In his 32 years in the business, John Hope says he’s never seen anything like it.
The Re/Max Eastern Realty Inc. vice-president said when he bought his first house in 1972 his mortgage rate was 12%.
In 1980 mortgage rates topped around 21%. Earlier this week, Re/Max, which also has mortgages, was offering a 4.19% five-year fixed rate – the most common mortgage arrangement according to industry officials. “I’ve never seen a mortgage at these rates,”
Hope said. The time is right to buy a new home, he said. “They’re never going to be as affordable as they are now.” Local realtors and builders say the market slump has lifted and housing sales are rebounding because of unusually low mortgage rates.
May sales are almost on par with May 2008, which realtors said was a good year. “June is going like a rocket. But we’re playing a catch up game,” said Carl Oake, broker and owner of Century 21 Unity Realty Inc. Brokerage. His sales were down 75% from November to February. “But we’ll probably close that gap off by August and September,”
because of a rebound in the market, Oake said. Hope also said his sales have rebounded. Traditionally, it’s a busy time of year for home sales, Hope said. But he also believes there are a lot of first time buyers, and people looking to upsize, taking advantage of low mortgage rates. Re/Max mortgage agent Dave Griffin said six months ago Re/Max’s five-year fixed rate was 5.79%.
As of yesterday it was 4.39%, up from 4.19% on Thursday. On Wednesday it was 3.99% and 3.79% a few weeks ago, he said. A $250,000 home, with a 25- year mortgagee and 5% down, at 5.79% would cost $1,531 a month, Griffin said. At 4.19%, payments would be $1,308.91 a month.
At 3.99%, payments would be $1,282.33 a month. While the rate increased between Wednesday and Tuesday it’s “still a great rate,” Griffin said. He also said he thinks it will come down again. “I think now is the time is to lock in and take advantage of these low rates,” he said. “You see how quickly the rates changed.”
Earlier in the week, TD Canada Trust and RBC were both offering 4.15% five-year fixed rates. Yesterday those banks were offering 4.55%. BMO, CIBC and Scotiabank had a 5.85% rate posted online. When Bank of Canada interest rates go up, mortgages cost more.
Builders are also taking advantage of the low mortgage rates by boosting incentive packages, said Bill Turner Jr. with Triple T holdings, which specializes in building custom condominiums. Typically builders offer incentives but “not to the level that we’re talking about,” to help clear inventory, Turner said.
A typical incentive package could be about $5,000 worth of items, such as a new fridge, but Turner said he’s seen packages worth $16,000 including such things as hardwood floors and appliances. “Maybe where (builders) have been thinking we’d wait an extra year to two years to do something now is the time to make some serious financial gains by doing it,” he said.
“All the buyers that are sitting in the wings who might have been interested in upsizing their family home all of a sudden mortgage rates have dropped so much that they can actually afford to purchase a home that might be worth another $50,000 more than what their budget would have been a year ago.”
Paul Dietrich, vice-president of the Ontario Home Builders’ Association and president of the Peterborough and the Kawartha Home Builders’ Association, also credited mortgage rates and “good value” for homes. “It’s probably a very short window that this combination will be there for,” he said.
Several builders and realtors The Examiner spoke with said some of the market rebound could also be buyers trying to beat the harmonized sales tax (HST), which comes into effect in July 1, 2010. The HST only applies to sales of new homes. Right now only GST applies.
The province is creating a rebate to reduce the tax burden on new homes purchased for as much as $500,000. The rebate would be six per cent of the purchase price for homes purchased for less than $400,000, before taxes.
The rebate would be gradually reduced for homes priced between $400,000 and $500,000. For example, currently a $250,000 new home plus GST would cost $262,500. Once HST comes into effect and accounting for the rebate, a $250,000 home would cost $265,550.
Buyers of resale homes don’t pay PST and GST but the harmonized sales tax would increase the tax on services associated with buying a resale home, such as the mortgage insurance premium, legal fees, home inspections and the real estate agent commission, Barbara Criegern, president of the Peterborough and the Kawarthas Association of Realtors Inc., toldThe Examiner in March when Mortgage Calculator was released.
Criegern couldn’t be reached for comment this week but in a release, she said the recent activity is good news, but buyers and sellers shouldn’t assume the market has returned to pre-recession levels. “Our region is still suffering from many job losses but financial markets are slowly recovering.
Consumer confidence is returning. Many well-priced homes are attracting multiple offers. We expect this seasonal increase to continue well into the summer months to compensate for the slow start.”
http://www.americanpoems.com/members/alisashuang/housing-sales-are-rebounding-because-of-low-mortgage-rates/
reviewed by Moishe Alexander, CFC canadian funding corp CEO