If the Conference Board is correct in its latest prediction, things could become interesting in B.C. next spring. Not “good” interesting. “Scary” interesting.

“We believe the Bank of Canada will begin raising (interest) rates in March 2016,” a new report from the Ottawa-based economic think-tank says, predicting slow and gradual rate increases thereafter.

The bank will be pressured to act in response to “inflation pressures (which) will begin to brew early next year.”

Clearly such a scenario could hit hardest in B.C. where home buyers have taken on big mortgages to deal with stratospheric property prices and where a low interest rate environment has added kindling to a red-hot housing market.

British Columbians are second only to Albertans in the average per capita consumer and mortgage debts they are carrying.

Could an interest-rate hike in March act as a bucket of cold water on consumer and real estate activity?

Could it finally slow down the bidding wars that have been driving property prices higher in a fiercely competitive market?

For those with both mortgages and large debt loads, the effect of any interest-rate increase will be “unambiguously negative,” says Blair Mantin, vice-president of bankruptcy trustee Sands & Associates.

Mortgage payments take priority in people’s budgets, he says, and so, “we might also see increased needs to restructure unsecured debts,” such as credit-card balances.

Mantin believes interest-rate hikes would trigger “a deflationary impact on house prices in the Lower Mainland.”

The only way that would not occur is if incomes were to rise in tandem. But that is unlikely because “when interest rates are increased to control inflation, the economy often cools and any upward pressure on wages would be relieved.”

The real estate and finance industries are highly influential in the Vancouver region. Yet the Conference Board does not forecast any slowdown here in either the housing or retail sectors.

“We have a favourable outlook for retail sales and the housing market in B.C. next year,” said Marie-Christine Bernard, the board’s associate director of provincial forecasting, “because even though interest rates start to gradually move up at the beginning of the year, we have strong economic growth boosting labour demand and household disposable income.”

Certainly, for now, says the report, “the housing markets, both new and resale, remain in good shape.

“The resale market in Vancouver is the hottest in Canada, with solid demand and price increases so far this year.”

The report forecasts an increase in housing starts next year.

Retail sales in B.C. are projected to increase 9.2 per cent this year, against an average increase of 2.6 per cent nationally. An anticipated increase of 4.5 per cent in 2016 will keep the province in first place in retail sales growth.

The report, outlining its predictions for all the provinces, singles out B.C. as “the (economic) leader,” the only province that will see GDP growth of more than three per cent in 2015, at 3.1 per cent, followed by 2.7 per cent growth in 2016.

Only Manitoba is expected to surpass B.C. in economic growth next year, with a 2.8-per-cent increase in GDP.

With oil prices low, the two provinces have supplanted Alberta and Saskatchewan as Western Canada’s economic kingpins.

At present, B.C.’s jobless rate is 5.8 per cent, which is pretty close to full employment, usually measured at 5.5 per cent.

The unemployment rate in 2016 is forecast to decrease to 5.7 per cent, which would be lower than that of Alberta, at 5.8 per cent.

B.C.’s per capita household income, at $38,890, will exceed the national average of $37,588 next year, and will be second highest in the country, behind Alberta.

Two points of uncertainty cited by the Conference Board were job creation in B.C. and the future of an LNG industry.

Source: Barbara Yaffe, Vancouver Sun

Affluent Canadians are sitting on an average value of $1.5-million for their homes, a recent poll indicates. That compares with an average price of $448,862 for homes sold in April, according to the latest figures from the Canadian Real Estate Association.

Excluding the red-hot markets for the greater Toronto and Vancouver, the average figure in April was $339,893.

Indeed, the poll published Monday by the Bank of Montreal puts the average value of an affluent homeowner’s primary residence in Vancouver at $4-million and at $1.8-million in Toronto.

High-net-worth Canadians are those with investible assets of $1-million or more, the BMO report says.

The poll also indicates that 95 per cent of affluent Canadians own their residence, as opposed to renting, and that 58 per cent state they have paid off their mortgage.

