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Is Canada’s housing market overvalued or in a bubble? Despite climbing at an annual rate of 4.4%, many have been predicting a correction—but as Canadalend.com observes, it hasn’t materialized.

FitchRatings stated recently that it believes the Canadian real estate market is 20% overvalued, while rating agency Morningstar predicted that a 30% correction could happen over the next few years. Despite widespread fears that the Canadian housing market is overheated and ripe for a correction, the fact of the matter is that the broader Canadian real estate market is fairly well-balanced. And the huge month-over-month increases are being skewed in large part by three markets: Toronto, Calgary, and Vancouver. It would be more than just a little unfair to view the country’s real estate market from that limited viewpoint.

Nationally, Canadian real estate prices rose 6.9% year-over-year in June to $413,215. Of the $21.2 billion in activity for the month, roughly half can be attributed to Toronto, Calgary, and Vancouver. If you take Toronto and Vancouver out of the mix, the national average home price falls $77,000 to $336,000.

For example, the average selling price for a Toronto residence in June was up 7.1% year-over-year at $568,953. In Calgary, the average selling price jumped 5.5% to almost $467,000, while in Vancouver, the average selling price climbed 4.4% to $796,714. Finally, in Hamilton, the average price of a home increased 4.09% to $409,000.

But it’s a different story elsewhere. Regina home prices averaged $307,800 in June, a 0.4% decline year-over-year. Prices have also cooled in Halifax, where they average $275,000, and Quebec City, which averages $268,000. In Montreal, the average sales price inched up 0.9% to $332,462, while the average sales price in the nation’s capital, Ottawa, was up a modest 1.7% at $365,366.

Major price movements in Toronto, Vancouver, and Calgary are attracting all of the headlines, but the fact of the matter is that housing continues to be affordable in almost every region.

First-time home buyers looking to take advantage of low interest rates or interested in seeing just what kind of mortgage they qualify for should contact an independent, licensed agent at Canadalend.com.

Not only will a Canadalend.com agent help you find out what you can afford, but they will also get you the best mortgage possible.

The mortgage experts at Canadalend.com will help you get pre-approved for a mortgage in 24 hours or less. The pre-approval rate lasts for 120 days and protects you if interest rates rise while you’re looking for your dream home. To help you get the mortgage best suited to meet your lifestyle and financial needs, a Canadalend.com agent will draw from hundreds of banks and lenders.

Interested in seeing what kind of mortgage you qualify for?  Contact Canadalend.com or apply online and a mortgage specialist will set up an appointment with an independent, licensed Canadalend.com agent at your earliest convenience.

Source:

Marr, G., “Ratings agency Fitch calls for more government action in ‘overvalued’ Canadian housing market,” Financial Post, July 14, 2014; http://business.financialpost.com/2014/07/14/canada-housing-maket-fitch/.

McMahon, T., “Why Canada isn’t immune to a U.S.-style housing crash,” Macleans, July 10, 2014; www.macleans.ca/economy/realestateeconomy/why-canada-isnt-immune-to-a-u-s-style-housing-crash/.

“Canadian home sales edge higher in June,” The Canadian Real Estate Association web site, July 15, 2014;http://crea.ca/canadian-home-sales-edge-higher-june .

Canadian housing prices have been on a tear. In June, the average price of a home in Canada increased by more than seven percent year-over-year to $416,584. The coast-to-coast increase was buoyed, in part, by pent-up demand from the winter, improving economic conditions, and tight supply.

According to one report, Canada’s housing market is expected to stay robust for the remainder of the year, with home prices expected to rise an average of five to six percent on low interest rates and increased demand.

Canadalend.com observes that two recently released leading economic indicators suggest that the Canadian real estate market might actually be getting more affordable for some, particularly in regards to Canada’s rising inflation rate and the surge in building permits.

In May, Canada’s consumer price index, which measures inflation, climbed 2.3%, the first time in more than two years that the figure has been above two percent. The stronger-than-expected results lifted the Canadian dollar and increased speculation about a hike in interest rates.

To help fight a weak economy, the Bank of Canada has kept its overnight lending rate, which impacts loans and mortgages, at one percent since late 2010. The Bank of Canada has hinted that it will not raise the lending rate until the economy can sustain itself; many take this to mean an inflation rate of two percent.

Canadalend.com explains that while most economists believe a rate hike will not happen until mid-2015, a few more strong inflation reports like the one released in May might change all of that. Many believe the low-interest-rate environment is helping fuel record-high housing prices. An unexpected rate hike could cool down housing prices, as well as make qualifying for a mortgage more difficult.

