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Mortgage rates raised

TORONTO - Canada's largest banks are raising their posted mortgage rates in a sign the era of ultra-low borrowing could be drawing to a close.

Royal Bank and TD Bank both announced Monday their posted five-year closed mortgage rates will move up 20 basis points to 5.44 per cent effective Mar. 29, while both raised their special fixed rate offer on a four-year fixed rate by 50 basis points to 3.49 per cent.

A basis point is one-hundredth of a percentage point.

Meanwhile, their posted five-year variable rate — which rises or falls along with the banks' prime lending rate — will rise 10 basis points to prime plus 0.20 percentage points.

The prime rate, which usually moves with the Bank of Canada's key interest rate, is currently three per cent.

The moves come after a recent race to the bottom that saw several banks offer special fixed rates as low as 2.99 per cent.

Although variable rates usually follow the lead of the Bank of Canada, longer-term rates are more influenced by bonds. Higher bond yields increase the cost of funds for lenders, who in turn pass them on to customers.

Government of Canada five-year bond yields have jumped more than 50 basis points in the past three months alone.

In a BMO report Friday, its economists argued that with the U.S. recovering gathering steam, central bankers on both sides of the border are becoming more comfortable with the economy and less so with historically low interest rates that in Canada are fanning the flames of the hot housing market.

Both Finance Minister Jim Flaherty and Bank of Governor Mark Carney have recently flagged household debt at a danger to the economy.

Household debt to disposable annual income is above 150 per cent.

By The Canadian Press

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T.O houses – and not condos – selling for 100% of asking

Outside of the condo market, there's increasingly little room for price negotiations in good ole T.O., with homes selling at 100% or more of the asking price within three weeks, according to new data.

The Toronto Real Estate Board released its mid-month resale housing figures, which also showed prices were up in all sectors from a year ago, and especially in single family homes.

“Strong competition between home buyers in many parts of the GTA has resulted in sellers realizing their asking price in a short period of time,” said Jason Mercer, senior manager or market analysis for TREB. “The fact that homes are selling for 100% of the asking price, on average, suggests that sellers are very much in tune with the current market situation and know the fair market value of their home.”

It also suggests buyers have little chance of scoring a deal below those increasing values. In February, Toronto homes sold for an average of 99% of the asking price.

But there is one exception, namely condo apartments. The average price in mid-March of $336,397 is 4% higher than a year ago, but it is 1.4% lower than the average condo apartment price weeks earlier at the end of February.

“I’m especially seeing it at the high-end, with developers offering (very high) Realtor commissions for properties that have sat on the market for quite a while,” Wojciech Pianka, a Toronto mortgage agent with Mortgage Alliance, said. “Some of those condos are also selling for less now than they did pre-construction, meaning investors are having to sell for less than they paid.”

Analysts point out that It can be difficult to read too much into trends over just a couple of weeks, but there is another sign pointing to a softening condo market.

While the average home listed in Toronto in February sold in 24 days, it was taking condos 29 days on average to sell.

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Bank of Canada holds rate but says outlook improved

OTTAWA (Reuters) - The Bank of Canada held its key interest rate unchanged on Thursday, as anticipated, but issued a more upbeat outlook for the Canadian and global economies that suggests it is starting to think about an eventual rate hike.

The central bank maintained its overnight lending rate target at 1 percent for the 12th straight time. It said the Canadian economic outlook was "marginally improved", uncertainty around the global economy had decreased and the profile for inflation was somewhat firmer than it had foreseen.

It also added a line about the dangers of high household debt levels in a sign of increasing worry about the consequences of ultra-low borrowing costs.

"Canadian household spending is expected to remain high relative to GDP (gross domestic product) as households add to their debt burden, which remains the biggest domestic risk," the bank said in a statement.

The bank repeated that there was "considerable monetary policy stimulus" in Canada but made no mention of the need to eventually withdraw that stimulus, language that it used in May and July of last year.

It tempered its more optimistic tone by noting that while it expected the economy to perform better in the first quarter than forecast, it would be due to temporary factors. Exports will contribute little to growth despite stronger U.S. demand because of persistent Canadian dollar strength and competitive challenges, it predicted. (Reporting by Louise Egan; Editing by Randall Palmer)

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