Low interest rates maintain affordability

Heading into the final two months of the year, WinnipegREALTORS® has reported a market recovery. 

In the first half of the year, MLS® sales were down over 10 per cent, but are now down just six per cent over the pace set a year ago. 

An even more pronounced turnaround was experienced in terms of dollar volume. The percentage decrease at the end of October is less than two per cent from a year ago. At the end of June this year, the decline was at seven per cent when compared to the same period in 2008. 

There is continued strength in upper-end sales (i.e., three one-million-dollar-plus sales in October) and a marked increase in the higher-priced bracket than in the same month last year. For example, residential-

detached sales in the $200,000 to $250,000 price range were up 30 per cent last month over October 2008. 

Condos experienced a 41 per cent increase in sales over $200,000. Year-to-date, there has been a nearly 50 per cent increase in condos selling from $200,000 to $250,000 over the year before. 

For residential-detached house sales, the increased upper-end activity is muted in some of the upper-end brackets (there were close to 500 more sales in 2008 over 2009), however, the over-$300,000 price range increased by 17 per cent this year. 

Surprisingly, homes listed over $300,000 are selling in less time than those under $70,000, and also for the same number of days as homes selling between $70,000 and $99,999. In the latter instance, both are selling after an average of 38 days, or less than six weeks. Going back just five years for this same period (January 1 to 

October 31), the upper-end bracket for the under-$100,000 market was only 18 days on the market, while the over-$300,000 market was 49 days. 

It is still conceivable a new dollar volume record could be set in 2009. One reason is the fact that November 2008 was off considerably from November 2007 and fared poorly in comparison to some other past Novembers recorded by WinnipegREALTORS®. 

Given the solid dollar volume performance this year, and if sales bounce back this November, the year-to-date dollar volume deficit will be reduced by a magnitude of at least another percentage point — possibly more. December could then make up the shortfall in dollar volume. 

Last year’s dollar volume finished at over $2.4 billion, while dollar volume is now at $2.17 billion.

Considering all the concerns facing real estate at the outset of this year, finishing 2009 with a best dollar volume ever and sales ranking fourth or fifth highest on record has to be looked at quite favourably. It reaffirms Manitobans’ opinion that real estate is a good long-term investment. 

Helping home buyers overcome economic uncertainty are the historically low interest rates. Based on the following update from CREA’s chief economist Gregory Klump, it appears interest rates will remain low at least until after the  second quarter in 2010 and possibly into 2011 as inflation is expected to be held in check.

Bank of Canada maintains interest rates The Bank of Canada held its benchmark overnight lending rate steady at 0.25 per cent at its closing on October 20. The trend-setting bank rate, which is set 0.25 percentage points above the overnight lending rate, remains at 0.5 per cent.

The bank acknowledged that recent indicators point to the start of a global recovery, and that economic and financial developments have turned more favourable than it had previously expected. While recognizing that the Canadian economy is rebounding, it expects the recovery to be weak by historical standards.

The bank downgraded its forecast for Canadian economic growth this year, while keeping its forecast unchanged for 2010. It also lowered its forecast for economic growth in 2011.  

In its September announcement to hold interest rates steady, the bank forecast that inflation would return to its two per cent target in the second quarter of 2011. The bank has now moved that date out to the third quarter of 2011.

The bank’s commitment to keep interest rates on hold until the second half of next year is conditional on the outlook for inflation. Since inflation is not expected to pick up sooner than previously expected, the bank repeated its commitment to keep interest rates on hold. 

“Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.”

The bank pointed to the rapid rise in the Canadian dollar in recent weeks as a risk to the Canadian economic recovery, saying, “Heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures.” 

The bank now expects that the domestic economy will be a greater source for economic growth, at the expense of weaker net exports. 

The bank expects the output gap to close in the third quarter of 2011, one quarter later than it had projected in July when it said production would reach capacity in mid-2011.

“The bank threw cold water on recent speculation that it may raise interest sooner rather than later,” said Klump. “By highlighting the recent rapid rise in the Canadian dollar while intentionally failing to mention the rebound in the Canadian housing market as sources for concern, the bank aimed to end recent speculation that it will hike rates before its repeated pledge of not doing so until at least July 2010.”

As of October 20, the advertised five-year conventional mortgage rate stood at 5.84 per cent, which is down 1.36 per cent from a year ago, but stands 0.35 per cent above where it stood when the bank made its previous interest rate announcement on September 10.

Improving credit market conditions have enabled lenders to reintroduce discounts off posted mortgage interest rates. Discounts of up to a percentage point can be negotiated, depending on the lender-client relationship.