Historically low mortgage rates have stimulated home sales nationwide and in turn have renewed pressure on house prices.
In the August release of the Teranet-National House Price Index, only Quebec was down slightly on an annual basis (-0.1%). Compare that to just a few months back in April when there was y/y house price deflation in Victoria, Halifax, Montreal Quebec and Ottawa.
Calgary price growth led the nation yet again in August, this time posting a 7.9% y/y increase, followed by Hamilton & Toronto (6.7%) and Vancouver (6.1%).
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However, National Bank warns that this “acceleration in house prices is not likely to be sustained, with higher mortgage rates looming in 2015.”
TD echoes the same sentiment in their research note: “Looking ahead, a moderate employment picture and gradually rising interest rates suggest that the accelerating trend in home price growth may not be sustained.”
While it’s prudent to warn consumers about future rate hikes and caution them about the impact it will have on the housing market, nobody knows when that will happen. Take a look at some forecasts made years ago about interest rates:
“There’s growing speculation that June 1  will be the day the Bank of Canada begins the coming cycle of interest-rate increases. Whenever this happens, it’s back to the real world for variable-rate mortgage holders“
-March 30, 2010, Globe & Mail: The end is nigh for low-interest-rate heaven
BMO’s economics department expects that interest rates will rise. “The era of historically low mortgage rates is coming to an end,” said Sal Guatieri, Senior Economist, BMO Capital Markets.
-March 31, 2010, Newswire: Rates Are on the Rise- Get Pre-Approved This Week
“We expect the Bank of Canada to increase the overnight rate starting in June, with the pace of increases being fairly steady through the remainder of 2010 and 2011, which will continue to put upward pressure on borrowing costs“
-RBC, May 2010
“Author Garth Turner, a noted pessimist on the fortunes of housing these days, thinks those who want to be in the market for a house should probably be grabbing on to long-term products. He says the banks know the housing market is already shrinking and are scrambling for a larger share of the mortgage market. “The writing is already on the wall, prices will be declining,” Mr. Turner says. “The Bank of Canada will be raising rates.”
-March 27, 2012, Financial Post: Mortgage rates have nowhere to go but up
Over the medium-term, interest rates will likely rise at least 2 percentage points and there is no doubt that a significant minority of Canadian households will be at-risk when this occurs
-TD, May 2012, Are Canadians Prepared For Higher Interest Rates?
“Going forward, we expect home prices to be about flat or likely declining in certain markets. The pressure going forward is not going to come from prices per se, but is going to come from rising interest rates.”
-RBC, August 2012