As expected, the Bank of Canada increased its overnight rate on Wednesday to 1.75%. Canadian banks are responding by announcing increases to their Prime Lending Rate. The Bank Prime is now at 3.95%. For those in a Variable or Adjustable Rate Mortgage, your lender will be notifying you of when their increase will take effect. With rising interest rates we remind you that an important part of Team RRP’s service is our annual review. The review process includes contrasting your payments against today’s interest rates. If your mortgage rate is below market we recommend you increase the amount of your regular payments to reduce any surprises or payment shock at renewal. If you haven’t had an annual review and would like to schedule one, please contact our office at 604 879-2772 to arrange a review with a broker advisor.
On the economic front, stock market volatility remains. We witnessed another massive sell off this week as investors remain nervous about rising interest rates and debt levels. South of the border the Q3 GDP growth narrowly exceeded expectations at 3.5% which was 0.2% above the forecast. On the flip side the US inflation for Q3 was 1.6% much less than the forecast of 2.2%. While the media is upbeat about Q3 US numbers we remain cautious and share market concerns that recent US growth has been fuelled by tax cuts and debt. Their deficit is growing well above historical norms despite an economy firing on all cylinders. We expect that their growth will slow in subsequent quarters and believe we’ve seen the US economy peak this year. We also believe the US Fed will continue to increase interest rates next year with Canada to follow at a slower and more measured pace. Canadian consumer debt levels are higher than the US making the Bank of Canada rate increases more effective at slowing economic growth and inflation.
On the housing front, CHMC released its eagerly awaited 2018 Consumer Survey. Here are highlights from their press release:
While decreasing steadily for four consecutive surveys, more than one-third (37%) of home buyers continue to feel concern or uncertainty when buying a home. Concerns related to affordability top the list with more than 50% of concerned buyers worrying about paying too much for their home while nearly one-third worry about rising interest rates and mortgage qualification.
Eighty-five per cent of first-time buyers spent the most they could afford on their home purchase. However, a majority (76%) are confident that they will be able to meet their future mortgage payment obligations.
Sixty per cent of first-time buyers and 69% of repeat buyers indicated that, if they were to run into some financial trouble, they would have sufficient assets (investments, other property, etc.) to supplement their needs.
About 50% of home buyers agreed that they would feel comfortable using more technology to arrange their next mortgage transaction. With that said, the majority still agree that it is important to meet face-to-face with their mortgage professional when negotiating and finalizing their mortgage.
Just over half (52%) of homebuyers were aware of the latest mortgage qualification rules. About one in five first-time buyers indicated that the rules impacted their purchase decision with most opting to decrease non-essential expenses, purchase a less expensive home or use savings to increase their down payment.
Consumers continue to show confidence in their home buying and mortgage decisions with 80% of home buyers believing that homeownership remains a good long-term financial investment and 66% believing the value of their home will increase in the next 12 months.
While homebuyers are generally satisfied with the advice they receive from their mortgage professional, they would like more information on interest rates, types of mortgages available to them, current and long term mortgage strategies, mortgage or house purchase fees as well as tools to manage their mortgage.
More than one in five (22%) first-time buyers were newcomers to Canada and almost 50% of first-time buyers were millennials (ages of 25 and 34) down from 60% in 2017.
Additional survey findings are available on our 2018 Mortgage Consumer Survey page. Should CMHC’s survey trigger any questions, we’d love to hear from you! Thanks again for your amazing support and recommendations!
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