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The Bank of Canada surprised the country with a rate cut back in January. Earlier this month, they decided to maintain the low rate of 0.75 percent.

Canadians with variable rate mortgages are celebrating, as most of the big banks have lowered their prime rate. And now, just in time for the spring real estate market, banks are competing for Canadians’ mortgage dollars. Lenders are offering fixed rate mortgages at incredibly low rates. Currently, the 5 year fixed rate at Toronto-Dominion Bank (TD) is set at 2.79 percent. The same rate is offered by another of the Big Five, Bank of Montreal (BMO). While the other three big banks haven’t yet followed suit, Canadian Imperial Bank of Commerce (CIBC) is offering a special 1.99 percent interest rate for the first 9 months of qualifying mortgages.

Canada’s real estate market has gone a little crazy over the past few years. Property values are at an all-time high. Some experts predict an upcoming housing bubble; others think the market can sustain the growth and higher prices.

How are the new rate cuts affecting the already-heated real estate market? Here’s what’s going on in Canada’s largest cities.

Vancouver

Still one of the hottest markets in the country, Vancouver shows no signs of slowing down. The latest numbers confirm listings and home sales are both up, and well above the month’s ten-year average.

“It’s an active and competitive marketplace today,” says Ray Harris, president of the Real Estate Board of Greater Vancouver. “Buyers are motivated and homes that are priced competitively are selling at a brisk pace right now.”

Real estate prices are through the roof. The MLS® Home Price Index for detached properties was calculated at $1,026,300 – yes, over one million dollars for a typical single family home – up 9.7 percent from a year ago. The index price for all properties came in at $649,700, up 6.4 percent since last year.

Some worry a hike in interest rates may create too much supply and not enough demand. With prices already extremely high, new buyers may get priced right out of the market when interest rates go back up. If demand for housing drops, property values may collapse.

Toronto

Toronto is also showing strong year-over-year growth. The latest numbers published by the Toronto Real Estate Board (TREB) show an average selling price of $620,106, an increase of 10.6 percent since this time last year. Average sale price for detached homes was $806,784, an increase of 14 percent year-over-year.

TREB’s president, Paul Etherington, commented on the trend: “Strong year-over-year growth in home sales continued during the first half of March for most home types in the GTA, both in the City of Toronto and the surrounding regions. This suggests that households continue to view the purchase of a home as a quality long-term investment. But for a lack of low-rise listings in some neighbourhoods, it is quite possible that the number of sales could have been higher.”

Calgary

The status of Calgary’s housing market is a different story. Oil prices have taken a hit and the local economy is grinding to a halt, making many Calgarians nervous.

The Calgary market is showing signs of a price correction. According to the Calgary Real Estate Board (CREB), total home sales were down significantly for the month of February, with a drop of 34.22 percent. The low number of sales led to higher than usual inventory levels, with a spike of 107.27 percent year-over-year. Calgarians seem to be waiting to see what the market will do.

"Everyone has different reasons for making a move and so it’s difficult to predict how buyers will react to this market,” said CREB president Corinne Lyall. “Buyers who have been waiting for more inventory to come on the market may find what they are looking for today. If they are in a position to make a buying decision, they certainly can take advantage of the lower interest rates.”

However, fewer sales have not led to a big slide in prices yet. The average home price for February 2015 was down to $462,294, which represents a dip of 4.24 percent year-over-year from February 2014.

Falling real estate prices may help first-time buyers in Calgary, as long as interest rates don’t jump up too quickly. For those planning to pay off their mortgages quickly, lower prices combined with lower interest rates will mean lots of savings.

Related Reading:

Canadian Real Estate Buyers Spending More Money for Less House

Canadian Landlords Grapple with How (and Whether) to Lease to Immigrant Tenants

Canada’s New Real Estate Bubble: Realtors


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