House Sales Survive Higher Mortgage Rates
11/03/2006
In Canada, the major banks have increased their mortgage
rates across the board; however, this move is expected to
put a major dent in home sales.
The Royal Bank of Canada was one of the first financial institutions
to lift the rates, with their five year closed mortgage rising
20 basis points to 6.8 percent. Their four year rate also
went up 20 basis points to 6.7 percent, the three year 15
basis points to 6.65 percent, the two year 10 basis points
to 6.55 percent, and finally the one year five basis points
to 6.5 percent.
Another major financial institution, TD Canada Trust, matched
Royal Bank's rates, and most of the others have followed.
Assistant Vice-President of real-estate-secured lending with
TD Canada, Dave Fallon, said, the banks were matching the
latest increase in bond yields.
Rising long-term rates have been forcing consumers back into
variable-rate products that float with prime, which is now
6 percent. "In the last couple of months we have noticed the
shift, "Fallon said about consumers going into variable-rate
mortgages.
Economists are expecting the Bank of Canada's next interest
rate move to go downwards. Prime moves in lock-step with the
Bank of Canada's overnight rate. Dave Fallon said, I do not
expect long-term rates 'to go much higher,' but I don't have
a 'crystal ball' when it comes to the future."
The five-year posted rate has hovered in the 5 percent to
6 percent range for several years, rarely venturing past 7
percent. Those consistent rates are seen as one of the key
factors behind the strength of the housing market.
The Canadian Real Estate Association said this month the
country is still on pace to set a record for sales in 2006.
Chief economist with the Ottawa-based association, Gregory
Klump, said, "Money is still very cheap, so this 'latest increase'
shouldn't impair sales."
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