Lower home sales in November have prompted the Canadian Real Estate Association to cut the sales forecast it released in September for this year and next.

The association said today that sales over the Multiple Listing Service fell 1.7 per cent from October to November, with activity last month coming in 11.9-per-cent lower than last November.When it released its forecast in September the market was just showing the first signs of a slowdown, but it now expects the decrease in demand to persist, it added.

“Lower than projected third quarter sales have downgraded the prospects for activity this year in almost every province,” the association, which represents realtors across the country, said as it updates its projections. It also suggested that the continued slowing is the direct result of Ottawa’s decision to tighten mortgage rules this summer.

“Interest rates have remained low and the economic backdrop has remained supportive for housing activity, so that should leave little doubt that recent changes to mortgage regulations are responsible for having cooled activity,” said CREA’s chief economist Gregory Klump.

The slowdown is beginning to show up in prices, which have lost their momentum. The national average price of houses that sold in November came in 0.8 per cent lower than a year ago. The MLS Home Price Index, which seeks to account for changes in the type of houses sold, rose by 3.5 per cent, its smallest increase since May 2011.

CREA now expects resales of existing homes across the country to come in at 456,300 units this year, down 0.5 per cent from last year and nearly one per cent below the ten-year average.

In September the association said it expected resales to rise by 1.9 per cent this year to 466,900 units, a figure that it had already revised down.

There are regional variations to the trend. Alberta is expected to see a 13.1-per-cent rise in sales this year, while British Columbia will see a 10.7 per cent decline.

CREA now expects next year’s sales over the MLS system to come in at 447,400 units, down 2 per cent from this year. In September it estimated that that number would be 457,800 units – again, a figure that it had already revised downwards.

“The continuation of moderate economic, job, and income growth will temper the impact of recent mortgage rule changes, which are not expected to dampen activity much more than has already been felt until interest rates are expected to begin rising in late 2013,” the association stated in its new forecast.

It now expects the national average home price will rise by 0.3 per cent for all of 2012 to $363,900. Most provinces should see higher increases than that, but a decline in sales of more expensive homes in British Columbia and Ontario is weighing on the average, it said.

CREA also said Monday that the number of newly listed homes in Canada fell 0.9 per cent in November from October, with Greater Vancouver posting the largest decline.

“With sales and new listings moving in the same direction and by similar magnitudes, the national sales-to-new listings ratio was little changed at 50.3 per cent in November compared to 50.7 per cent in October,” it added. “Based on a sales-to-new listings ratio of between 40 to 60 per cent, three out of every five local markets were in balanced market territory in November.”

Sales have now contracted in eight of the last 11 months, and the decrease compared to last November is “hefty,” Toronto-Dominion Bank senior economist Sonya Gulati said in a note.

The slowdown in both prices and sales is most noticeable in Toronto, Montreal and Vancouver, she added, saying those cities “are more vulnerable to experience a greater-than-average housing adjustment.”

Nationwide, TD expects market conditions to stabilize early next year “as tighter mortgage rules loosen their grip on market trends and low interest rates lure homeowners back into the market,” the note said.

Source: Tara Perkins, The Globe and Mail

The Bank of Canada is keeping its trendsetting interest rate anchored at one per cent for the remainder of the year and sending a message that it still believes the cost of borrowing in Canada will go up at some point in the future.

The decision by the central bank’s policy setting panel was in line with the expectations of markets and economists, who had given only low odds to governor Mark Carney removing a mild bias towards raising rates sometime.

Canada’s dollar gained strength after the announcement. It was up 0.19 of a cent to 100.7 cents US — slightly higher than just prior to the central bank’s announcement.

The bank’s statement Tuesday suggests it is looking through the disappointing third quarter result as a temporary aberration.

Last week, Statistics Canada reported the country’s gross domestic product output had slowed to 0.6 per cent — about half what the bank had predicted in October, and the weakest result in more than a year.

The bank’s statement Tuesday said that “economic activity in the third quarter was weak, owing in part to transitory disruptions in the energy sector” — referring to some maintenance shutdowns.

“Although underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013. The expansion is expected to be driven mainly by growth in consumption and business investment, reflecting very stimulative domestic financial conditions.”

Tying improved conditions to 2013 suggests governor Carney, who has announced his intention to step down in June to take charge of the Bank of England, now realizes the economy is unlikely to live up to his 2.5 per cent hopes in the current fourth quarter as well.

In a bit of a surprise, Carney says he is not as yet convinced the recent cooling in housing activity in Canada, and slowdown in credit accumulation, represents a fundamental shift.

