• Rising rates and tighter mortgage regulations in 2018
• Canadian economy slowing
• Bank of Canada waiting on higher inflation
Mortgage Rate Outlook
Canadian mortgage rates rose substantially in 2017 and are forecast to rise further in 2018. After beginning the year at or near historical lows for both the qualifying rate as well as 5-year contract rates, an acceleration of economic growth prompted a shift at the Bank of Canada and a withdrawal of stimulus implemented to help the economy absorb the oil-shock of 2015.
After the hawkish turn by the Bank of Canada, the Canadian 5-year bond yield, the key benchmark for the mortgage qualifying rate, seemed set on a higher trajectory before a slowing economy and the tepid inflation resulted in markets reassessing the likelihood of further rate hikes. The 5-year mortgage qualifying rate now sits at a three-year high of 4.99 per cent, while most lenders offer a discounted rate of 3.24 per cent. Our baseline forecast for
2018 is for those rates to increase to 5.15 per cent and 3.44 per cent, respectively.
One complicating factor will be the impact of new mortgage regulations, which require borrowers with more than 20 per cent equity to qualify at a rate at least as high as the 5-year posted mortgage rate. This will erode purchasing power by as much as 20 per cent, and will likely cause some prospective buyers to delay home purchases. Since non-federally regulated lenders such as credit unions do not need to comply with those regulations, large bank lenders could hold off on raising mortgage qualifying rates to remain competitive.
In the four quarters from the second half of 2016 to the first half of 2017, the Canadian economy grew at an average quarterly rate of 3.6 per cent, posting more than 4 per cent
growth in the second quarter of 2017. However, in the third quarter, growth slowed to just 1.7 per cent.
Despite a second-half slowdown, the Canadian economy still saw a surge in employment in October and November and will post annual real GDP growth of over 3 per cent in 2017, making it the envy of most advanced economies around the world.
We do not expect that performance to be repeated in 2018, as the effect of higher interest rates and trade disputes present a drag on growth. Those factors are forecast to slow the overall Canadian economy to a still above-trend 2.2 per cent growth next year. As relatively strong growth continues to erode slack in the economy, inflation should return to its 2 per cent target by the end of next year.
Interest Rate Outlook
Despite strong economic growth, Canadian inflation remains subdued. The argument for a more hawkish approach from the Bank of Canada relies on two factors.
Firstly, that the elimination of unused capacity in the economy, generally referred to as the output gap, is inflationary. Therefore, an economy operating at or above capacity, as the Canadian economy is projected to do, should see rising price pressure. That view is supported by statistical evidence, though inflation has been well anchored due to the success of inflation targeting.
Secondly, the Bank’s framework for monetary policy is built upon setting interest rates at a “neutral” level to stabilize consumer price inflation around the Bank’s 2 per cent target. Since the Bank’s policy rate is currently 200 basis points below its estimate of “neutral,” there is an upward tilt to the Bank’s bias. That is, all else equal, the Bank would prefer to see interest rates “normalize” to a higher level over the medium term.
Still, there are significant risks to the downside for the Canadian economy over the next year. Elevated household debt presents a challenging tight-rope for monetary policy, as rates rising too quickly could have substantial and widespread consequences. Moreover, forthcoming restrictions on mortgage qualifying will already have a dampening impact on housing demand, which should also factor into the Bank’s thinking on monetary policy.
Weighing those risks against expectations of a closing output gap and inflation slowly moving toward 2 per cent over the next year, the Bank may still find just enough
reason to raise the its target rate once or twice in 2018.
New Listing: 2840 Barnhartvale Road, Barnhartvale, Kamloops, BC $889,000. Gorgeous, custom built Barnhartvale home built in 2007 sitting on 8.3 acres of land backing on to crown land and features views of protected wetland area.
This two storey home has over 5,700 square feet of living space. There is a bonus space of 429 square feet over the large two car garage and bonus storage under the garage. The main foyer is grand and welcoming with views into the living room with wood fireplace. The living room has high vaulted ceilings which open to the second level of the home and hardwood flooring throughout. The kitchen is open to the living room and features granite countertops, soft close doors and stainless steel appliances. There is a nook area and formal dining area.