Among those carrying a mortgage, the average amount they have left to pay is $176,000, the poll shows.

“There have been substantial wealth increases in the last decade, decade-and-a-half, partly as a result of the rise in real estate values,” said David Macdonald, senior economist at the Canadian Centre for Policy Alternatives.

“If you owned a house that was paid off in 2002, then this is very good news for you. Those folks who managed to do that are going to be relatively well off,” he said. These homeowners will tend to be older, he added.

But people in their 20s, 30s and 40s who just got into the housing market or are at the halfway point of paying down their mortgage are carrying high debt levels, Mr. Macdonald said.

“My real concern isn’t so much ‘can they carry it today?,’ but 10 years from now as the cost of carrying debt rises.”

Among other findings of the BMO survey:

* 36 per cent of high-net-worth Canadians own a second or additional property
* Of those with a second or additional property, 40 per cent own two or more extra properties
* The top reason for owning a second property is to have vacation time, 47 per cent said
* Among those with an additional property, 80 per cent own one in Canada, 27 per cent in the United States and 11 per cent in Europe
* The average value of a high-net-worth primary residence in Quebec is $678,600, compared with $719,500 in Alberta

The survey results are from an online poll conducted by Pollara between Oct. 15 and Oct. 28, 2014, using a sample of 306 Canadians 18 or over who have at least $1-million in investable assets (excluding employers’ retirement plans, insurance products or their home).

Source: Bertrand Marotte, The Globe and Mail

Metro Vancouver housing affordability continues to slide. Housing affordability in Metro Vancouver continued to slide in the first quarter, making it even more difficult for Vancouverites to own a home the country’s least affordable region, according to the latest Desjardins Affordability Index released Wednesday.

The report, which compares housing prices with income in metropolitan areas outside Atlantic Canada, shows the average property sale in Metro Vancouver is nearly $850,000, twice as high as the combined average home price ($424,000) of the other Canadian cities cited in the report.

The report only includes data from 18 metropolitan areas in Canada and excludes Atlantic Canada because Desjardins only collects information in markets where it conducts business.

That puts the average sale in Metro Vancouver 10 times higher than the average household income of around $86,000 a year.

Toronto, which is the second least affordable market, had significantly higher average salaries than Vancouver at $92,000 per household, and lower average housing prices of nearly $560,000.

Housing remains very affordable in Calgary, where the average household income is nearly $120,000 and the average cost of housing is around $445,000.

“It shows that people from Vancouver don’t have the income necessary to buy a home. Maybe the investors market is more important in Vancouver, especially for condos, and that looks like a factor,” said Hélène Bégin, Desjardins’ chief economist. “It would be really hard to buy a home without help from your family or someone else.”

Despite Vancouver’s continuous slide into an affordability crunch over the last three years, Vancouver’s resale market is growing, and is up two per cent since the start of the year and 12.9 per cent from the previous quarter, according to the index.

Vancouver’s affordability has the lowest index level in the country at nearly 70, while the index level for Canada is 117. That level indicates that Canadians on average have a salary around 17 per cent higher than the salary needed to buy a home at the average price, said Bégin.

In Quebec, the income is nearly 40 per cent higher (index level 156.5) than needed to buy a home at the average price of $275,000, according to the index. The DAI is calculated by determining the ratio between the average household disposable income and the income needed to obtain a mortgage on an average-priced home, or qualifying income. Qualifying income is calculated based on the cost of owning a home, including mortgage payments, property taxes and utility costs.

Nationally, the index shows households’ financial capacity to buy a home stayed close to the historical average, although affordability has declined since the start of the year.

Source: Tiffany Crawford, Vancouver Sun

The much-ballyhooed “soft landing” in real estate may already be underway, Bank of Montreal says, as booming price gains in two of Canada’s three biggest housing markets are the exception rather than the rule in the rest of the country.

While the closely watched national average price figure released on the 15th of every month by the Canadian Real Estate Association is still showing strong annual gains, “strong gains have been entirely a Toronto and Vancouver story,” BMO economist Robert Kavcic says in a research note today.

