29 October 2018
The poll gathered answers from 4,000 recent mortgage borrowers, who had qualified for mortgages in the past year.
“When comparing to other factors (e.g. region, proximity to work and general condition of the property, almost twice as many first-time buyers named cost and affordability as the main factor affecting their purchase decision”, – CMHC said. Potential buyers who worry about the affordability issue may expect prices to keep growing in the nearest future. Last quarter, the average home prices went up by 2.2% and reached $625,499. According to Royal LePage, this tendency will continue next year.
Interest rates are growing
When interest rates rise, it always leads to higher mortgage rates. That’s why industry specialists are watching the central bank’s increases closely and the way they can influence the national real estate market.
Growing rates may scare potential buyers, putting downward pressure on the market activity. CIBC economist Avery Shenfeld says the BoC may start raising rates faster in 2019.
“The overall tone of the Bank was less dovish than expected, as we’ve heard about ‘gradual’ increases coming (it could mean another hike in December). In addition to it, the Bank pointed that rates are heading to the “neutral” level, determined as almost 3%”, – Shenfeld noted.
Market overvaluation
In case of many markets, the overvaluation issue has become weaker during the previous year, as the market activity is adjusting to the new rules and higher rates. Nevertheless, a new release from the CMHC shows that certain markets remain quite vulnerable.
CMHC pointed to Vancouver, Victoria, Toronto and Hamilton as cities with a “high level of vulnerability,” also noting that Montreal has especially worrying conditions.
“Montreal’s resale market is becoming overheated, putting a strong upward pressure on prices because of imbalance between supply and demand,” – CMHC says.
“The active listings-to-sales ratio kept dropping, meaning that Montreal resale market has been tightening and its conditions are more convenient for sellers”, – notes Marie-Claude Guilotte, an economist for CMHC.