The greater Toronto area stared at the 5,759 sales number of its existing homes this February; a drop by fifteen percent as compared to the figures during the same time in 2012 (6,809). The decline was attributed to the fact that the last year was a leap year and hence it enjoyed one more day; actually, the corresponding drop for a period of 28 days is 10.5%, according to the Toronto Real Estate Board.
It therefore follows that the housing market has not recovered from its sales’ downtrend that was seen in the latter half of 2012. Added to that is the fact that the mortgage insurance rules were intensified in the country by the finance department in the summer of last year to try and curtail the increasing debts of consumers. These severe guidelines have served to decrease the pace of the common home sales. This has invariably affected the prices as well; bringing them down 4.7% in February as compared with the same time last year. Sales of condominiums too suffered a lot, although their prices did not take a hit; they were still looking upwards.
On March 4, 2013, the five-year fixed low-rate mortgage rates of Bank of Montreal were slashed from 3.09% to 2.99%, with a repayment period of twenty five years. This was done anticipating that bank profits could be affected owing to signs of the sluggish mortgage debt growth. This move triggered qualms that there could be more tightening in the norms of the rules related to mortgage lending in Ottawa if the rationing of rates leads to improvement in consumer loans. So credit growth too has had to contend itself with a fall in the mortgage credit growth from 8% to 5%. Canada is presently grappling with the problem of a high number of household debt loads. It is anticipated that banks will exercise due caution while lending and not suffer the consequences that the U.S. had to deal with following the mortgage crisis in that nation. With this, the Bank of Montreal is the first amongst its peers to cut its mortgage rates and this is a repeat performance of the last year as the season is considered as one which induces maximum buying of homes. At the same time, the span of the present offer is not known and could be subject to withdrawal; in 2012, it lasted only for a few weeks after other banks too followed suit.
When there is such a short-lived mortgage cut, it will hardly excite the Canadian borrowers. The scene looks set for competition amongst banks to gain maximum benefits from the falling housing market.
In January, when there were similar uncertainties surrounding the burden of household debts, not to mention the high housing prices, Moody’s Investors Service downgraded the ratings of 6 important financial institutions of Canada. This down-gradation occurred hardly two months of a similar act by Standard & Poor’s of 6 financial institutions by 1 level due to the fragile economy.
It remains to be seen whether permitting Canadians to pay off their debts sooner can provide a solace of sorts to their dithering housing sector.