The main floor also features a large office space with separate access from outside – great for a home based business. The master bedroom is on the main floor and features his and her closets and ensuite with jacuzzi tub, shower and double sinks. There is also a 2 piece bathroom, mud room and laundry on the main floor.
The second level features two large bedrooms both with their own ensuite and walk in closets. There is an open space on the 2nd level perfect for a sitting area or playroom. The basement level is ready for your ideas. It is set up for an additional bedroom, media room, exercise or games room as well as roughed in for an additional bathroom.
Other extras include 2 – 200 amp panels, geothermal heating and cooling system, storage shed, tons of parking for all your extras, field space for animals (horses) and chicken coop. The 2 car garage is detached from the home with a breezeway. Possible guest suite? Day before notice for all showings.
New Listing: 146 Whistler Drive, Sahali, Kamloops, BC $539,900. Welcome to this well kept and immaculate Sahali home! Bright, open concept main level boasts gorgeous kitchen with plenty of cabinetry and space to entertain family and friends.
Large kitchen island overlooks cozy living and dining room and features pot lights, under cabinet lighting and stainless steel appliances. From the kitchen, step outside onto your oversized deck and enjoy your private oasis. Upstairs you will find the master bedroom with two piece ensuite, two additional bedrooms and a four piece bathroom.
Downstairs you will find the fourth bedroom, three piece bathroom, family room with fireplace insert, laundry, storage and recreation room that is perfect for the kids to play. Beautiful and private landscaped yard that is fully fenced with above ground pool and shed with power. Underground sprinklers and alarm system included.
Newer updates include: roof (2016), three piece bath (2017), landscaping (2017), furnace & heat pump (2010), newer windows & the list goes on. Located on bus route with schools, shopping & recreation nearby. Nothing for you to do but move in and enjoy!
Vancouver, BC – December 12, 2017. The British Columbia Real Estate Association (BCREA) reports that a total of 7,731 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in November, an increase of 20.4 per cent from the same period last year. Total sales dollar volume was $5.59 billion, up 39.1 per cent from November 2016. The average MLS® residential price in the province was $723,112, up 15.5 per cent from November 2016.
“November was the third consecutive month that BC home sales were above 9,000 units, on a seasonally adjusted basis,” said Cameron Muir, BCREA Chief Economist. “Elevated consumer demand is being supported by strong employment growth, rising wages and favourable demographics.”
BC employment increased 3.8 per cent over the last 12 months, totaling over 90,000 jobs. Over the same period, average hourly wages in the province climbed 5.7 per cent to $26.82. Against this backdrop, a large cohort of millennials is entering their household-forming life stage. In addition, some buyers are likely completing purchases now in advance of tighter conventional mortgage qualifications, scheduled for the new year.
Year to date, BC residential sales dollar volume was down 6.8 per cent to $69.4 billion, when compared with the same period in 2016. Residential unit sales declined 8.8 per cent to 98,024 units, while the average MLS® residential price increased 2.2 per cent to $708,150.
New Listing: 1699 Parkcrest Avenue, Brocklehurst, Kamloops, BC $384,900. Centrally located Brock home close to transportation, schools and shopping.
This home has had a number of updates including furnace, central a/c unit, hot water tank, roof, some flooring, basement bathroom shower, paint and more. The main floor has a large living space with pellet stove to keep you warm in the winter months.
The kitchen has a lot of storage and laundry is located on the main floor. There is a large master suite with 2 piece ensuite and sitting room space. There are two additional bedrooms on the main floor and a large bathroom. The basement level has an in-law suite that could be a one or two bedrooms with its own laundry.
Some separation needed to be installed to be totally enclosed. There is a one car garage, tons of parking with room for an RV. The inground pool needs a liner but is a great size and fairly private. Quick possession possible and easy to show.
