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Mortgage Broker News | 21 Aug 2014, 07:01 AM Agree 0
A report by RBC Economics says that a rise in interest rates would have a big impact on the housing market but would be a cooling rather than a crash.
  • Steve | 21 Aug 2014, 07:38 AM Agree 0
    Of course they will, but nobody in this market will listen until it happens....and then it's too late
  • Cory Kline | 21 Aug 2014, 09:07 AM Agree 0
    I am not as convinced. With the reduction of amortizations from 40 years to 25 years for insured mortgages, on a $300,000 mortgage: payments have gone up apx $350/month, which has not "substantially" moderated anything. Let say rates went from 2.99% to 4%, that only effects payments by apx $160/month. So if $350/month did not make a "substantial" moderation in house prices , who's to say another $160/month will be "substantial". I believe the offsetting increase in payments has helped "control" house prices in some ways, however in other ways I feel it may have potentially increased prices, by reducing the supply of new listings, as existing home owners are realizing the possible payment shock of not only moving up in price, but also reducing their amortization ( possibly from 40 years to 25 ) ( The buy-your-second-house-first 40 year concept backlash ). This matched with increasing rental cost driving the desire for First Time Home Buyers to purchase ( increasing purchaser demand, on a limited/restricted supply of vendors due to payment shock ) is resulting in increased home prices that do not follow the general rules set out by The Bank. ( In addition to the updated Mortgage Portability Options & Mortgage Charge Terms that many lenders have made, epically the major Canadian Banks, that almost forces Canadian's into paying penalties, and the updated penalty calculations are greatly biting into Canadian's home equity usually in the $10,000 - $20,000 range ) I'm not suggesting I know the answers, I am just suggesting a rise in interest rates ( thus payments ) may not "substantially moderate" house prices, ( as I am not convinced amortization reductions ( thus greater payment increases already absorbed ) had as much of an effect as expected. Perhaps more focus should be put on helping Canadian's prioritize their goals and understand how their housing and mortgage options can keep their budget inline with their goals.
  • Dustan Woodhouse | 21 Aug 2014, 10:42 AM Agree 0
    When interest rates do eventually rise I predict the return of longer amortisations to counter the effects of higher rates and thus maintain a 'balance' consistent with that of todays market.
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