of Canada predicts interest rates will soon rise; putting housing affordability in many markets across the country in jeopardy. Should brokers expect an influx of business in the short-term?
“RBC anticipates that as longer-term interest rates begin to moderately rise, the costs of owning a home at market value will gradually outpace (growth) household incomes by late-2014, leading to strained affordability in several markets across Canada, much like the trend in Toronto,” RBC chief economist Craig Wright said in the report.
Brokers may not despair just yet, however, with homebuyers looking to take advantage of current low rates before the inevitable hikes. The report was published on the heels of a number of brokers and one credit union posting sub-three per cent five year fixed rates; marking record lows for the past six months.
Still, the Royal Bank
predicts the overnight rate will remain at its long-standing one per cent for the rest of the year.
"While we expect the Bank of Canada to leave its overnight rate unchanged in 2014, we forecast an upward drift in bond yields-the main driver of fixed mortgage rates-ahead of what is likely to be a gradual pace of policy tightening by both the Fed and the Bank of Canada," Wright said.
If the forecast proves correct, it will mark the greatest change in affordability since 2010.
"The relative strength in income gains in Canada offset the minor increase in homeownership costs in the final months of 2013, meaning that homes were more affordable for those looking to buy," Craig Wright, senior vice-president and chief economist said in the report. "When you look at Canada's year-on-year affordability trend, 2013 was little changed from 2012, and even from 2011 or 2010, for that matter.
“That being said, this stationary trend also means that a divergence still exists - owning a detached home at market value is more of a stretch for homebuyers than owning a condo."