Real estate sales up 21% and 52% due to end of low fixed rates.

home-prices-upAugust real estate resale numbers are in….  and what a jump!  Up 21% in the Greater Toronto Area and an incredible 52% in Vancouver.   And here’s another interesting stat.  The average home price in Toronto is $505,000.  That’s a 5.5% increase from the previous month.

REAL ESTATE SALES DRIVEN BY HIGHER RATES..

But here are my thoughts on what caused the increased sales.  I think it has more to do with the steady mortgage rate increases that we’ve seen since May.  You see, most Lenders and Banks will offer rate holds of 120 days.   So that means you could have got a 5 year fixed rate mortgage preapproval in May for under 3.00%….  Those record low Fixed rates definitely forced many homebuyers to buy for fear they could miss out on the low rates.

Compare that with today’s current 5 yr fixed rate of 3.59% (and probably going up again as I type, since the Govt of Cda 5 yr bond yields have hit 2.17%..the highest level since the summer of 2011) and you have around an 0.80% rate difference.   That kind of increase scares people and forces many of us to panic.    But it’s also gonna make it more expensive for new borrowers to finance that home.

The unfortunate part about those stats is that the Federal Govt will probably use that info as yet another excuse to tighten mortgage rules further… Something we definitely don’t need right now.   The current interest rates will have taken care of the market… it just needs a few months to filter through to the sales.

Let me give you a dose of reality…  It has become so much tougher to qualify for a mortgage today… We have seen over 20 mortgage rule changes in the past 4 years.   Each and every change has made it more difficult to qualify and also forced many of us into a 5 year fixed rate mortgage product.  I have witnessed this first hand and let me tell you, it’s tougher for ALL of us to borrow mortgage money today.

PRODUCT OF CHOICE TODAY

If you’ve followed my articles over the years, you’ll know that I don’t particularly care for 5 yr fixed.  It’s the BANK’s favorite money maker, but it’s proven to be the worst product to be in… most of the time.   The clear winner has been short term money or Variable rates.    Even when we saw the record low 5 yr fixed rates of 2.79%, Variable rate was 2.60%….and it’s still at 2.60%.    My general recommendation for anyone renewing, refinancing or needing a new mortgage today is to consider Variable or another type of short term product…   

5 year fixed rate buys you insurance… it buys you the certainty of knowing what your rate will be for 5 years… But a look back at historical rates shows us short term money is almost always cheaper… you just need to able to live with some uncertainty.

And let me be more clear.. I’m NOT saying Variable rate and short terms are for everyone… We all have different needs, plans, goals and risk tolerance levels…   Before choosing a mortgage product, speak with an unbiased mortgage advisor.  Speak with a Mortgage Broker.

WHERE’S THE MARKET HEADED?

I’m not sure anyone can answer that.  The ‘Experts’ have been calling for a real estate collapse for about 9 years now…. still hasn’t happened… but it’s probably safe to say that the days of big price jumps is over…  and that’s okay.  We don’t need ,or want big price increases.   A more modest and calmer market is good for all.   That’s probably what’s going to finally happen… I don’t have a crystal ball but with housing affordability now higher (still acceptable if we judge by historical stats) it only makes sense to assume that we will see a more relaxed market.

Your best interest is my only interest.

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

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