The latest CREA numbers, released last month, show the national average ticked up another six per cent in March to $431,812.

But there’s much more weakness than that headline figure would suggest.

In three-quarters of the 26 biggest metropolitan areas in Canada, average gains top out at about four per cent, and are actually contracting in many places.

“Suffice it to say that strong Canadian home price gains are now almost purely a two-city phenomenon, and the so-called soft landing (harder in Alberta and Saskatchewan) is well underway across most of the country,” Kavcic says.

Montreal, Canada’s second-largest real estate market, is one of the areas where the average house price across all categories of housing is already in decline, with the MLS HPI down 0.3 per cent in March, according to CREA.

Moncton, N.B., and Regina are also in negative territory.

House prices across all types had been trending downward in Ottawa since the spring of 2014 before an uptick last month. And average house prices in Newfoundland declined by more than eight per cent in February compared to a year ago, CREA data shows.

Although it’s still in the black on an annual basis, new data out of Calgary on Thursday shows that city’s average house price has now declined for two months in a row as the impact of cheap oil filters through the broader economy.

Source: Pete Evans, CBC News

With Vancouver’s housing market racing off the charts, I found this interesting article by mortgage broker Atrina Kouroshnia who explains the risks involved in presenting an offer without subjects.

In competitive housing markets like Vancouver, buyers feel the pressure to move quickly and make seller-friendly offers, often with no subjects such as financing or inspections. In fact, the Vancouver Sun reported a few months ago that some houses and condos in the area sold within a week or two (one house sold with no subjects and for $50,000 above asking price). With low housing inventory and high demand, realtors don’t expect that competitive landscape to change any time soon.

While an offer with no subjects could certainly be more attractive to the seller, I do not advise my mortgage clients to go in without subjects due to the potential risks involved.

The only time I would say to go in without any subjects would be if you’re looking at making a cash offer and you’re paying for the value of the land so you don’t care about the inspections and don’t need time to line up financing. Here, I would also emphasize the importance of having your own representation. Some buyers think that not having their own agent puts them in a more advantageous situation, but the truth is that the sellers’ agent is contracted to represent their sellers and in some situations they can even be encouraging a bidding war and discouraging subjects.

For those who need a mortgage, having at least one subject would allow the buyers to exit the deal if they need to. For instance, if your offer was subject to a home inspection, that could buy you time to get the mortgage financing in place. The vast majority of my clients review strata documents, conduct a home inspection and secure financing before removing subjects.

When you make an offer, you usually have a grace period where you can work through removing the subjects such as reading the strata minutes, booking a home inspection and arranging for your financing. By the end of the grace period, you have to either remove subjects and move forward with the deal or you don’t remove subjects and basically the accepted offer becomes void.

Remember, a pre-approval doesn’t mean you’re 100 per cent approved for whatever home you decide to buy. For instance, if you suspect there’ll be multiple bids on a property and you make a bid that’s higher than the asking price, the home’s appraised value may fall short of your offer.

Another scenario where you might run into financing problems would be if the life expectancy of the house does not support the amortization of the loan. If the value of the property is in the land, most lenders will not finance a tear-down. Instead, they might finance a lower amount (say, 50 per cent of the land) on the property.

With competitive situations, it’s easy to get caught up in bidding wars and succumb to pressure to make offers without subjects, but I think the key is to treat it like a business transaction and maintain a clear head. Have a maximum budget you’re willing to spend and do not go above that amount.

If you try to be more competitive by offering a higher price or not placing any subjects, you could be playing with fire and wind up getting burned. Only you can determine how much risk you’re willing to take on.

Fierce competition among banks and home buyers is driving mortgage rates down and home prices up, signalling the start of a spring housing market that many observers expect will be particularly heated this year.

