The spring housing market is expected to bring on a new battle from mortgage lenders as they compete for what has become a shrinking pie in the form of lower real estate sales.
Bank of Montreal struck first on Friday with a five-year closed mortgage rate of 2.99% — down from 3.09% and now the lowest published rate among the big banks — with sources indicating the financial institution’s mortgage specialists are armed with discretionary power to go as low as 2.89%.
As the banks battle it out for consumers skittish about jumping into what more than one analyst sees as an inflated housing market, lenders know their costs have dropped in the past few weeks. The Bank of Canada’s five-year bond rate is in the 1.3% range after being almost at 1.6% at the end of January.
“Perhaps there is pressure to lower rates,” said Gregory Klump, chief economist with the Canadian Real Estate Association, about banks trying to capture customers in a slowing market. “It remains to be seen how much [the real estate market] is going to slow.”
While some predict a collapse in the housing market, so far prices have remained firm and sales have dipped only in the single-digit range from a year ago.
CREA said last month that January prices were up 2% year-over-year, while sales were down 5.2% during the same period. On a seasonally adjusted basis, sales actually climbed 1.3% from December to January.
It’s unclear whether a new round of mortgage rate cuts will have an impact on consumers already used to a prime rate of 3% and long-term mortgage rates even below that.
“I don’t think low rates change their mind on whether they are going to buy or not,” Mr. Klump said. “What it does change is how much property they can afford. The most important thing at this point in the cycle is how confident consumers are of economic prospects going forward.”
Source: Garry Marr, Financial Post