On Monday, Finance Minister Jim Flaherty said he was pleased housing was moderating and that Canadians were starting to pay off debt, a shift in the credit and mortgage market he attributed in part to his decision to tighten borrowing rules in July.

Carney says, however: “It is too early … to determine whether the moderation in housing activity and credit will be sustained.”

That is likely because the bank expects to keep interest rates, and as a result borrowing costs, at historic lows for likely another year.

Part of what has Carney in a holding pattern, both in terms of rates and his language, is that he does not know the outcome of the so-called fiscal cliff negotiations in Washington. Canadian policy-makers say if no deal is reached in the next month to extend tax cuts and program spending, the U.S. economy could take a battering amounting to about four percentage GDP points next year, sufficient to send it and likely Canada back into recession.

As it is, Carney said the uncertainty over whether Washington will be able to avoid figuratively going over the cliff is already impacting the economy.

Otherwise, not much has changed in the past month or so, the bank says. Europe is still in recession, the U.S. is recovering but at a gradual pace and Chinese growth appears to be stabilizing. If there is good news for Canada in all this, it’s that commodity prices have remained elevated, which helps the country’s terms of trade.

For many economists, those conditions might warrant the central bank jettisoning its pretence that it will raise rates “over time,” and acknowledge a rate cut may equally be in the offing in the next year or so.

But Bank of Montreal economist Doug Porter said in a note Tuesday morning that Carney will want to await the results of the fiscal cliff talks in Washington, and is holding his fire — if he has any to shoot — until the announcement date on Jan. 23 when he knows better the situation.

Tuesday’s decision was the 18th consecutive time Carney has kept the policy rate at one per cent, comprising over two years, the longest stretch of stability since the 1950s.

Source: Julian Beltrame, The Canadian Press

Home prices continued to decline across the country in July, according to Canadian Real Estate Association data released Wednesday.

The Ottawa-based group said the average price of a home sold last month was $353,147, a decline of 2 percent from a year earlier. The year-over-year decline in June was 0.8 percent.

“Prices are off their recent peaks in Greater Vancouver and Greater Toronto, but remain above year-ago levels in most markets,” the group said in a release.

Activity was up from the previous month in Kingston, Ont., Chilliwack, B.C., and Calgary, offset by fewer sales in Toronto, Newfoundland and Labrador, and Edmonton. Actual sales across the country were up 3.3 percent overall from a year ago.

Much of the decline in the national average can be blamed on Vancouver’s volatile market.

An economist at BMO Financial Group called it the “Vancouver Manouevre” since price drops in the West Coast city brought down the national average despite 19 of 26 cities experiencing year-over-year increases.

The city’s average sale price dropped more than 12 percent to $667,462 from $761,763 last year.

A senior economist at Royal Bank of Canada said the city’s lack of affordable homes is pulling down the market.

“We still believe that Vancouver is probably the most stressed market right now because of extremely poor affordability,” said RBC economist Robert Hogue.

“Plot the resale figures over the last year or so and you see a fairly significant decline in resales, so I think that this does the fit the definition of correction,” he said.

But a B.C. real estate economist said speculation of a market correction in Vancouver is unwarrwanted, as the economy continues to heal.

“Typically to see a price correction you need to see a macroeconomic shock — recession, very high unemployment, for example — or you need to see interest rates go up very dramatically in a short period of time. Both of those we don’t see on the horizon,” said Cameron Muir, the British Columbia Real Estate Association’s chief economist.

He said one-third of the market is first-time buyers, of which the market has no shortage.

“As long as we have first-time buyers that can get into the market to buy the homes from the people who are moving up, moving over, moving down, then the market should remain healthy,” Mr. Muir said.

Meanwhile, Toronto experienced a cooling, with prices increasing at a slower rate of 3.9 percent year over year, which BMO economist Douglas Porter called a “just-right” pace in a note Wednesday.

Mr. Hogue said the market across Canada is moderating and low resale numbers in the past three months were a result of compensation for a strong winter market and do not necessarily spell an impending pronounced correction.

“We believe that much of this easing was payback for a stronger-than-expected start to the year when warmer than usual weather this past winter and mortgage rate promotions by financial institutions provided a temporary boost to activity,” he said.

The Canadian Real Estate Association said tighter mortgage and lending regulations seemed to have cooled Canada’s national housing market, even in the bigger markets.

