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If you are looking to buy a house or renew a mortgage in the upcoming months; get a commitment from your bank, mortgage broker or credit union today. Bittersweetly, it’s only going to get harder to afford a house as things get better for the economy.
The proposed USMCA (United States-Mexico-Canada Agreement) is set to brighten our economic future; however, clearing the way for increased interest rates and ultimately making it harder to afford a home or renew a mortgage.
There is direct pressure on the 5 year fixed mortgage rates after an increase on the Government of Canada bond on Monday of 2.426%, a seven-year high. Go fixed rather than variable if you want to avoid the stress of rate increases ahead. While interest rates began rising in 2017, the concerns around NAFTA halted these increases; however, with the increase back on, young home buyers are being sent a message:
“The housing market that made your parents rich on paper is done. Buy a home to live in, not to invest.”
– Rob Carrick, The Globe and Mail
Many reasons have contributed to why home prices took off after the financial crisis 10 years ago, for example: immigration, restrictions on construction, but nothing comes close to low mortgage rates when trying to make sense of why some people are so house-rich. The low mortgage rates compensated for the rising housing prices, which is why the average cost of a house went from $304,655 (2008) to $510,179 in Canada last year. Approximately a 6% annual gain. Unfortunately, Generation Z though they do want to buy, are going to be buying to live, not to invest. We are already witnessing a cooling period in the housing market (not in all cities) while the average price has dropped to $475,591 as of August 2018. Purchases will no longer be made out of one’s financial health zone as the surge in value just isn’t there to depend on anymore.
With the salvation of the free-trade agreement, there is speculation that our economy will become less dependent on growth through low-interest rates. What does this mean? Variable mortgage rates which have been in most cases cheaper than the five-year fixed rates may not be the better option, signalling the end in a generation of the greatest home buying opportunity.
Lock and Load people, lock and load.