With all the economics teams at the major banks having weighed in on slowing home sales over the past week, a number of factors – notably the introduction of the Harmonized Sales Tax in B.C. and Ontario – have been cited for plunging home sales in July. Few, however, have emphasized how important ultra-low mortgage rates have been in sustaining Canadian markets in the first half of 2010 – and how they could benefit homebuyers shopping for their first home loan going forward.
BMO’s Douglas Porter perhaps best summed up the dearth of summer sales by noting that, “It looks like anyone who wanted to buy a house this year in Canada got their
shopping done early. But it is RBC’s senior economist, Robert Hogue, who gave the best succinct summary of the factors that shaped Canadian real estate markets over the past year – and are likely to continuing shaping markets through the rest of the year. And, perhaps chief amongst these factors has been what Mr. Hogue describes as generationally low” mortgage rates.
Painting the scenario of what factors led to the significant drop in home sales in July, Mr. Hogue (who was first out of the gate last week with his analysis and forecast) explains that, “Much of this drop and further expected near-term weakness [is]to a large extent the return to more sustainable levels following the surge last year fuelled by the release of pent-up demand.” He also notes that, “(t)he late stages of that surge were also fuelled by new buyers jumping into the market to lock in generationally low mortgage rates ahead of an expected increase, as well as to act before the implementation of new, tighter mortgage rules in April and the HST in Ontario and British Columbia (and the 2 percentage point increase of the HST in Nova Scotia) in July.”
Mr. Hogue asserts that the confluence of these factors impelled homebuyers to jump into the market, and “effectively brought forward resale activity that would have materialized at a later point.” He forecasts that, “(g)oing forward, overall home resales in Canada are expected to continue to weaken in the coming months before stabilizing in the latter part of 2010.” His projection is that resale numbers are going “to trend only slightly upward” in 2011.
With an emerging buyers’ market and a seeming consensus amongst economists that interest rates hikes will be put on hold after September 8th – when the Bank of Canada may hike its overnight lending rate by perhaps 0.25% – contrarion first time homebuyers who postponed buying in the first half of the year may find themselves in a better position than those who bought early.
