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BMO Financial Group

April 16, 2012 13:14 ET

Feast or Famine for Canadian Housing Market-BMO Economics

- Market looks well balanced for most cities, excluding Toronto and Vancouver

- BMO encourages prospective buyers to stress-test their mortgage and choose a shorter amortization

TORONTO, ONTARIO--(Marketwire - April 16, 2012) - While the Canadian housing market appears to be quite calm, there is plenty of churn beneath the surface, according to BMO Economics' analysis of today's Canadian home sales numbers for March from the Canadian Real Estate Association. Seasonally adjusted sales rose 2.5 per cent from the prior month in March, and were up a modest 1.6 per cent from year-ago levels.

"While the Vancouver area is posting double-digit sales declines and a dip in prices, Toronto and some other Ontario cities are chalking up solid sales and double-digit price gains," said Doug Porter, Deputy Chief Economist, BMO Capital Markets. "In fact, it's almost a case of feast or famine, depending on the city."

Mr. Porter noted that in housing, Toronto is not Canada, nor is Vancouver. "Excluding these two wildly divergent markets - which account for a little more than a quarter of national activity - average prices and sales across the rest of the country posted modest gains from year-ago levels in March. Nineteen of the 26 largest markets reported single-digit price increases from year-ago levels, hardly consistent with an out-of-control market. For most cities, the market looks well balanced, and is broadly moderating on its own accord."

Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal, noted that with interest rates poised to climb next year, saving on interest costs over the long term should be high on the priority list for any prospective buyer.

"While interest rates have been at historic lows recently, the inevitable climb looks to be coming as soon as next year. Choosing a fixed mortgage can provide protection against rising rates and make the cost of owning a home more manageable in the long run," said Ms. Archdekin. "In addition to choosing a fixed rate, we believe that for Canadians a mortgage that carries a maximum 25 year amortization is the right choice for today's environment, as it helps homeowners build equity in their home faster."

Furthermore, Ms. Archdekin noted that on a $400,000 mortgage at a 5 per cent interest rate, choosing a 25 year amortization can save upwards of $70,000 in interest, which Canadians can put directly towards their retirement.

BMO offers the following tips for homebuyers

Make sure you can afford a rise in mortgage rates:

  • Stress test your financial budget using a mortgage payment based on a higher interest rate.
  • Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of household income.
Consider a shorter amortization:
  • The shorter the life of the mortgage, the less you pay in interest.
Make a larger down payment:
  • If you can provide a bigger down payment, it's a significant way of helping you pay less interest over the life of your mortgage.
Think carefully about fixed vs. variable:
  • While variable rates mortgages have been a winning strategy over the long term, fixed rate mortgages (currently at historic lows) can provide the peace of mind of being insulated against rate increases and knowing how much of your mortgage you will have paid down at the end of your term.

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $538 billion as at January 31, 2012, and more than 47,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.

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