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Notable News of the Week: August 23, 2013

Will BMO rate hike send a chill through Canada’s housing market? – Wall Street Journal

Bank of Montreal (BMO) announced Tuesday that they were going to raise their 5-year fixed mortgage rate by 0.2 of a percentage point, from 3.59% to 3.79%. This rate hike would make BMO’s 5-year fixed mortgage rate higher than some of the other big banks, as Toronto-Dominion Bank (TD) and Royal Bank of Canada (RBC) offer a 5-year fixed mortgage rate for 3.69%. This latest rate increase should come as no surprise to many, as 5-year Canadian Government benchmark bonds have increased by 60 basis points since March. The move could affect the housing market which has shown few signs of slowing this year. According to the Canadian Real Estate Association (CREA), Canada’s resale housing market experienced significant increases in July. Existing home sales in July 2013 were 9.4% higher than July of last year.

Discount mortgages dry up as Canadian borrowers face tough test – The Globe and Mail

On Thursday, RBC made the announcement that it would be following BMO’s lead and increasing it’s 5-year fixed mortgage rate to 3.89% – 0.2 of a percentage point more than the 3.69% they were offering earlier in the week, and 0.1 more than BMO’s current offer of 3.79%. This increase means that the rate on a new fixed rate mortgage has now climbed by more than a third in the last five months, which some see as the beginning of the end of discounted mortgage rates. “This is the end of extremely low interest rates,” said Benjamin Tal, Deputy Chief Economist at CIBC World Markets. “They’re simply unsustainable.” It seems to be true that the discounted mortgage rates that once caused the Canadian housing market to boom are now disappearing; many believe this will result in a correction in home values. The only question now is: will other major lenders follow suit?

Tighter mortgage rules fuel spike in rental prices, competition – Yahoo! Finance Canada

Tighter mortgage rules have had an effect on more than just the home buying market. Rent prices in Toronto are on the rise, due to increased demand from potential first-time homebuyers. These homebuyers were squeezed out of the housing market by the new mortgage rules and forced to rent instead. A recent BMO study states that the new mortgage rules delayed home buying for 1 in every 5 potential first-time homebuyers. From April to June, a record 5,315 condo apartments were rented, a 20% increase over the same period last year. Average rent prices also rose 4.1% in the second quarter of this year compared to the same quarter in 2012. The average rent in Toronto is $1,847 per month but renters could end up paying a lot more for nice downtown apartments, as bidding wars have become fairly common. While rents have increased new condo sales fell 18% in the second quarter and unsold inventory has risen to 19,394 units.


A look at current mortgage interest rates and 5-year mortgage rate history.

Current Mortgage Rates in Canada

The average discounted mortgage rates in Canada in 2013:

Discounted Mortgage Rates in Canada

A history of weekly 5-year fixed mortgage rates and 5-year variable mortgage rates.

mortgage rates by: