by Ray Kar, June 27, 2019
Better Dwelling has some interesting observations on the state of the Toronto real estate market. Here’s the gist:
- The effective household interest rate is a composite interest rate composed of weighting of consumer loans and mortgages. This composite rate is arrived at using actual loan data provided by lenders. The weighting of the rate is passed on an assumed mix of mortgage loans and consumer loans that is reflective of the “typical Canadian household.”
- Canadian banks, trying to hit profit targets amid slowing credit demand have cut rates in order to stimulate spending, and or to take market share from competitors. The current effective household borrowing rate is down considerably from the recent peak reached the week of March 8th. Rates in mid-June were down 5.72%. That works out to a 23 bps cut, which is about the impact borrowers would experience with a Bank of Canada rate cut. The typical household borrowing rate is now back to the same level it was in August 2018.
- Since the rate cuts, Canadian household borrowing has been experiencing mild acceleration. However, the gain has come in the consumer side, not in mortgage growth, thus not helping enough to stem slowing price growth, or outright decline in prices in most Canadian markets (including on the whole Toronto, and notably extremely weak Calgary market).
- Toronto real estate prices increased in May, but continue to decelerate. Prices increased 0.67% in May, from the month before. That works out to a 2.63% increase compared to the same month last year. Prices are now down 3.42% from the peak reached in July 2017. May normally sees a monthly increase, and this was the smallest since 2001. The annual increase has only been lower two other times in the history of the Teranet-National Bank of Canada House Price Index (TNB HPI).
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