Higher interest rates expected to deepen Calgary housing market correction
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Calgary’s housing market woes will deepen when interest rates rise in the near future, says a national economist.
“Home prices are already down by almost four per cent, and we do think that we could see sales and prices fall further through 2016 and 2017,” said Diana Petramala, economist with TD Economics, in a video interview on the bank’s website.
“We’re betting on maybe a 10 per cent peak-to-trough in home prices in Alberta overall; a large amount of it’s being concentrated in Calgary right now.”
She said mortgage rates are expected to start rising as early as December.
“We see the five-year government bond yield going up by anywhere from 60 to 70 basis points by the end of 2016, so we could see that passed through to consumers in terms of higher five-year fixed mortgage rates of a similar size,” said Petramala.
“And we’ve done analyses on interest rate changes and the impact that they have on the Canadian housing market and we found that that type of movement could bring sales down about 10 to 15 per cent.”
According to the Calgary Real Estate Board, year-to-date from January 1 to November 25, MLS sales in the city of 17,788 are down 26.55 per cent compared to the same period a year ago. The median price of $425,000 has dropped by 0.35 per cent and the average sale price of $469,854 is off by 2.55 per cent.
Richard Cho, principal, market analysis for Canada Mortgage and Housing Corp., in Calgary, said mortgage rates are low at the moment and they are expected to increase in 2016 “but still remain historically low.”
“It’s going to have a bit of an impact on housing demand but it certainly isn’t the only factor that affects the buying decision. Other factors such as low employment growth, lower levels of migration will also work to limit housing demand in 2016,” said Cho, one of the main speakers at Thursday’s housing outlook conference by the CMHC in Calgary.
In its fall housing outlook report, CMHC said it expects interest rates to begin to rise moderately from current levels late in 2016, “contributing to a modest slowdown in housing markets.”
“According to CMHC’s base case scenario for 2015, the one-year mortgage rate is expected to be in the 2.60 to 3.30 per cent range, while the five-year rate is forecast to be within the 4.10 to 5.20 per cent range. For 2016, the one-year mortgage rate is expected to be in the 3.00 to 3.80 per cent range, while the five-year rate is forecast to be within the 4.70 to 6.00 per cent range. For 2017, the one-year mortgage rate is expected to be in the 3.90 to 4.80 per cent range, while the five-year rate is forecast to be within the 5.10 to 6.50 per cent range,” said the report.
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