While Canadian homeowners welcomed news of mortgage rate cuts, the plunging oil prices that helped to drive the Bank of Canada’s cut in prime lending rates by 0.25% is unsettling news for the larger Canadian economy. From a Toronto real estate perspective, particularly for those of us interested in buying and selling Toronto lofts, the question is whether or not a drop in oil prices will affect the Toronto loft market.
Here’s our read on the situation and what it means for sellers as well as buyers looking to purchase Toronto lofts for sale in 2015.
It seems counterintuitive but a decline in oil prices actually means the strong likelihood of an increase in housing prices, at least here in Toronto. This includes the prices of lofts for sale Toronto. Calgary, an economy dependent upon the oil industry, is of another matter. But in Toronto, if it costs less to fill up at the gas pumps it means more money in our pockets. According to some researchers, that’s money that can go towards other things including property.
The potential savings is massive. RBC is projecting gas savings of around $8.9 billion that could boost overall spending in Canada by around $4.4 billion or roughly half of consumers’ savings at the pumps. CIBC is even more aggressive predicting a $10-$13 billion dollar savings in gas for consumers which, if correct, may make that $4.4 billion prediction a conservative one.
Most realtors and economists agree that this increase in consumer spending will boost Toronto’s housing prices above the country’s average yet again this year, likely somewhere in the 4-5% range. Great news for sellers. What’s also good news for buyers (or at least, not as bad news as last year) is that that percentage increase is likely to be less than the property price increases we saw in 2014.
Lofts will cost more this year than last year (no surprise) but here’s the good news–it’ll cost you less to carry your home. There’s a domino effect with declining oil prices that led to the BoC’s cut to prime which in turn led to lower mortgage rates on offer by both the big banks and non-bank lenders. All of this translates to the fact that the average person looking at buying a Toronto loft can now afford more.
Our advice to buyers? Remember that what goes down will eventually go back up so don’t leverage yourself beyond a reasonable debt to income ratio. Also, if you’re thinking about buying a loft do it now and don’t wait for the spring market when prices are sure to increase further, potentially negating your savings with lower interest rates.
When the BoC cut prime by 0.25%, the big five banks responded but not in proportion; big banks cut their mortgage interest rates by 0.15%. What this in fact did was leave the door open for smaller lenders and credit unions to swoop in with much lower rates and knock out the Goliath competition. We’re seeing rates as low as 2.59% on 5-year fixed-rate mortgages right now.
As soon as the small guys start making noticeable gains in market share, the big banks are going to have to respond with a further cut which we suspect will happen in time for the busy spring market. But remember that published rates are never the best rates. Have a read of this article on our sister site condos.ca about how to play hardball on your mortgage renewal or initial contract when you’re speaking with a mortgage advisor.
Now here’s the point where you’re supposed to say, come again? Why did we advise you in the previous section to buy now even though mortgage rates are likely to drop further in the coming months?
It’s because the sales prices of Toronto lofts and condos are likely to increase at a higher and faster rate than the savings you’ll see with a further tenth of a percentage point cut to mortgage rates. As well, with these new, lower rates at play, we’re likely to see a surge in the number of buyers vying for Toronto homes this spring and summer–demand is almost certain to exceed supply and buyer competition on popular loft buildings could be fierce.
What’s good news for first-time buyers is that the Toronto loft and condo market is significantly easier to break into than the local housing market. Also, remember that just because you buy now, it doesn’t mean that you can’t re-negotiate your mortgage rate before close if rates do in fact drop further. Take control over your money and push for the best rates available right up until your closing date.
Listings in January 2015 were up 9.5% year over year but even with all of this Toronto real estate market stimulus, we still believe that new listings won’t meet increased buyer demand. This is great news for sellers as a listings shortage means that we should continue to see a seller’s market in 2015 and even through 2016. This is especially true for lofts which are in lower stock, higher demand than Toronto condos even in a balanced market.
As a buyer, this is the time when people can get frustrated with how long their search is taking and either overpay for a property or settle or something that’s not right for them. Talk to a member of our MrLOFT Team about buyer strategies before you start looking and be honest with them (and yourself) about what’s a deal-breaker in a property and what’s a “nice to have”. You may have to compromise in a hot market but you don’t want to live with deal-breakers or you may be living with buyer’s remorse.
If you’re selling a loft, make sure to hire a Toronto realtor who specializes in lofts with a strong knowledge of the market, your neighbourhood and building.
Image © Makaule from Shutterstock.