If you have not yet heard by now, the government increased the overnight rate yesterday by .25% to .75%. In turn, the banks have increased their prime lending rate by .25% to 2.95%. This increase actually only affects variable rate mortgages (and loans/lines of credit with a variable rate). It does not affect anyone in a fixed rate mortgage. Despite how the media covers these rate increases, this is a fairly minimal increase that only affects a small portion of homeowners.
Fixed rates actually increased by about .20% two weeks ago. This increase did not receive as much media attention as yesterday’s increase but is equally important. It does appear that fixed rates are trending upwards, as we are expecting another increase in the coming week. Since rates came down in 2008, we have seen some increases like this but they have always come back down. It’s entirely possible that they will continue to increase, without any dips, but I expect it to be a very slow and gradual increase when it happens. The government and banks have to be careful about raising rates, as a drastic increase would affect too many homeowners and have a negative effect on our economy.
If you look at the big picture, both fixed and variable rates are still below 3%, which is outstanding if you look at any historical rate chart (or talk to anyone who had a mortgage in the 80s).
Hot Housing Market
We all know about the wild housing market in Toronto but I never expected to feel those effects here in Kingston. This spring/summer, however, the Kingston market has heated up immensely, largely due to some spill over from the Toronto market. I have had many clients sell their homes to clients from Toronto in the past couple months. It seems there is a large portion of people in Toronto who are selling their homes, while the market appears to be peaking, and buying here at half the price.
The Toronto effect means we are seeing bidding wars, unconditional offers, multiple offers on homes, and homes selling over their asking price. This is not something we are used to seeing in the Kingston market. If you are currently searching for a home, it can be slightly more challenging given that many homes are selling as soon as they are listed. In this type of market, it’s more important than ever to set yourself up with a good realtor that can help you navigate the market and ensure that you are well prepared when do find the home you want.
In October of last year, the government announced some mortgage rule changes that have had a big impact on our industry. The first was the “stress test” requiring that borrowers applying for insured mortgages (typically mortgages with less than 20% down) qualify at the benchmark rate of 4.64% (as opposed to the rate actually being paid on the mortgage). This change has definitely had an impact and seems to be hurting the first time buyers the most. Applicants are qualifying for about 20% less than what they used to qualify for and are having a harder time getting into homes, requiring them to save longer, pay down debt or turn to family for help.
The other change made last year was with respect to insured mortgage. The government put a number of limitations on what type of mortgages could be insured. This has primarily impacted most of the non-bank lenders as they typically insured all of their mortgages. Without getting into too much detail, this change has had a huge impact on how we do business. Most noticeably, banks and lenders are now fighting over the insured mortgage business meaning you can get a slightly better interest rate if you put 5% down versus if you put 50% down. I’m not saying this is right but this is the reality of the industry today given the changes that have taken place.
Some of the changes made have been positive while there are some that I don’t quite agree with. Our industry continues to monitor these changes and we expect more changes (both positive and negative) in the near future.