A more balanced market - Muskoka’s housing correction spells good things

RISING INTEREST RATES... WHAT DOES IT MEAN?

The Bank of Canada raised its overnight rate today by 50 basis points to 4.25 per cent, marking its seventh rate hike in nine months. The last time the central bank’s policy rate was this high was in January 2008.

The silver lining though with today’s guidance is that the BoC will be considering whether the policy interest rate needs to rise further. This is a shift from ‘WILL need to rise further’ and clearly opens the door to a pause as soon as the next meeting in January. Most economists expect a challenging consumer backdrop and ongoing pullback in housing will cause Canada’s economy to slip into recession in the first half of 2023. But with inflation remaining elevated, the BoC isn’t likely to react as quickly to that slowdown as it has in recent cycles. With this said - it’s possible that rates could start to fall in late 2023 if economic growth continues to slow or outright stall.

What does this mean for fixed rate mortgage holders? Nothing - your rate/mortgage payment is static over the term and is not affected by Bank of Canada rate increases or decreases.

What does this mean for variable rate mortgage holders? All lender’s prime rates will mirror the Bank of Canada’s hike and will climb by 0.50% which means if you have

Written by Andre Persaud, Mortgage agent, Lic #M14000772 Source: Andre Persaud - Safebridge Financial Group

a variable rate mortgage (or home equity line of credit) your rate will increase by 0.50% as well. If you are in an adjustable variable rate product (meaning your payment fluctuates if the prime rate goes up or down) then your next mortgage payment will go up. Most variable rate mortgages are structured like this. If you have a static payment variable rate product your payment will stay the same but more of your payment will go towards paying interest than principal. If you are in a static payment variable rate product (i.e. you have a TD variable rate) I’d recommend to use your prepayment options to either increase your payment or make some lump sum prepayments in order to keep paying down your principal to maintain your current amortization. Otherwise, with rates continuing to rise and no change to your payment, it will start eating away at how fast you are paying down your mortgage. Keep in mind, once your payment is all interest the bank will force you to increase your payment regardless (this means you hit your trigger rate). How much will my variable rate mortgage payment go up? A 0.50% increase in your rate equates to about a $25 increase in mortgage payment per $100K of mortgage debt. For example, if you have a $500K mortgage balance your payment will go up by about $125/m based on today’s hike (again only if you have an adjustable payment variable product).

How many more rates hikes are expected? It looks like this is the end of the rate hike cycle. However, if inflation is not coming in line, further rate hikes could be warranted.

If I have a variable rate, is now a good time to convert to a fixed rate? This depends on your current variable rate but for the most part my recommendation at this time is still to NOT convert to a fixed rate however it depends where you are at in your term. If you are early in your term I wouldn’t advise to convert however if you only have 1-2 years left then it might make sense to lock into a fixed rate to provide some stability in your payment/rate until the dust has settled with inflation in the next year or so.

To find out what fixed rate you could convert to today you’ll have to contact your lender directly.

Economists are predicting rates could start to fall in late 2023 so by staying in your variable rate you’ll have the option at that point to ride out the rate drops OR potentially convert to a lower fixed rate (fixed rates have already started to fall).

LUXURY HOME MARKET SEEN ESCAPING DECLINE IN 2023

The median price for existing-home sales totaled $379,100 in October, down 1.5% from $384,800 in September and 8.4% below a record high of $413,800 in June, according to the National Association of Realtors. But the picture is different for luxury residential properties in many of the world’s biggest cities. Of 25 cities tracked by global real estate consulting firm Knight Frank, it forecasts price gains in 15 of them next year. That includes all the U.S. cities on the list: Miami (5%), Los Angeles (4%), and New York (2%). The average projection for the 25 cities is a gain of 2%.

Dubai’s No. 1 Dubai topped the list, with Knight Frank predicting an increase of 13.5% for luxury home prices there next year. Miami placed second at 5%. And Dublin, Lisbon, Los Angeles, Madrid, Paris and Singapore tied for third at 4%. New York and Tokyo tied for 13th at 2%.

To be sure, the global luxury home market does face obstacles. “Although prime markets are more insulated to the fallout from higher mortgage costs, they’re not immune,” Knight Frank’s report said.

In the U.S., the 30-year fixed mortgage rate averaged 6.58% in the week ended Nov. 23, up from 3.1% a year earlier, according to Freddie Mac.“The transition from a seller’s to a buyer’s market is already underway across most prime residential markets,” the report said.

Written by Dan Weil Source: thestreet.com