May was also a strong month for Canadian building permits. Canadian municipalities issued building permits worth $6.9 billion in May. That represents a 13.8% month-over-month increase and the fastest pace in 10 months; economists had predicted an increase of just two percent.

Building permits for residential dwellings were up 9.5% in May to $4.1 billion—the third consecutive monthly increase. In addition, the value non-residential permits soared 20.8% to $2.8 billion, the biggest monthly gain since July 2013. A lack of supply has been partially blamed for the rising cost of a home in Canada.

For first-time home buyers, the improved outlook for the economy, jobs, and incomes, coupled with increased supply and a gradual increase in fixed and variable mortgage interest rates, should benefit real estate markets. At least those housing markets where sales are currently softer but prices remain more affordable.

Unfortunately, housing prices in less affordable markets like Toronto, Vancouver, and Calgary will be more sensitive to rising interest rates for first-time home buyers. That comes as a result of higher mortgage payments or qualifying for a mortgage based on the posted five-year mortgage interest rate.

Canadalend.com suggests that an increase in the supply of houses could make real estate more affordable for some first-time home buyers. And while mortgage rates are expected to remain near historic lows for the time being, that could change if the rate of inflation continues to climb.

Potential home buyers interested in stepping onto the property ladder or those considering a second or third mortgage should contact a licensed agent at Canadalend.com. For starters, they’ll help you get pre-approved for a mortgage in 24 hours or less. The pre-approval lasts for 120 days and is locked in from the day the process starts.

Because Canadalend.com agents are independent, they work for you and not the big banks. In an effort to get you the best fixed or variable mortgage, your Canadalend.com agent will draw from hundreds of banks and lenders.

If you’re curious to see what kind of mortgage you qualify for, contact Canadalend.com or apply online and a mortgage specialist will help set up an appointment with an independent, licensed Canadalend.com agent at your earliest convenience.

Source:

“Quarterly Regional Housing Report,” TD Bank web site, July 3, 2014; www.td.com/document/PDF/economics/special/QuarterlyRegionalHousing_July2014.pdf.

Evans, P., “Canada’s inflation rate jumps to 2.3% in May,” CBC web site, June 20, 2014; www.cbc.ca/news/business/canada-s-inflation-rate-jumps-to-2-3-in-may-1.2682011.

“Building permits, May 2014,” Statistics Canada web site, July 7, 2014; www.statcan.gc.ca/daily-quotidien/140707/dq140707a-eng.htm?HPA .

When it comes to getting a mortgage, the first factor most Canadians consider is the mortgage rate. This isn’t a total surprise, according to the experts at Canadalend.com ; after all, the higher the mortgage rate, the more money you put in the bank’s pocket and the less you get to keep.

For example, if you qualified for a $220,000 mortgage with a 4.5% interest rate paid out over 25 years, your monthly payment would be $1,217.65 and your total payment would be $365,292. Over the life of the mortgage, you would be giving the bank $145,292 in interest.

If you got the same mortgage at 3.5%, your monthly payment would be $1,098.39 and the total payment would $329,519; that simple one percent decrease means saving $35,773 in interest payments!

But aside from interest rates, another important factor to consider is the amortization period. Most people want to pay off their mortgage as quickly as possible; however, a shorter amortization period isn’t always the best option.

According to one recent survey, more than a third of first-time Canadian home buyers say they would rather take out a mortgage with a longer amortization period on their mortgage if they could.

Canadalend.com explains that home buyers might like longer amortization periods, but they are not without controversy. Back in 2006, Canadians could get a mortgage (covered by government back mortgage insurance) with a 40-year amortization period, but then the U.S. housing market collapsed in 2008.

In an effort to avoid the same fate in Canada and address high household debt, former Finance Minister Jim Flaherty introduced a number of tighter lending rules for those with down payments of less than 20%. Most notably, the government reduced the maximum amortization period for a government-insured mortgage to 25 years.

The longer the amortization period, the more interest homeowners pay—or, from the bank’s perspective, the more interest they can look forward to receiving. Some Canadian homeowners like a longer amortization period because their monthly payments are smaller. On the other hand, a short amortization period means higher monthly payments; it also means homeowners build up home equity more quickly.

Using the same example above, if you qualified for a $220,000 mortgage with a 4.5% interest rate with an amortization period of 20 years, your monthly payments would be $1,386.89 with $112,852 going to interest. Paying just $169.25 more a month translates into owning your home five years earlier and saving $32,440 in interest payments.

