The real estate market continues to slow down. Inventory has built up to a 3 year high in June. Though the number of new listings is slowing down, it has not kept pace with the slow down in sales volume. In June the sales were 28.7% below the 10-year June sales average. It was a drop of 37.7% from June of last year.
The sales-to-active listings for June for detached homes is 11.7%, for townhouses is 24.9% and for condominiums is 33.4%. Below 12% is supposed to put downward pressure on price while above 20% there is upward price pressure.
Looking at the 12-month benchmark price change doesn’t tell the whole story because the enormous gains 12 month ago masks the price trend happening now. Over the last month the benchmark price for detached homes has fallen 0.6%, attached home remained unchanged while there is a 0.4% increase of condos. The trend is still down from last month.
On top of this the Bank of Canada raised its benchmark overnight rate to 1.50%. While this only directly affects the variable rates, it is an indication that the Bank of Canada believes the economy is strong enough for them to try to slow it down. If they are right, eventually the fixed rates will move up as well.
For anyone getting into the real estate market right now because the spread between the variable rate and fixed can be as high as 1%, the variable rate is the clear choice in most scenarios. Keep in mind that most of the time the Bank of Canada raises rate by 0.25% each time. The Bank of Canada would have to raise it 4 times before you loose your advantage; however, you would have saved a bunch of money by that time. If the raises were spread out evenly over 5 years, it would take another 4 hikes before the money you saved during the first 4 hikes would be spent covering for the last 4 hikes. So, after 8 hikes and thus a 2% increase, a variable rate mortgage would break even with a 5-year fixed rate mortgage. There is a very strong reason why 8 hikes will not happen. Right now, the Bank of Canada rate is 1.5%. The target for this rate is between 2.15% and 3%. 8 hikes will bring the rate to 3.5%. Not going to happen. Also keep in mind a variable rate has the benefit of a lower pay out penalty. Though most folks believe they will not break a 5-year term, in reality 60% of them do.
Alternative lending.ca help people by providing options beyond regular bank lending. We operate out of Vancouver, BC, but can assist people in all of BC and selected locations in Alberta, Manitoba, Saskatchewan and Ontario.
