December 9, 2009
Lower mortgage rates spur housing sector recovery
Canada experienced its second straight increase in new mortgage borrowing during the third quarter, following three straight quarters of decline, according to a recent Statistics Canada report.
The increase occurred in conjunction with a 35 basis point drop in conventional five-year mortgage interest rates during the third quarter (100 basis points = 1 per cent).
“These figures are very encouraging. It looks like Canada’s economic turnaround is occurring quicker than was anticipated,” says CanaData chief economist Alex Carrick.
Lower interest rates placed downward pressure on the overall Mortgage Cost Index, which measures the interest cost of outstanding and existing mortgages.
The index fell by 3.1 per cent in October and 2.2 per cent in September.
This change is likely a result of homeowners taking advantage of declining interest rates to re-finance existing mortgages.
A decline in debt obligations has led to increases in disposable incomes, meaning many Canadians have more money to spend on their homes. Housing renovation investment was up by 2.8 per cent in the third quarter.
“A positive shift in popular sentiment with regards to income level sustainability and job security helps explain the increased spending and overall health of the housing sector,” Carrick says.
The success of the federal Home Renovation Tax Credit, designed to encourage investment in existing home construction and renovation, has also contributed to the sector’s resurgence.
While investment in residential housing was down by 4.2 per cent during the third quarter, this is a marked improvement over the first half of the year.
Housing starts are also a cause for optimism. Seasonally adjusted annualized housing starts topped 157,000 units in October, a significant improvement over the 2009 low of 119,000 units recorded in April.
The New Housing Price Index, which is down 2.7 per cent on a year-over-year basis, is also showing signs of recovery.
The contractor’s selling price on new houses jumped 0.5% in September, the most recent month for which data is available.