So, is it better to build up equity in your home and pay off that mortgage as quickly as possible? Not always, says the lending experts at Canadalend.com. Longer amortization periods might spread out your payments and cost more in interest, but sometimes, longer is still better:

1) A longer amortization period might suit your lifestyle better if you have other high-interest debt. Lower monthly payments can free up extra money that can be used for household expenses or to pay down other debt obligations.

2) Longer amortization periods can be a good option if you have higher yielding investments. If you have a 3.5% mortgage but can earn 4.5% or more after-tax on other investments, it might be better to lengthen the amortization period and put the extra cash flow in those investments.

3) A longer amortization period is a good idea if you expect inflation to rise over the long term. The idea here is that money you have today is worth more than the same amount in the future. Or, put another way, the higher the rate of inflation, the less your money is worth in the future. For those who think inflation will kick in, you may want to borrow money for a longer period of time; the smaller the difference between your mortgage rate and rate of inflation, the more sense it makes to extend your amortization period.

There is no one-size-fits-all approach to getting a mortgage. In fact, there are a large number of factors that must be taken into consideration, including the interest rate, the amortization period, and whether it’s a variable or fixed mortgage, to name just a few.

If you’re interested in stepping onto the property ladder but don’t know what kind of mortgage is best for you, contact the independent, licensed agents at Canadalend.com. They’ll search hundreds of banks and lending institutions to help you find the mortgage that will get you into your dream home, and in most cases, will get you pre-approved in 24 hours or less.

Source:

Perkins, T., “Survey finds third of first-time home buyers prefer long amortizations,” The Globe and Mail, June 2, 2014; www.theglobeandmail.com/report-on-business/economy/housing/survey-finds-third-of-first-time-home-buyers-prefer-long-amortizations/article18934676/.

As observed by Canadalend.com , many believe Canada’s robust housing market is being fuelled by short supply, strong demand, and low interest rates. In truth, with Canadian economic data being mostly solid, potential home buyers have been afraid the near-record low interest rates will start to climb higher.

In an effort to avoid a recession, like that faced in the U.S., the Bank of Canada lowered its overnight lending rate, which impacts short-term borrowing, to near-record lows. In fact, the Bank of Canada has kept the overnight rate at one percent since September 2010 and signalled it wouldn’t raise it until the Canadian economy showed more signs of sustained growth.

Some took that to mean that interest rates would rise later this year or in early 2015. However, there is some indication that Canadians may be able to take advantage of low borrowing costs for years to come.

The Bank of Canada said recently that the Canadian economy still has room to grow, and even when it does—likely in early 2016—interest rates are not expected to climb. Some economists think the bank’s overnight lending rate will settle in the 2.25% to 2.5% range; that’s more than a full point below pre-recession levels.

According to Canadalend.com, this is encouraging news for potential homeowners, as the Canadian spring housing market continues to heat up. For starters, there isn’t an urgency to jump onto the property ladder simply to take advantage of low interest rates.

At the same time, a number of lenders are hoping to attract first-time house hunters with low, low mortgage rates, some even below two percent. But, as Canadalend.com points out, things are not always what they seem. And when it comes to ultra-low mortgage rates , there are always conditions that are not apparent up-front.

That even goes for Canada’s big banks; just because they approve you for a mortgage doesn’t mean it’s the one best suited to your financial or lifestyle needs.

Canadalend.com explains that while interest rates are important, there are other factors to take into consideration when it comes to getting a mortgage, such as a variable or fixed mortgage, or even the duration of the amortization period. The standard amortization in Canada is 25 years, but some lenders will offer you 30 years if you have at least 20% home equity.

What’s the difference? If you get approved for a $200,000 mortgage at a three percent interest rate, after 10 years you’ll still owe roughly $137,000 if you go with a 25-year amortization. Choose a 35-year amortization period and you’ll owe roughly $162,000.

A longer amortization period means less money in your pocket and more money in the banks. It also means you have a bigger balance when it comes time to renew your mortgage.

Finding your dream home should be fun, but unfortunately, navigating the world of mortgages can be daunting. However, it doesn’t need to be. The independent, licensed agents at Canadalend.com can make getting a mortgage stress free. We will not only help you get qualified, but will also search out hundreds of banks and lenders to make sure you get the best mortgage possible.

Source:

“Bank of Canada’s Steven Poloz says Canada’s Interest Rates to Remain Low for Years to Come,” Financial Post, April 24, 2014; http://business.financialpost.com/2014/04/24/bank-of-canadas-stephen-poloz-says-interest-rates-to-remain-low-for-years-to-come/.