“Recent changes to mortgage regulations were widely expected to temper sales and prices in Greater Toronto and Greater Vancouver, and the data released today confirms that,” said Wayne Moen, president of the association, in a statement.

Finance Minister Jim Flaherty said Wednesday it may be too early to determine the extent of the impact of mortgage insurance reform, but that market moderation is a good thing.

“We want to avoid, obviously, the kind of thing that happened in the U.S. market, the Irish market and other markets in the Western economies with respect to their housing. So we want to have moderation,” he told The Canadian Press.

Source: Julia Johnson, Financial Post

Three Canadian cities have again cracked the top five on a ranking of the world’s most liveable places.

In the latest report from the Economist Intelligence Unit released Tuesday, Vancouver ranked third, followed by Toronto and Calgary in fourth and fifth respectively.

The Canadian cities were bested only by Vienna in second and Melbourne, which topped The Economist’s Liveability Ranking.

The annual survey of 140 cities uses more than 30 factors to gauge the state of healthcare, education, infrastructure, stability, culture and environment — rendering a score out of 100.

Vancouver lost marks only for petty crime rates, availability of quality housing and congested road networks, with report authors citing a series of infrastructure projects such as the new Evergreen transit line “that will no doubt have a long-term benefit, but in the short-term they can be disruptive.”

Toronto received a “Tolerable” rating (as opposed to Acceptable) for roads, public transit and housing while Calgary waned in temperature ratings.

Calgary Mayor Naheed Nenshi mused that his city’s spot on the ranking proves a “thriving business community, and a vibrant cultural scene that is attracting people from around the world” ­— echoing comments from Stephen Harper’s speech at the Stampede last month when the Prime Minister declared the Alberta metropolis as the greatest city in Canada.

The only other Canadian city to make the Economist list was Montreal in the 16th position.

Australia was the only country to outperform Canada, posting four cities in the top 10. The authors say the trend among the most liveable cities shows a preference for “mid-sized cities in wealthier countries with a relatively low population density.” Canada’s density is 3.40 people per square kilometre, while Australia’s is 2.88.

The results vary little from the last ranking released six months ago, with Vancouver maintaining the third spot after slipping from first place in 2011.

Most of the top-tier countries are separated by fractions of a percentage — the first-ranked Melbourne is scored 97.5, only 1.8 points higher than 10th-place Auckland, N.Z. The Economist Information Unit uses the ranking to provide suggestions on how businesses should compensate employees working abroad in cities “where living conditions are particularly difficult.”

It’s one of several studies of its kind, but economic development experts in the listed Canadian cities say The Economist report’s catering to business communities could lead to tangible benefits.

“It’s certainly circulated to an audience of potential investors and investors that may be interested in relocating to our city,” said Randy McLean, a strategy director at the City of Toronto, adding good scores in categories like education will help attract top management talent and their families.

Source: Jake Edmiston, National Post

Calgary’s resale housing market had the highest year-over-year sales growth in May compared with other major centres across the country, according to the Canadian Real Estate Association.

In releasing its monthly MLS data on Friday, CREA said the Calgary market had 2,982 sales during the month, up a stunning 34.4 per cent from a year ago. Nationally, sales of 53,068 were 9.0 per cent higher than a year ago.

Calgary’s average MLS sale price jumped by 3.2 per cent to $429,459 while across Canada the average price dipped 0.3 per cent to $375,605.

Robert Kavcic, an economist with BMO Capital Markets, said sales activity at the national level “has clearly mellowed.”

“While Vancouver softens, Calgary is awakening from a three-to-four-year slumber with sales surging 34.4 per cent in the past year, and average prices within a hair of record levels seen in 2007 as supply conditions have tightened across Alberta,” he said. “Before declaring victory in Calgary though, note that the more representative House Price Index, which accounts for dwelling type, quality, etc., was still about 10 per cent below peak levels in April. May figures are expected next week.”

Wayne Moen, CREA’s president, speaking about the national picture, said “the expected continuation of low interest rates will keep housing markets stable and home ownership affordable and within reach for many buyers in the months ahead.”

“Activity in Greater Toronto is stronger this spring than it was last year, and higher-priced homes are still selling quickly,” said Gregory Klump, CREA’s chief economist. “As Canada’s most active housing market, and one of the priciest, it is still the biggest factor boosting the national average price but its support was less of a factor in May.

“At the same time, the national average price is finding support from Calgary, where sales and average selling prices are up from levels in May last year. Overall, price growth remains modest amid balanced market conditions.”

The average price in Toronto rose by 6.4 per cent to $516,787.