Bank of Montreal unveiled a 2.79-per-cent promotion for its five-year, fixed-rate mortgage Tuesday, a special that comes with prepayment restrictions. Toronto-Dominion Bank quickly rushed to match the offering, saying it will drop the posted rate on its standard five-year mortgage to 2.79 per cent, from 3.09, starting Wednesday. Canadian Imperial Bank of Commerce began offering a five-year fixed mortgage earlier this month with a rate that starts at 1.99 per cent for the first 9 months before rising to an average of 2.79 per cent. It resets to [2.92] after 9 months.

BMO’s move was largely expected: It is the fourth year the bank has come out with a low teaser rate in the spring since it raised the ire of former Finance Minister Jim Flaherty with a 2.99 per cent special in 2012.

A spokesperson for Finance Minister Joe Oliver declined comment on the mortgage rate cuts.

Meanwhile, Canada’s top financial regulator said he isn’t concerned about the potential impact of lower mortgage rates on the financial system.

“We constantly reinforce that it is the banks themselves that determine the risks they want to assume, risks they must subsequently measure, monitor and manage,” Jeremy Rudin, head of Office of the Superintendent of Financial Institutions (OSFI), said in a prepared speech to the International Finance Club of Montreal.

Several mortgage brokers, however, called the posted rate specials a gimmick. Most major banks have already been publicly offering rates to brokers as low as 2.74 per cent for standard five-year mortgages for the past several weeks.

“Every mortgage broker in Canada is offering at those rates,” said Toronto-based mortgage broker Ron Butler. Several banks are offering rates as low as 2.69 per cent on larger mortgages, with some brokers offering to sacrifice part of their commission to push rates as low as 2.44 per cent.

The renewed rate war among the major banks underscores the intense competition coming just as the spring housing market is set to bloom.

In the Toronto area home prices were up nearly 11 per cent in the first two weeks of March compared to the same time last year, the Toronto Real Estate Board said. In Vancouver, where homes sales have also been strong this year, the average detached house now sells for nearly $1.4 million.

Ratehub, an online mortgage rate comparison tool, has seen record traffic to its website since the Bank of Canada slashed interest rates in January, said chief marketing officer Kerri-Lynn McAlister.

“In Southwestern Ontario and the Lower Mainland of British Columbia, it’s going to be one of the hottest years on record,” thanks to record low rates, Mr. Butler said.

Yet, despite strong home sales in some regions, banks have struggled to grow their new mortgage loans with housing markets cooling outside of Ontario and B.C. amid sliding oil prices.

The growth rate of residential loans has steadily slowed over the past two years to roughly 4 per cent, from 9 per cent in 2013, according to data from OSFI. BMO in particular has seen its total personal and commercial loan growth rate slow from 10.1 per cent in the first quarter of last year to 3.7 per cent this year.

That means rates could fall further. With government bond yields falling to record lows, the spread between where banks borrow and where they lend is now 1.95 percentage points compared with 1.3 per cent a year ago, when mortgages rates were higher, leaving room for more rate cuts.

Banks have also been engaged in a tug-of-war between fixed and variable rate mortgages, often getting more aggressive on fixed mortgage rates when too many borrowers flock to variable mortgages because of falling interest rates. “It skews the balance sheet for the lenders and they have no choice,” but to offer more attractive fixed rates, said Jason Henneberry, a partner at B.C.-based MortgagePal. “They need to try to fill the pipeline with more fixed-rate mortgages so they can hit the targets that they’re mandated to hit.”

Falling rates have been a gift for Ben Rodgers and his wife, first-time buyers who have spent the past two years shopping for a house in Toronto’s heated market. Earlier this month, they were the winning bidder on a $725,000 two-bedroom semi-detached home in their current neighbourhood and are now shopping around for the best mortgage rate.

“Banks were bending over backward to preapprove us for even more than we could afford. But we knew the maximum mortgage we could carry and we’re not going to be wooed by lower rates.”

Mr. Rodgers said the couple, who are in their 40s with two young children, said they long planned to use the low rates as an opportunity to pay down their mortgage faster, rather than splurge on a bigger home. “We’re going to live a pretty spartan existence for the next little while no matter how low the rates go,” he said. “We’re planning for the long-term.”

