It seems that ever since the latest round of mortgage rules went into effect last year, you can always count on Will Dunning of CAAMP to come out with shocking and stunning predictions. (Remember when he said in March that 190,000 jobs will be lost due to the mortgage rules?) Now he’s come out and said that an interest rate hike – any interest rate hike by the Bank of Canada would cause catastrophe throughout the GTA.
The threat of the interest rate set by the BoC rising has been there for at least a year now, after they were put down to historical lows throughout the recession. Since the Canadian and global economy has seen slight improvements, and as households continue to pile on more debt, the Bank and the government of Canada have continually warned that at some point, those rates have to go up. It’s largely believed that when that happens it will only be by a point at first, and then perhaps another within the following six months to a year. But Dunning says that it’s too much, and that we’re not ready for it.
Dunning recently came out with a report in which he stated that, should the BoC raise rates, it will result in a decline of home sales across the GTA by 15.3 per cent by the year 2015. He also says that prices will fall by six per cent, as people won’t be able to afford their mortgages and interest payments.
But is he right?
We don’t think so, and neither does a realtor in Toronto. Rob Mills from Royal LePage says that an impact will surely be felt when interest rates eventually rise, but that it won’t be “as bad as the media makes out.”
He also says that that same negative media attention has actually had the reverse effect, especially on first-time buyers. These buyers, says Mills, were renting on the sidelines waiting for things to cool down. Now that they have, he’s seen a huge influx of first–time buyers.
“The demand is still quite strong on the ground,” he says. “I am aware of a number of first-time buyers whose leases are up in the coming months and have saved a larger down payment in the last year and now are ready to enter the market.”
Dunning also said in his report that sales for last month and this will be strong as “buyers are rushing into the housing market to take advantage of pre-approved mortgage rates,” and that spring sales were strong only because the media put on such a push to advertise the low mortgage rates. But we take issue with both of those statements.
Firstly, pre-approvals will be around as long as there are homes to be sold. And if it’s these pieces of paper that are getting buyers into the market, they will continue to do so even after interest rates rise. And as for the media touting low interest rates? Those rates have been at rock-bottom lows for almost three years now – and they were put down to their lowest in 2008, which was five years ago.
Does Dunning really think that the Canadian people have been that slow to catch onto the fact that interest rates are low?