbers based on this new reality, higher rates and stricter rules, and see how much you can afford. Even then, you don’t have to borrow the whole amount the bank offers. By borrowing less, you will automatically save yourself thousands in interest payments. Mange your expectations of the house you are buying. Maybe a smaller home, or a condo in a different area is the solution. Keep your options open.

Rubina ahmed-haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.


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Interest Rate Announcement

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At 10 a.m. today the Bank of Canada will make its third interest rate announcement of the year. Do we get to keep having access to historically cheap money, or are interest rates going to start climbing up?



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Finance: Three Ways Your Personal Finance Situation Will Change in 2018

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Finance: Three Ways Your Personal Finance Situation Will Change in 2018

There’s a great deal of uncertainty about how our finances will change in 2018. New mortgage rules that kicked in January 1st are threatening to further cool the real estate market, economists are expecting a jump in interest rates this year and investors are weary about how much longer the 10-year bull market can last. Here’s what you should pay closer attention to in 2018.

Real Estate Prices

The new, stricter mortgage rules will affect not only the volume of sales, but also the purchase price. The Bank of Canada has already noted that 10 percent of Canadians will not qualify for the same amount as did before. The interest rate comparing site RateHub.ca suggests it could result in purchasing power being reduced by up to 21 per cent this year. This means there are fewer people bidding, with less money.

TD Bank says this could depress demand by up to 10 per cent and shave up to four per cent off the average price. That’s the national average, so in some areas those declines could be steeper.

One unintended consequence of the mortgage rules is many Canadians may find freehold homes less affordable and look to condo ownership as a solution. This could drive condo prices higher as demand rises, especially in places like Toronto.

Rents Creep Higher

One of the bleakest forecasts is these new mortgage rules will result in higher rents and job losses. This is coming from Will Dunning, the chief economist for Mortgage Professionals Canada. He predicts this year, landlords will hike rents and 50,000 jobs will be lost. That’s because, according to him, things like housing starts will fall, as fewer people are likely to buy. This can impact many areas of the economy, including construction, retail and banking. For condo renters, already saddled with high rent costs, this could be another financial blow.

Interest Rates

Economists are expecting the Bank of Canada to raise rates again in 2018. The Bank of Canada says higher rates, are “likely overtime.” TD Economics notes that forecasts continue to point to a hike sooner rather than later. Their long-term forecast is rates will rise another full percentage point by the end of this year. Anyone with a floating rate loan or a variable mortgage should expect money to get more expensive. Our economy seems ready for it too. Canada’s economic growth has been better than expected, and national unemployment is at near-record lows. Add to that, consumer and business confidence is up.


Global stock markets hit record highs in 2017 as investors showed confidence with better than expected data and business friendly tax cuts being promised south of the border. The S&P500 was up more than 20 per cent this year. 2018 could be much different, Wall Street heavyweight Morgan Stanley is forecasting volatility in 2018, after a stable and positive 2017. Add to that, Sam Stovall, chief equity strategist at CFRA, says, “One could say that in 2018 investors should expect more for less — more volatility for less return.” CFRA is one of the world’s largest independent investment research firms.

In 2018 we have to adjust our expectations about our money and our personal finance, because things are about to change in a big way.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney


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