Source: Tamsin McMahon, The Globe and Mail with files from David Berman

In cities such as Vancouver and Toronto, the average cost of a detached home will set you back more than seven figures. Meanwhile, the market in Alberta has seen sales and prices drop since the collapse of oil.

In January, Deutsche Bank AG warned that homes in Canada are overvalued by 63 per cent, and that homeowners are “in serious trouble” due to rising debt levels. But the Bank of Canada’s surprise decision to cut interest rates that same month, has given some Canadians incentive to keep buying property.

Toronto

In Toronto, skyrocketing real estate prices hit a new high on Wednesday with the average price of a detached house in the city surpassing $1 million.

The average cost of a detached home hit the seven-figure mark for the first time last month, according to numbers from the Toronto Real Estate Board. That price was up 8.9 per cent over last year and helped drive the overall average selling price of a Toronto home up to $596,163.

The Toronto real estate scene was a seller’s market in February, with more people buying homes and fewer people putting them up on the market. The number of homes sold went up by 11.3 per cent, despite there being 8.7 per cent fewer on the market when compared to February 2014.

“The detached (house) market has been especially tight, we are not seeing a lot of new supply come online, and certainly not a lot of listings,” said Jason Mercer, the director of market analysis at the TREB.

The average cost of a detached home in the city came in at $1,040,018 last month, while semi-detached homes went for an average of $702,305, up 4.9 per cent over last year.

The strong gains for Toronto’s detached and semi-detached markets were offset by a fall in sale prices for townhouses and condo apartments in the city. The average selling price of a townhouse fell by seven per cent, while condos sale prices dipped by 0.9 per cent.

Rising prices have pushed some prospective home buyers to eye property in the city’s suburbs, but they too have been affected by the housing boom.

Residential sale prices were up across the board in the Greater Toronto Area’s 905 area code regions. The average price of a semi-detached home surged by 11.6 per cent in the GTA, while fully detached went up 8.5 per cent, condos spiked 10.9 per cent and townhouses were up by eight per cent.

In the nearby Durham Region, the average price for a detached home is more than $467,000.

David Batori is a real estate agent who has been selling homes in the north end of the city for 25 years.

He says he has seen prices in area change drastically.

“When I started you couldn’t give a house away from $250,000 in some of these north Toronto neighbourhoods … so yes, I’m completely surprised,” he told CTV Toronto.

“Building lots are selling for north of a million dollars,” he added.

Vancouver

On the west coast, the housing market has seen record-breaking sales. The average price of a detached home in Vancouver reached almost $1.4 million last month. And last month, the city saw 3,000 properties change hands — a 60 per cent jump from January.

“There is a shortage of inventory, and also money is cheap right now – interest rates are fantastic,” said Charlie Real, a local real estate agent.

That can mean waiting as long as six months to get a winning bid on a home, as was the case for Vancouver native Neil McIver.

“We made bids on three different places, every one of them went above what the asking price was,” he said.

“I think it is a little bit irresponsible and a little bit crazy but that is the marketplace in Vancouver (that) you are dealing with,” he added.

Alberta

Meanwhile, sliding oil prices are responsible for a slowdown of the housing market in Western Canada.

Home sales have dropped by a third in Calgary, and the average price of a detached home has fallen four per cent to $462,000.

But some real estate analysts aren’t concerned by the recent dip in the province.

“The market has cooled down, (and) we are seeing fewer sales and listings come up,” said Felicia Mutheardy, a senior market analyst at the Canada Housing and Mortgage Corporation.

“The market is taking a step back and returning now to a more balanced terriroty,” she added.

Source: Josh Elliott and Michael Shulman, CTVNews.ca

Strong demand in Metro Vancouver – Canada’s hottest real estate region – has pushed typical detached home prices past the $1-million mark, with February sales well above average.

Who is purchasing the homes, and how can they afford them? Offshore buyers are stepping up, as are people capitalizing on low interest rates and renting out suites, according to Ray Harris, president of the Real Estate Board of Greater Vancouver.

The benchmark price for a single family home in Metro Vancouver is now $1,026,300, up 9.7 per cent over February 2014, according to the real estate board.

