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Monthly Mortgage Update: January 2013

Bank of Canada Governor Mark Carney Heading to the U.K.

After months of media speculation, it finally became official – Mark Carney announced he is leaving his post as the Governor of the Bank of Canada in June 2013 to lead the Bank of England. This is a well-deserved promotion for Carney. Carney’s ability to lead Canada through the financial crisis of 2008 relatively unscathed has undoubtedly impressed the world’s second most important financial hub.

Carney has a lot to be proud of – Canada’s banks are among the world’s most stable, the housing market avoided a U.S.-style crash, and the economy is in relatively good shape. With that being said, there still remains much to be accomplished. Mounting household debt due to a prolonged period of low interest rates continues to concern Carney, as the debt-to-income ratio hit a new record of 164.6 per cent in the third quarter of 2012.

In early December, Carney announced for the 27th consecutive month in a row he was leaving the overnight lending rate at 1.00 per cent. Will Carney finally pull the trigger on rise rates before his departure in June? If household debt continues to balloon and inflation starts to become a problem he might finally raise rates. With 5-year fixed mortgage rates at an all-time low, there’s never been a better time to lock-in if you’re concerned about rising rates.

CREA Downgrades Housing Market Forecast for 2013

The housing market continues its slowdown since June 2012, when Finance Minister Jim Flaherty announced the fourth round of new mortgage rules in four years. First-time homebuyers are having a more difficult time qualifying for a mortgage, now that the maximum mortgage amortization has been trimmed from 30 years to 25 years for high-ratio mortgages. As a result, the Canadian Real Estate Association (CREA) has revised its forecasted home sales this year.

The CREA now expects a decrease of 0.5 per cent in 2012 versus 2011, after previously forecasting a 1.9 per cent increase. And 2013 doesn’t look much better – CREA forecasts sales to decrease 2 per cent year-over-year, down slightly from its original forecast of a decrease of 1.9 per cent. This could be because first-time homebuyers who no longer qualify under the new mortgage rules are being forced to save up a bigger down payment before entering the market.

The CREA’s house price forecast isn’t much rosier – CREA expects housing prices to only increase by 0.3 per cent for 2012, down from its earlier forecast of an increase of 0.6 per cent. However, CREA actually revised and increased its 2013 price forecast – it now expects prices to increase by 0.3 per cent, up from its earlier forecast of a decrease of 0.1 per cent. While an increase can be beneficial to homeowners who have paid off a large portion of their mortgages, it could be another reason for first-time buyers to wait and continue to save.

If you’re in the market for a house, it’s a good idea to take these forecasts with a grain of salt – they are hardly set in stone. It’s also important to remember that these forecasts are for the Canadian real estate market as a whole. Real estate is very local, so it’s important to look at your local market to see what’s happening. Some markets like Calgary are expecting healthy gains, while markets like Vancouver are expecting continued price decreases.