CREA said sales in Alberta rose by 23.4 per cent to 6,984 while the average sale price increased by 4.9 per cent to $374,653.

Also on Friday, CREA released its latest forecast for the rest of this year and for next year. It said MLS sales in Alberta would rise 12.1 per cent this year to 60,250 units and by another 2.2 per cent next year to 61,550.

It said the average price in the province would jump by 2.4 per cent in 2012 to $361,800 and by 2.2 per cent in 2013 to $369,800.

Nationally, sales are forecast to increase by 3.8 per cent to 475,800 this year but drop by 1.1 per cent next year to 470,400. The average price across Canada is predicted to increase 2.2 per cent in 2012 to $370,700 and by 2.0 per cent in 2013 to $378,200.

Source: Mario Toneguzzi, Calgary Herald

The Bank of Canada may be thinking about raising interest rates but there’s apparently no need because Canadians are hunkering down to cool debt obligations on their own.

“The pace of growth in household credit is no longer a reason for the Bank of Canada to move from the sidelines any time soon,” says Benjamin Tal, deputy chief economist at CIBC World Markets.

He wrote a report released Wednesday that suggests central bank intervention is not needed, especially with consumers already seeing interest payments on debt eating into 7.3% of their disposable income as of the fourth quarter of 2011, even at today’s low rates.

“Why are you raising rates? To slow down credit growth — but it’s already slowing,” Mr. Tal says. “I say let the market slow naturally. We are so concerned about this but it’s moving in the right direction.”

Toronto-Dominion Bank economist Francis Fong also weighed in, suggesting Canadians have begun to get the message about having too much debt, based on the slowdown in consumer credit growth.

Even the chief executive of one of the big five banks joined the discussion, hoping to extinguish some of the panic about Canadian debt.

“When we look at the overall marketplace, there might be pockets of vulnerability but we remain quite comfortable,” said Gord Nixon, chief executive of Royal Bank of Canada “Frankly, I’d like to see the rhetoric come down a little bit.”

The CIBC report does note that as of March 2012, mortgage debt rose by 6.3% on a year-over-year basis, which is below the average rate of growth seen in the past two years of 7.3%.

Mr. Tal says there will be a gradual softening in the housing market with prices falling 10% in the coming year or two. He says tougher rules from regulators on loans will cool the market and notes the banks themselves are questioning values, citing “the increased use of full-scale appraisals as part of the adjudication process.”

Overall, Mr. Tal says that for the first time since 2002 consumer credit is rising more slowly than in the United States.

“Consumer credit [growth] is basically zero,” he says, adding Canadians have been optimizing their credit situation by taking high-interest credit card debt and transferring it to lines of credit.

TD’s Mr. Fong agrees that Canadians are starting to “hunker down” and pay off their debt, but at the same time he suggests a two-percentage-point increase in rates would leave many households at risk.

Source: Garry Marr, Financial Post

When will the Bank of Canada raise rates? Bank of Canada governor Mark Carney surprised few with the announcement on April 17 that the overnight lending rate (from which prime rates are derived) would remain unchanged. His comments, however, has begun large changes in rate-hike predictions. BMO has already moved its prediction for the next rate hike from mid-2013 to end of 2012, and many are expected to change their outlook. Swap traders are pricing in a 90-per-cent chance of a rate hike by the end of 2012.

With all of the negative news circulating globally, why have things changed so much over the past few months? Here’s what we can take out of the Bank of Canada’s comments:

1. Growth will be watched more closely than inflation. Economic growth forecasts have increased from two per cent to 2.4 per cent over the past month, as 82,300 jobs were created in March (a reduction of 0.2 per cent unemployment). Because there is so much money sitting on the side-lines, growth is a good indicator of potential inflation. Inflation was just under the two-per-cent target at 1.9 per cent in March.

2. Carney is now forecasting that Canada’s economy will return to full capacity in the first half of 2013, three to six months earlier than originally forecast. Full capacity is the limit at which the economy can grow without excessive inflation.

3. Global economic factors are improving. Greece’s bailout helped calm down European markets (especially bond markets). Carney predicts a strong second half of 2012 for Europe.

The above factors, combined with a constant reminder that consumer debt in Canada is above the comfort zone, may see rates rise more quickly than anticipated. Five-year bond rates (which heavily influence fixed rates) shot up nearly 0.1 per cent after the Bank of Canada announcement, anticipating a quicker recovery than originally forecast.

