The U.S. Federal Reserve borrowed a play from Bank of Canada governor Mark Carney on Wednesday when they promised to keep interest rates low until at least the end of 2014. This is a good indication that Canadian rates will stay low as well, thus continuing the support of the real estate market here.
In Canada last year, the number of sales increased 2.2% over 2010 and the price of an
average Canadian house increased 7.1%! In the GTA, the average house increased 10.8%. Low interest rates will only cause this upward pressure to continue, just as our Bank of Canada has been warning that some real estate markets are overvalued.
This concern that low interest rates are increasing house prices beyond their reasonable value, will force Jim Flaherty, the Canadian finance minister, to make it harder for Canadians to qualify for a mortgage. He may have to reduce the CMHC insured amortization to 25 years or tweak the mortgage qualification in other ways to reduce the amount of new homebuyers.
I have seen clients choose to look for homes outside of Toronto, or even outside of the GTA, even though they work in Toronto because they consider the prices that homes are selling for inflated. However, even on the fringes of the GTA house prices have ballooned to the same as they are here in Toronto. A big drawback is the increased commute and plus out there you don’t get all the amenities like public transportation and availability of shopping like you would in Toronto. Is there a winner in this situation?
The U.S. Fed also said they are considering printing more U.S. dollars, so expect the Canadian Dollar to raise above parity once again. This will once again allow Canadians to take some of the equity out of their homes and purchase retirement homes in the sun. Places like Arizona, Texas and the Mayan Riviera are sure to benefit.
