One of the things that I predicted last December in my post “3 Predictions for Mississauga Real Estate Market in 2016-2017” was that there would be an announcement about an interest rate change at some point in 2016. We didn’t quite get exactly that, but the government did make a significant change.
The Stress Test
The government indirectly raised the bar for certain buyers – specifically those with less than 20% down. The group of buyers this affects the most is first time home buyers. While interest rates remain the same, those with less than 20% down now have to QUALIFY at the benchmark rate (at the time it was 4.64%) rather than at whatever rate they were getting from their lender (likely somewhere in the 2.4% range for a 5-year fixed term rate).
This essentially acted as an interest rate rise on the front end for certain buyers. The government was able to apply a short term measure without actually raising the interest rate which was likely their way of sizing up what would happen south of the border come year end.
However, we’re still not sure how effective this change will really be as a for a far more sizable chunk of buyers, this new mortgage rule won’t affect them. So, many are still wondering…will interest rates rise and how does Trump’s victory affect things?
Donald Trump is President
This isn’t an Onion headline. This actually happened. On January 20th, 2017 Donald Trump will be sworn in as President. But, now that we’re likely over that initial shock, the question on everyone’s mind is – what’s going to happen?
Let’s forget about nuclear codes and ISIS and all that. The most immediate impact we’re likely to see is on the economy.
The US Federal Reserve (the US version of the Bank of Canada) is making their next interest rate announcement on December 14th and the feeling is that a rise in the interest rate is coming. The current rate sits at 0.5%.
And like many expected, no increase was announced in September at their last meeting as they were likely waiting for the election results and the potential fallout from an unexpected Trump victory. A Trump win, many felt, would trigger market volatility. However, that hasn’t been the case yet.
While the markets dipped on election night, they stabilized the next day. So, it’s very likely if things remain stable, that the US Fed will increase the interest rate next month.
What does this all mean for Canada?
Let’s specifically talk about the GTA. Many here are very concerned about how quickly prices have risen over the past few years. And while we’ve seen Vancouver implement a tax on foreign buyers, Ontario isn’t likely to follow suit.
And while the Ontario government says it has plans in place to help slow the rise in prices, I’m not quite sure they have the ability, let alone the measures, to affect real change…at least in 2017.
Will Interest Rates Rise in 2017?
I usually leave this for my annual prediction post, but it’s worth discussing now as the next month will be very interesting for the global economy.
While TD earlier this month actually increased the rate on their variable mortgage, they only did so by 0.15%. That’s not the significant interest rate rise that people are waiting for or thinking about.
My personal opinion is that no matter what the US Fed does, the Bank of Canada won’t raise the interest rate. In fact, they are likely hoping that the US Fed raises rates which would cause the loonie to devalue and hopefully spur economic activity in Canada.
And with interest rates continuing to be low, that means that home prices aren’t coming down any time in the near future.
What will happen to the GTA Real Estate Market in 2017?
You can stay tuned for my official prediction post by subscribing to the blog, but I’ll give you a sneak preview.
If you’re a first timer looking for a detached home…we can’t make GTA home prices great again.