Don’t hit the panic button just yet, though. We have all been through times of positive spring numbers only to be disappointed by the summer, so expect the Bank of Canada to be cautious when evaluating a rate hike. Last spring most banks and economists had predicted the prime rate would be at four per cent by fourth quarter 2011, only to drastically change their outlook by summer and into fall. If the economic momentum carries through the summer and into third quarter, it would be expected that we see a reasonable .25 per cent increase in third or fourth quarter this year.

Source: Kyle Green is a mortgage broker with Mortgage Alliance Meridian Mortgage Service Inc.

Much of Canadians’ rising household indebtedness is being fuelled by cheap foreign capital, Mark Carney, governor of the Bank of Canada, said yesterday.

Mr. Carney has repeatedly warned over the past year about excessive consumer borrowing – particularly around mortgages – but Monday fleshed out his concerns, noting that the phenomenon is being enabled partly by buyers from “abroad” and that the trend is “unsustainable.”

Speaking to a business group in Waterloo, Ont., Mr. Carney said the growth in domestic demand and household spending has helped boost Canada’s economy, but “the limits to this growth model are becoming clear.”

Ballooning household debt levels represent the biggest single risk facing the Canadian economy, according to the Bank of Canada.

In the financial crisis that began in 2008, the central bank lowered interest rates to encourage borrowing and revive the economy. But much of the lending that followed was not to businesses but to consumers focused on buying homes.

Even after the economy revived, the low interest rates remained in place, continuing to spur the spending spree.

Canada’s banks mostly emerged from the crisis unscathed, which helped burnish their international reputation. It’s also why foreign investors – especially in the United States – are so keen to buy bonds issued by Canadian banks.

A primary reason for the strong demand is that many of the bonds are backed by mortgages that are guaranteed by the Canada Mortgage and Housing Corp.

In 2011 the big six Canadian banks issued a total of $74-billion of term bonds, of which 64% was sold to foreigners, according to George Lazarevski, an analyst at BMO Capital Markets. They raised “a lot of term funding outside of Canada,” said Mr. Lazarevski. He said buyers were mostly in the United States, Australia and Switzerland.

A significant chunk of that funding, or about $25-billion – was in the form of bonds backed by mortgages insured by the CMHC, a Crown corporation.

“The Canadian dollar is consistently strong, our fiscal situation is still attractive relative to much of the developed world, and even at the provincial level – there’s still plenty of fiscal capacity to raise deficits if backs are against the wall,” said BMO economist Robert Kavcic.

Mr. Carney’s comments on household indebtedness were within the context of the main theme of his speech: the need for Canadian companies to “refocus, retool and retrain” if the country is to compete in emerging markets.

Mr. Carney said the growth in domestic demand and housing-driven spending has helped boost Canada’s economy, but “the limits to this growth model are becoming clear.”

Mr. Carney also pointed to ongoing uncertainty over Europe’s debt crisis – despite some recent signs of improvement – and a modest recovery in the United States, both regions where Canada is dependent for the bulk of its exports.

“Emerging markets represent the greater opportunity for Canadian exporters. Since the recession, these economies have accounted for roughly two-thirds of global economic growth and one-half of the growth in global imports.”

Business must develop new markets but also and new products, Carney said. As well, companies should “further exploit the tremendous opportunities in mobile computing and customer-focused applications. In addition, they need to invest in new plants and equipment.

“Innovation is critical to our success and Canada’s record is only average,” Mr. Carney said.

Source: John Greenwood, Financial Post

Just less than half of BC households could comfortably afford their homes if interest rates were to climb by just two percentage points, a new survey has found.

The BMO Bank of Montreal survey found that while most Canadian households could survive a stress-test against the possibility of rising interest rates, one in five said a two-percentage-point rise in rates would hamper their ability to afford their home and a further 20 per cent said they didn’t know.

In BC, where Vancouver is home to the priciest houses in the country, 48 per cent said they could still afford their home if rates went up by two percentage points. 32 per cent said they could not afford their mortgage if rates went up two percentage points, while 20 per cent of respondents were not sure.

Although the survey is based only on borrowers’ perceptions, it’s still very alarming, said John Andrew, real estate professor at Queen’s University. “It’s alarming because we’re only talking about a two-per-cent increase here, and it shows how borrowers have become acclimatized to low interest rates.

“We have no experience with this because mortgage rates have never been this low. We’re in virgin territory for everybody.”

In Vancouver, new mortgages average from $500,000 to $600,000, said Carolyn Heaney, BMO’s area manager specialized sales and mortgages for Vancouver.

