Three of Canada’s big six banks have raised mortgage rates once again this week, prompting some economists to declare an end to a long run of ultra-cheap home loans.
BMO is raising its five-year fixed rate to 3.79 per cent, from 3.59 per cent, while RBC announced on Wednesday its five-year fixed rate is going up to 3.89 per cent, from 3.69 at present. TD Bank's rate will now be 3.79 per cent.
The rest of Canada’s major lenders are expected to follow suit with their own mortgage rate hikes.
The hikes follow a previous round earlier this summer, and it appears mortgage rates, which reached their lowest points in modern history earlier this year, are heading back up for the long term.
“I think this is the real thing,” CIBC World Markets economist Benjamin Tal told the Globe and Mail. “This is the end of extremely low interest rates. They’re simply unsustainable.”
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With the U.S. economy on the mend, bond yields have been rising, which raises the cost for Canadian banks to lend out fixed-rate mortgages.
Not six months ago, BMO was offering a five-year fixed-rate mortgage at 2.99 per cent, and smaller mortgage lenders were offering rates even below that. Evidently worried about the possibility of irresponsible lending, Finance Minister Jim Flaherty contacted BMO, asking them to raise rates.
Those days appear to be over. Data at RateHub.ca shows there are no below-three-per-cent mortgages being offered on the Canadian market any longer.
Tal described the rising rates as "the beginning of a test for the mortgage market."
There are some estimates as to how Canada is doing on the test so far.
According to Canadian Mortgage Trends (CMT), the increases in mortgage rates that have already taken place have added an additional $120 per month to the cost of a $300,000 mortgage. That’s enough to price a certain number of people out of the home-buying market, though CMT estimates that fewer than one in 10 borrowers would face problems as a result of this increase.
The effects of rate hikes may already be working their way through Canada’s housing market, particularly markets where affordability is already strained, such as Toronto and Vancouver.
RealNet reported earlier this week that Toronto’s high-rise housing market (condos) saw sales drop 29 per cent in July from a year earlier, while the low-rise market saw sales drop seven per cent, putting sales 40 per cent below the 10-year average.
At the same time, prices for low-rise homes in Toronto hit an all-time high of $645,854, up 5.3 per cent in one year. Condo prices fell 1.6 per cent, to an average of $430,900.