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Interest rates, economic uncertainty impacting Calgary market

For Calgarians Matt and Vanessa Haug, the stars aligned when they decided to purchase a new home in southeast Calgary.

The couple cited low interest rates and competitive house prices behind their decision to act now rather than wait – a sentiment slowly emerging since energy-sector uncertainty took hold in Calgary's housing market late last year.

"We got 2.69 [per cent] on a five-year fixed rate. It definitely impacted our decision," said Matt, who also cited house prices behind their decision to buy and noted the lower rate did not impact how much they ultimately spent on their new home. "It is definitely nice to have a lower rate because it lowers our monthly payment ... it is definitely nice to know that we will have a low rate for five years."

Following a period that saw the Bank of Canada's overnight rate unchanged at one per cent for more than two years, the rate dropped to just .75 per cent in January.

The move, which came as a surprise to many at the time, has since presented dream scenarios for many homebuyers in Canada, said Mortgage 360's Nolan Matthias.

"The Bank of Canada made this perfect storm even sweeter in January by lowering rates, which have now trickled down to the consumer in both fixed and variable terms," he said.

"With the average five-year fixed rate at all-time lows, Calgary's homes are becoming even more affordable, which is the most common-sense measure of our real estate market."

The Bank of Canada estimates a household that has renewed a $100,000 mortgage would save around $250 in interest payments this year as a result of the 0.25 per cent drop.

CREB® president Corinne Lyall said resiliently low interest rates are giving homebuyers or those looking to refinance plenty to be happy about.

"The real opportunity in terms of interest rates is for qualified buyers who are already out there looking to make a purchase," she said. "These buyers not only have more choices in the marketplace, but they also have increased affordability with the low mortgage rates available right now."

Even with the favourable rates, some buyers in Calgary have been reluctant to make a move.

According to CREB®, sales activity in April totaled 1,957 units, 22 per cent below last year's levels and nearly 15 per cent below April's long term averages.

"In Calgary, the concern regarding the impact a slower energy sector will have on the residential housing market has outweighed the impact of a falling interest rate," said CREB® chief economist Ann Marie Lurie.

"Overall, year-to-date sales activity within city limits is nearly 19 per cent below five-year average activity over this time frame."

That hasn't stopped Calgarian Lesley McLaughlin from recently listing her Glamorgan condo. She didn't cite low interest rates behind her decision, but rather her desire to move up into something larger and how that's now possible given more competitive pricing in the city's current housing market.

"I decided to list now as I feel ready to move from a condo/townhouse to having my own home, minus the condo fees," she said. "I am hoping to take advantage of the market at this time as well, although it's apparent things have slowed down."

Contrasting the declines seen in Calgary, home resales have been on the rise across Canada. National home sales activity posted a third consecutive month-over-month increase in April, according to the Canadian Real Estate Association (CREA), which cited favourable rates behind the strong numbers.

"As expected, low mortgage interest rates and the onset of spring ushered many homebuyers off the sidelines, particularly in regions where winter was long and bitter," said CREA president Pauline Aunger.

As for what the Bank of Canada has in store for the overnight rate, officials have downplayed the risks of a subsequent rate cut through the March and April policy announcements. Citing risks that lower oil prices could still impact the economy, Bank of Canada governor Stephen S. Poloz suggested the overnight rate won't be moving anytime soon.

"Because it takes up to two years for interest rate movements to have their full impact on inflation, it wouldn't make sense to respond to every wiggle in the inflation rate," he said."Our challenge is to look through the temporary effects and aim our policy at the movements in inflation that are persistent."