New Listing: 595 Durango Drive, Campbell Creek/Deloro, Kamloops BC, $1,398,000. Executive acreage with 60×80 detached shop, in ground pool and extensive reno’s, there are so many extras in this property!
This home is located 20 minutes east of Kamloops, with easy access both off of Durango Drive and secondary driveway to access the dream shop off of Dallas Drive. The many features of this home include a total renovation in ’09-’10 that left NOTHING untouched. Updates include:
Main floor: – Kitchen with large granite centre island, quartz countertops and stainless steel appliances with two ovens. – Hardwood flooring throughout the main areas – Beautiful tile work in the large pantry, bathrooms and laundry room – Huge master bedroom with oversized walk in closet and 3 piece ensuite with steam shower – Main 4 piece bathroom has stone countertops – New carpet – Bar in the family room great for entertaining. – Fir internal doors – Trim and baseboards – Wood fireplace with rock surround The main floor has a large inviting foyer. To the right of the entry way there is lots of room for living with the great room open floor plan, the kitchen is open to the living room and dining room. There is a wood burning fireplace in the living room. The kitchen walks out to the deck and it also features a huge 8×9 pantry. Down the east hallway leads to a 32×27 family room with bar, 11×11 laundry room and a large office that is 17×16. There is a 2 piece bathroom in this area. From the kitchen area to the west stretch of the home leads to the main 4 piece bathroom, guest bedroom and large master suite. The main house has a 3 car attached garage. The double garage has access through a hallway from the main living area and the single from the family room area. All garage doors updated including openers.
Basement: – Entire reno with new carpeting – Insulation – Plumbing – Fir doors – 400 amp wiring – New wood stove – 5 piece bathroom – 2 hot water tanks: 2010 and 2015 – 2 furnaces – each with humidifiers The basement level is a walk out day light basement. There are two stairwells for access inside the home. From the main floor family room the stairs lead to the large rec room with wood stove. There is a door to access the back yard. Open to the rec room is an additional office or den space. There is a large 18×10 storage off of this rec room with built in storage. The gym is 12×19 and features built in sound. The basement features 3 large bedrooms one located off of the gym area. From the gym leads to the games room which also has built in sound and two additional bedrooms. The two bedrooms in this area are oversized 13×11 and 10×19. The 5 piece bathroom is located off of the two bedroom area and also close to the second basement exit to the back yard and pool area. Perfect for those hot days! The second stairwell is off of the games room and leads to the main foyer of the main floor.
House Exterior Upgrades: – New roof with all new trusses, sheeting and 50 year shingle – New soffit, gutters and downspouts – All new windows and outside doors. Main floor has triple pane windows, basement double pane shatter proof security glass. – Entire house wrapped in 1.5’SM foam board for added insulation – New stucco and eve cedar shakes – New deck off of the kitchen engineered for the hot tub (2010 Arctic Spa Top of the line model), treated cedar with aluminum railing. – Double and single garage doors including openers (attached garage) – Alarm system
Landscaping & Yard Upgrades (2012 to present): – 20×40 custom in ground pool from Parklane with heat pump heater – Custom pool house with full kitchen, wired, plumbed including hot water tank and change room. – Custom stamped concrete pool surround and pool house floor – 14 zone irrigation – 10 foot privacy fence around the property – New septic system and field for the house – Shed with concrete floor – Cedar hedges, flower beds and numerous fruit trees. – New sod on entire property – Large gravel driveway: access from front to back of property. Tons of parking!
Detached Shop: – 60×80 shop with 20 foot ceilings – 5 overhead doors to include: – 2: 14 foot wide by 16 foot high – 2: 10 foot wide by 12 foot high – 1: 16 foot wide by 16 foot high – 2×8 on 16″ framed walls. – Insulated and tin clad inside and out – Natural gas heat – 50 year roof – Full mezzanine, office and 3 piece bathroom with shower. – Gravel driveway for access off of Dallas Dr.
You won’t find a property like this one! It is essentially a brand new house with all the renovations completed. Call for more info or to book a private showing.