Benchmark properties represent a typical residential home in a given market, and in Richmond, Burnaby, Vancouver and North Vancouver, single-family benchmark homes now exceed $1 million.

Several other Lower Mainland municipalities are creeping up to the million-dollar mark, including Port Moody at more than $900,000, and Coquitlam at more than $800,000.

Despite the hefty increases, the real estate board says buyer and seller activity was strong in February, with home sale and listing totals beating the region’s 10-year average for the month by 20 per cent.

“It’s an active and competitive marketplace today. Buyers are motivated and homes that are priced competitively are selling at a brisk pace,” Harris said.

He attributed the growth in sales to offshore buyers, Vancouver residents moving out of the core and record low interest rates. Buyers are now taking out larger mortgages and covering them by renting out suites in their houses, he said.

“How can people afford a million-dollar home? Well if they have an income of $3,200 from two suites, all of a sudden it’s more affordable,” he said. “You are going to see a lot more suites and sharing of the costs.”

Andrey Pavlov, a professor of finance at Simon Fraser University’s Beedie School of Business, sounded a cautionary note, describing the boom as “of great concern.”

“People are clearly using the (tiny) drop in interest rates to over-extend themselves even more,” he wrote in an email, adding that he saw the drop in interest rates and sharp decline of the dollar as “symptoms of a very weak Canadian economy.”

Residential property sales in the region reached 3,061 on the Multiple Listing Service — a 21 per cent increase over the same month last year and a 60 per cent increase over January 2014. The benchmark price for all Metro Vancouver residential properties rose to $649,700, 6.4 per cent above February 2014.

Even the recently stale condominium market is gaining traction, with recent price increases above the rate of inflation — something that hasn’t been seen for several years, said Cameron Muir, chief economist at the B.C. Real Estate Association.

Muir said home sales should continue to increase, though record sales levels are unlikely this year or next. The sales figures, while strong, were beating averages that had been depressed for a few years, he said.

“Sales will be above your longer-term averages. We’re kind of ratcheted up to another level that we haven’t seen in a number of years, and that’s being backed by some pretty solid economic fundamentals,” he said, including low interest rates, a strong economy and low gas prices that help to raise confidence.

New listings for detached, attached and apartment properties in the region totalled 5,425 in February, a 15.4 per cent increase compared to the 4,700 new listings reported in February 2014.

The sales-to-listings ratio was 25.7 per cent, the highest since March 2011, according to the board.

“Total homes for sale on the marketplace has really steadily declined … and as a result we’ve seen marketplace conditions go from buyer’s market conditions in 2012 to now cusping on that seller’s market territory in 2015,” Muir said.

Meanwhile, sales of all property types were up by 21 per cent in the Fraser Valley, according to the Fraser Valley Real Estate Board.

Board president Jorda Maisey said it was the busiest February since 2007, with 1,337 homes sold in the Fraser Valley — compared to 1,102 the year before. The number of new listings declined by four per cent.

The benchmark price of a single-family detached home in Abbotsford in February was $450,200, 3.9 per cent higher than in February 2014. The price of a townhouse was $228,600. The benchmark detached home price in Langley was $585,900 and it was $945,300 in White Rock-South Surrey.

Source: Tiffany Crawford and Matthew Robinson, Vancouver Sun

The Real Estate Board of Greater Vancouver released new figures yesterday that showed the typical detached property in the area increased 8.4 per cent from January 2014 to $1,010,000. The benchmark price for all residential properties in Metro Vancouver is $641,600.

It also showed the number of home sales in Greater Vancouver was higher last month than the average over the past decade. While the number of sales increased nearly 15 per cent for the month of January, there are fewer homes for sale.

“While demand remains steady, we’re seeing fewer homes for sale at the moment,” said Greater Vancouver Real Estate Board president Ray Harris in a release. “This is creating greater competition amongst buyers, particularly in the detached home market. The number of detached homes listed for sale today is the second lowest we’ve seen in four years.”