The report coincides with the end of BMO offering two low-rate mortgage options — a 2.99 per cent five-year rate and a 3.99 per cent 10-year rate, both of which are limited to 25-year amortization and have limited prepayment options. Using the 2.99 rate as a baseline, the monthly payment on a $500,000 mortgage would be $2,364 for 25 years, Heaney said. If the rate went up to 4.99, the payment would jump $541 a month to $2,905.

“As a consumer, while there is no guarantee where rates are going, I think most of us can speculate that rates will be going up in the next couple of years,” Heaney said. “Let’s say in three years you’re going to be asked to pay $2,900, what kind of impact will that have on your cash flow?”

According to BMO Economics, interest rates are expected to increase beginning next year.

Andrew said he wouldn’t be at all surprised to see a much larger rate increase — of six or seven percentage points — in five years’ time.

“I think that’s entirely within the scope of possibilities,” said Andrew, who is also director of the Queen’s Real Estate Roundtable. “We know it’s highly competitive for banks right now. Are they going to turn you down if you couldn’t keep up the payments at four or five per cent? I’d be surprised if that’s the case.”

Andrew said the survey results are even more concerning when total household debt is considered.

“Mortgages are a big part of the problem, but they’re not the whole problem,” Andrew said.

Many other lenders followed BMO’s lead, offering low-rate mortgages, sometimes with more flexibility; several other lenders have already pulled their low-rate offerings.

Alberta had the strongest responses to the survey with 73 per cent of households saying they could handle an increase in rates, with just 13 per cent saying it would cause a problem.

The Leger Marketing survey was completed online from Feb. 21 to 23 using Leger Marketing’s online panel, LegerWeb. A sample of 1,500 Canadians over age 18 were surveyed. A probability sample of the same size would yield a margin of error of plus or minus 2.5 per cent, 19 times out of 20.

Source: Tracy Sherlock, Vancouver Sun

The clock is about to strike midnight for mortgage rates that have been the best deal of the past half century — at least as far as the major banks are concerned.

Bank of Montreal’s recent cut-rate 2.99% five-year fixed closed mortgage is set to expire today and, not surprisingly, competitors have already signalled they are ready to raise rates in the wake of the sale ending.

Royal Bank of Canada and Toronto-Dominion Bank were the latest to do so, announcing they had ended their offer of a 2.99% rate on closed four-year mortgage. Bank of Nova Scotia had quietly been telling mortgage brokers last week that it had planned to do the same.

“Some second-tier lenders have also raised their rates,” says Rob McLister, editor of Canadian Mortgage Trends. “You can see the timing [of the latest increases]. It is the day after the BMO rate expires. Typically when a bank puts out a posted rate it takes effect the next day but they’ve given it a lead time here.”

Royal Bank and TD said their rate increases are effective March 29. Both banks will raise the rate on their special fixed rate offer on a four-year closed rate by 50 basis points to 3.49%. The banks also raised the rates on a five-year closed variable rate mortgage to 20 basis points above prime.

Mr. McLister said the delay in raising rates could create a sense of urgency among consumers as they try to get themselves pre-approved for a mortgage which allows them to hold a rate for anywhere from 90 to 120 days.

“We have definitely seen increased volumes in inquiries and it seems like it has front-loaded action in the spring housing market,” he said.

It was almost three weeks ago that BMO triggered another round of mortgage rate wars with its 2.99% rate — the same product it offered in January. Critics complained the deal included restrictions like a 25-year amortization and limited prepayment privileges.

While the Banks are raising rates, smaller lenders like credit unions continue to offer five-year rates below that 3% threshold on five-year mortgage.

For the banks, it was inevitable that they would raise rates given rising governing bond yields which are generally used to price mortgages.

“It does look like the tide has turned on the bond market,” said Doug Porter, deputy chief economist with Bank of Montreal, adding it is pushing consumers to lock in rates. Bond yields have climbed about 50 basis points in the past two weeks on the five-year government of Canada bond.

Mr. Porter cautioned that the bond market has been hard to predict in the past so he can’t rule out market conditions changing yet again. “We’ve had a number of selloffs over the years in the bond market and the bull market has come running back with a vengeance so you never want to say never. It does seem like things have shifted,” he said.

It’s still unclear what it will mean for the spring housing market which could get a boost from low rates and early warm weather.

“Historically when potential buyers get a whiff that things may be shifting on the interest rate landscape, it often pulls anybody on the fence off of the fence,” says Mr. Porter.

Source: Garry Marr, Financial Post