Vancouver Island as a whole continues to be 'the place to live'.
The statistics below are provided by VIREB (Vancouver Island Real Estate Board).
The Bank of Canada held its benchmark overnight lending rate steady at three per cent at it’s setting on July 15th. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, remains at 3.25 per cent.
The Bank’s decision to hold interest rates steady aims to boost its inflation fighting credentials. Financial markets widely expected the Bank rate to be put on hold despite the lackluster outlook for Canadian economic growth.
“The Bank is keeping interest rates steady even as sharp increases in energy prices boost inflation, since slowing factory sales to the U.S. are undercutting Canadian economic growth, “ said CREA Chief Economist Gregory Klump. “Interest rates will be on hold over the summer, giving the Bank time to judge the effect of previous interest rate cuts.” To stabilize credit markets in the aftermath of the U.S. sub-prime mortgage market meltdown, the Bank cut the overnight lending rate by 1.5 percentage points from December 2007 to April 2008.
The Bank recognized that while Canadian economic growth in the first quarter was weaker than expected, Canada’s domestic economy “continues to expand at a solid pace.” The Bank expects overall Canadian economic growth to continue being squeezed by weak factory shipments to the U.S. due to protracted weakness in the U.S. economy.
Revising its forecast for economic growth downward, the Bank indicated it expects GDP to grow by one per cent in 2008, then 2.3 per cent in 2009, and 3.3 per cent in 2010. Compared to its April 2008 Monetary Policy Report, this represented a cut in the Bank of Canada forecast for economic growth by 0.4 per cent in 2008, and 0.1 percent in 2009.
The Bank also acknowledged that inflation is running higher than its earlier forecast. “Total CPI inflation over the next year is expected to be much higher than projected at the time of the April Report…total CPI inflation is projected to rise temporarily above 4 per cent, peaking in the first quarter of 2009.” It expects its core rate of inflation, which excludes food and energy, will “remain well contained…averaging close to 1.5 per cent through the third quarter of this year and then rising to 2 per cent in the second half of 2009.” The Bank conducts its interest rate policy with a goal of targeting the core rate of inflation at two per cent, within a band of plus or minus one per cent.
When the Bank left interest rates unchanged on July 15th, the advertised conventional five-year conventional mortgage rate stood at 7.15 per cent. This is less than one-tenth of a percentage point below where it stood a year ago. Competition among mortgage lenders remains stiff, but discounts off advertised mortgage interest rates have shrunk because the U.S. subprime mortgage meltdown and resulting global credit crunch have raised banks’ cost of funds.
“National sales activity will be down from last year’s record, ” said Klump. “Rising home prices and changes to mortgage default insurance that take effect later this year will continue undermining affordability at the margin.” (CREA 15/07/2008)
As published in the REAL ESTATE section of the Globe and Mail August 17/07
By LORI MCLEOD REAL ESTATE REPORTER
Canada's strong economy and dearth of high-risk mortgage lending should help the real estate sector withstand the volatility
that's been buffeting the equity markets.
Investors worried about the fallout from defaults on high-risk mortgages in the United States have sent stock markets, including the Toronto Stock Exchange, on a bumpy ride. But barring the unlikely event of the market correction snowballing into a full-blown macroeconomic crisis, the Canadian real estate market should be relatively unscathed by the turbulence, said Benjamin Tal, senior economist at CIBC World Markets.
"I think that the fundamentals of the economy are relatively strong and this crisis is really about fear rather than reality. Also, traditionally we have seen a situation where the housing market does relatively much better than the stock market in periods of correction because it's like comfort food," Mr. Tal said.
In the U.S., loans given to high-risk borrowers at low interest rates, known as subprime mortgages, created "artificial demand" that sent house prices soaring, Mr. Tal said. This was exacerbated by speculators buying investment properties and trying to flip them at a profit. When interest rates went up, defaults soared, spilling over to hurt both lenders and investors who buy and sell mortgage-related debt.
Canada has not experienced the same woes because "we did not push the envelope in terms of exotic mortgages," Mr. Tal said.
A rise in house prices here has been sparked by real demand rather than speculation and compensates for the stagnancy of the market between 1992 and 1997, he added.
The Canadian unemployment rate is at its lowest point in more than 30 years, and that's boosted personal income levels and fuelled demand for residential real estate. Last month, the price of a resale home in Canada hit $332,442, a 13.1-per-cent increase from the previous July, according to statistics released this week by the Canadian Real Estate Association. Sales are expected to reach 514,450 units for the year, the highest level on record and a 6.5-per-cent increase from last year.
The housing market is expected to grow at a more moderate pace next year. However, this will be the result of decreasing affordability rather than the impact of U.S. subprime woes, said Craig Alexander, deputy chief economist at Toronto-Dominion Bank.
"There's no direct tie between the U.S. housing market and the Canadian market. The risk I'm more concerned about is if the volatility continues, there's a greater chance financial institutions in the U.S. could decide to cut back on the amount of credit they're willing to lend to consumers. That would impact Canadian trade, pull down Canadian economic growth, and could eventually trickle down to weaken our housing market."
In terms of borrowing costs, the U.S. mortgage crisis could actually have a silver lining for Canadian home buyers, Mr. Alexander said.
That's because the resultant credit market woes have made the Bank of Canada less likely to raise its overnight interest rate when it meets next month, he said. The overnight rate is used by banks to set the prime lending rate for their best customers, and that in turn is what variable mortgage rates are priced on.
Fixed-rate mortgage rates could also edge down if nervous investors continue to move their money from stocks into lower-risk investments such as government bonds. That's because fixed-rate mortgages move in tandem with bond yields, and bond yields drop when increased demand sends their prices higher