The overnight interest rate set by the Bank of Canada, now at one per cent, banks clamouring for a piece of a tighter market and cheaper bonds are reasons why mortgages are so low right now, RBC Global Asset Management’s Eric Lascelles told CTV News Channel Friday. But buyers should be thinking ahead when rates eventually return to “normal,” he said.

“I think it is fairly clear that home prices are overdone in certain urban areas. The map I’ve done says if we ever return to normal interest rates, home prices are 15 per cent too high,” Lascelles said. That doesn’t mean home values need to come down by that amount, he added, suggesting instead prices could stagnate for a few years and be matched by higher household incomes to ease any bubble “reasonably benignly.”

The caveat for homeowners is to buy what they can afford because when rates rise again and the mortgage needs to be renewed, refinancing costs can be overwhelming, Lascelles said. BMO’s offer comes at a time when the big banks are also pressuring Ottawa to lower the maximum amortization period (the number of years a person has to pay off a mortgage), now set at 30.

It had been 40 years but persistent worries over the accumulated debt of Canadians convinced the federal government to lower it over the past two years.

The latest mortgage cut by BMO will likely trigger increased competition among the major banks as they battle for a share of the shrinking housing market. The five-year fixed rate is used by the banks as a benchmark for borrowing costs and is typically the rate applied to first-time homebuyers. The BMO rate cut is good news for people shopping for a home and bad news for those worried about a potential housing bubble, says a Queen’s University professor who specializes in real estate.

“This move by BMO will no doubt be quickly followed by the other major banks,” said John Andrew in a media release Friday, adding rate cuts have actually been lagging behind falling bond yields that are typically the barometer of mortgage costs. “What’s interesting are the conditions that BMO has attached to this mortgage rate, which are consistent with the lending industry’s move to even more responsible lending practices,” he said.

It did not take long for other major lenders to follow suit — by Friday afternoon both TD Bank and RBC Royal Bank were offering four-year special fixed rate mortgages at 2.99 per cent. Both offers expire in February.

Other banks are expected to make similar offers as they struggle with reduced borrowing by consumers.

Home renovations have also seen a decline since the implementation of the HST, as consumers continue to hold back on major purchases until the PST is reinstated.In addition to the stalls in building projects, the industry is anticipating that more than 8,000 potential construction jobs will be put in jeopardy along with roughly 250,000 related jobs annually–for which the industry is seeking compensation from the government.In response to the stall surrounding the PST the Urban Development Institute is proposing to the provincial government that there be transition rules created to address the move from the HST back to the PST/GST system. The UDI is also suggesting that rebate cheques be offered to consumers who purchase homes above the $525,000 mark and that the threshold be raised to encourage more new home purchases up until the HST is removed.

UDI’s president Don Forsgren is hoping that by looking into transition strategies and minimizing the continued negative effects of the HST on the housing industry that consumers will continue to purchase new homes in the interim rather than holding off until 2013. Representing more than 550 BC developers, the UDI will continue to lobby the government for assistance in this tumultuous season.

With the BC HST Price Difference, What Major Impact Does That Have on First Time Homebuyers?

Although an increase in purchase price of 2 to 5% may not sound like much, we are still talking about thousands of dollars. The new home BC HST tax increase is very substantial even for a small condo that costs $300,000. Do you know of many Vancouver first time homebuyers who can pay an extra $6,140 in BC HST on their new home upon closing? Remember that the major banks are unlikely to finance a 12% HST tax burden, which basically means that the first time home buyer will need to cover the BC HST price difference. Coming up with an extra $6,140 is tough enough, but when it comes to this new home BC HST tax increase for first time homebuyers, it is money out of their wallet that does not even increase the value of their home. The implication of the BC HST price difference and extra tax burden is that many first time homebuyer in Vancouver and British Columbia will stay away from the new construction housing market. The costs and the new home BC HST tax increase for first time homebuyers is too high, forcing many purchasers to either wait and rent for a while or to purchase resale Vancouver property instead. The secondary effect of the new BC HST price difference on new homes is that with fewer first time homebuyers driving the new housing market, the construction industry is likely to suffer. BC new housing sales and construction will drop, forcing many people in the industry to move out of the province or to seek alternate employment.

Not a single new home sold! September 2011
Not one single new home sold in September on the west side of Vancouver. The significance of this cannot be understated. For the past couple of years Vancouver’s west side housing market (along with that of the Vancouver suburb of Richmond) have been red hot. Back in March of 2011, Real Estate Board of Greater Vancouver president Jake Moldowan said in an interview that “it’s a huge sellers’ market, the strongest in those areas I’ve ever seen. And there’s no question that it’s the offshore market that’s focused on these two areas.”According to the March 2011 report by the REBGV, demand for detached homes remained strong across the region, with particularly high sales volumes and price increases in Richmond and Vancouver’s west side. In fact Moldowan said that it’s single detached homes in Richmond and Vancouver’s west side that are the most sought after properties in the entire Lower Mainland marketplace. September 2011 marks the first ‘no new home sale’ month on the west side of Vancouver since records started been complied in 1994. Even the minicrash of 2008 saw four sales of new homes on the west side.”This information has been obtained from sources deemed to be reliable and while thought to be correct is not necessarily guaranteed.”

City planner Brent Toderian says he appreciates the concerns and the city is trying to cool down land speculation in the neighbourhood.Toderian says the city has been meeting with developers and realtors to discuss land transactions after getting wind of some very high deals negotiated in the months after the Cambie corridor plan was approved.

5100 Cambie Street

Cambie Street

He says the final prices didn’t appear to have factored in community amenity contributions the city negotiates with developers in order to pay for infrastructure and services associated with increased density”People were overpaying for land — thus we sent messages out into the marketplace to say you’re going to have to adhere to the expectation of the plan if you wish to succeed in development.”But he says having a new rapid transit line running through the neighbourhood means changes are coming and the city’s plan has the community’s support.”Canada Line is a change maker and so yes — there will be some folks, and to my ear they are the minority — but there are going to be some folks that are unhappy about that,” he said.”But most people recognize the logic and inevitability of transformation once you’ve put in a piece of infrastructure like Canada Line. The vast majority of people we heard from were very positive about the plan.”

Toderian expects construction along the corridor to begin in late 2012.The Cambie corridor plan allows buildings up to 12 storeys in height, and leaves room for them to go even higher around the Oakridge Mall near 41st Avenue and at the southern end of Cambie Street near Marine Drive.

Preliminary plans for the 825,000-square-foot Marine Gateway Project next to the Marine Drive Canada Line station have already received city approval. It will include two residential towers with more than 400 units as well as a cinema, food and drug stores.