Interest rates up .9% in two weeks and also, bucking the national trend, Toronto's Home Price Index was down .7% in February. It's starting people - it's starting...and this is without the huge condo inventory even coming to market yet...sheesh - this could get worse than I thought.
Each 1% increase supposedly adds about 19% to the average mortgage payment. Of course there has to be an adjustment. Whether a drop or plateauing for a few years was always in the cards.
Simuls, ask yourself a question. Have we recovered to where we were before the 2008 huge fallout in the US and around the world. I would suggest the answer is "no". Home prices dropped about 10-15% in Toronto at the height of nervousness and now are higher than they were before all this happened. Low interest rates, HST, change in mortgage rules pulled forward alot of demand and until now had people feeling pressured to beat the deadlines.
Now that the deadlines are almost upon us, interest rates are rising, the recovery while showing signs of strengthening by all accounts we are not out of the woods yet. And, despite this, prices are higher than they were before we became aware of the problems around the world. Prior to the "implosion", everyone was confident and things going well, and now house prices are higher despite tepid good news at best and less than full consumer confidence.
When the money taps are turned off, and everyone (governments/corporate and consumer borrowing) needs to pay for all the money that has been poured into the system, and the government has to cut back, confidence will again be questioned and prices cannot go up in that environment and I believe may retest the lows back in March of 2009(at least in Toronto). Add to it as you correctly point out a glut of condos coming, expect house prices and rents both to drop (again not a huge drop off: 10 to 20% max I believe).
The days of interest rate hikes arrivals were always known expected. None the less, it is still a shock when one sees/hears of it. It is just the pace of increase which is eye opening but let's not panic. For all the reasons that I described above, the interest rates cannot and likely will not continue at the rate of increase seen in the past 2 weeks (0.85% on 5 year mortgages), otherwise the economy would be choked off and interest rates again head downwards.