The Bank of Canada lowered the benchmark interest rate from one per cent to 0.75 per cent on Jan. 21 to lessen the blow of dropping oil prices.

This rate cut by the central bank likely means lower interest rates for variable rate mortgages, lines of credit and other loans based on the prime rate, and will likely boost consumer spending.

“A reduced rate could allow you to pay down your mortgage a little faster, save some money on your monthly payments, or change the amount you qualify for,” Harris said. “It’s important that you do your homework and understand how these announcements impact your situation.”

Apartment property sales in January went up 7.4 per cent from the same month last year, and jumped 40.5 per cent from January 2013.

The Real Estate Board defines the benchmark price as one designed to represent a typical residential property in a particular housing market.

Source: CTV Vancouver with files from the Canadian Press

Canada’s major banks are heading into a renewed mortgage price war in the wake of the Bank of Canada’s surprise decision to cut interest rates.

Mortgage brokers reported that Royal Bank of Canada dropped its five-year fixed rate for qualified borrowers to 2.84 per cent over the weekend. While smaller, non-bank lenders have started offering even cheaper rates, RBC’s rate cut is likely a record for a major bank, said Drew Donaldson, executive vice-president of Safebridge Financial Group. The bank also slashed its posted 10-year fixed rate to 3.84 per cent, the lowest nationally advertised rate in the country, said Robert McLister, founder of Ratespy.com.

RBC spokesman Wojtek Dabrowski said the bank continues to “review the impact of the Bank of Canada’s rate decision,” and that the company’s “individual product lines continue to make pricing adjustments in the regular course of business to ensure we provide competitive rates in the marketplace.”

Bank of Nova Scotia and National Bank of Canada have also cut fixed rates on broker-originated mortgages by 10 to 20 basis points in recent days. Toronto-Dominion Bank said it was dropping its posted 5-year fixed rate on Tuesday to 3.09 per cent, down from 3.29 per cent.

Mortgage officials said RBC was among the last of the major banks to introduce new rate specials.

“National Bank already offers competitive rates over the mortgage rate spectrum as we moved early over the past weeks,” bank spokesman Claude Breton said.

A battle in the mortgage market seemed inevitable given that Government of Canada bond yields have plummeted in recent weeks, falling 57 basis points in the past month to historic lows. Brokers had predicted that falling bond yields were almost certain to drive down the fixed-rate mortgage pricing ahead of the competitive spring housing market even as banks have largely kept their prime rates, which govern variable-rate mortgages along with other types of loans, unchanged. All the major banks will soon be forced to follow the Bank of Canada and cut their prime rates 25 basis points to 2.75 per cent, Mr. Donaldson said. “We expect more cuts to come from all lenders,” he said.

Even ahead of the Bank of Canada’s unexpected rate cut last week, the country’s major banks already seemed poised for a new round of rate cuts this year. Earlier this month, Bank of Montreal chief executive officer Bill Downe told an industry conference the bank was expecting to “again have a fresh offer that is appealing to customers” in the spring. The bank drew the ire of former finance minister Jim Flaherty in 2013 after it dropped its five-year fixed mortgage rate to 2.99 per cent in what Mr. Flaherty called a “race to the bottom.”

The renewed price war is raising concerns that the central bank’s rate cut will add fuel to the country’s overheated housing market even as Canadians struggle under the burden of rising household debt. Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal warned last week that falling mortgage rates could lead to “a monstrous spring in the real estate market.”

Others argue that low rates may not be enough to kick start a housing market that had already begun to slow toward the end of this year as oil prices plunged. Even as they predicted that Canada’s central bank will cut interest rates a second time later this year, TD economists said Monday they expect Canada’s real estate market to fare poorly this year as cheap crude and sky-high house prices in major cities are making it difficult for new buyers to afford to jump into the market despite low mortgage rates. “The housing market is … projected to be a drag on growth, with changes in existing home sales and prices, as well as housing starts, forecast to tilt into negative territory,” the bank said.

Source: Tamsin McMahon, The Globe and Mail