On Sept. 8, the Bank of Canada raised its trend-setting interest rate by one-quarter of one percentage point -- the first time the rate has increased in 17 months.
Economists have predicted all year that interest rates would rise, and that mortgage rates would soon start climbing as well. But mortgage rates are tied to the bond market, so just because the Bank of Canada rate goes up, it doesn't necessarily mean that mortgage rates must follow.
A new survey suggests that even though most Canadians expect interest rate hikes, they are not going to let that hinder their plans to buy a house. As the country sets new records for home sales in many communities, the survey says that homebuying intentions remain constant.
Research company Ipsos-Reid says 13 per cent of Canadians are likely to purchase a new or resale home sometime in the next year or so. "These findings have remained virtually unchanged since the questions were first asked of Canadians in August of 2002," the pollster says. That's good news for Realtors, because the Canadian housing market has been red-hot for the last three years.
In Toronto, the country's largest market, the real estate board says 2004 will set a new record for sales, eclipsing the old mark set just last year. Montreal is also experiencing its best summer ever, and communities across the country report lots of sales activity. The Ipsos-Reid survey says that home purchase intentions are consistent across Canada. It says Canadians between the ages of 18 and 34 are the most likely to purchase a home right now, followed by those aged 35 to 54.
The survey says that 75 per cent of Canadians consider the national economy to be good, up from 66 per cent in the last survey in May 2004. A little more than half think the economy will stay the same, while 25 per cent said it would improve.
Ipsos-Reid has developed a Canadian Economic Confidence Index, based on six key factors that influence expectations of whether the economy will improve, "stay the same" or "get worse" in the next year. These factors include home-buying intentions, job anxiety, interest rate predictions, big-ticket spending intentions (such as cars and appliances), day-to-day spending intentions, and Canadians' personal economic situation.
The index shows that people are about as positive about the economy now as they were two years ago when the surveys began. Home buying intentions remain strong, and job anxiety is low.
The biggest negative factor in the survey is interest rate predictions, because 65 per cent of those surveyed believed rates would go up within the next six months. That has already happened with the Sept. 8 announcement.
But like housing purchases, consumers' intentions to buy other big-ticket items have also remained stable. Twenty-eight per cent of those surveyed said they would spend more on big-ticket items this year, up slightly from 25 per cent in May.
Not much has changed in the other key categories either. One-third of Canadians said they expect to spend more on things such as groceries, clothing and other personal goods than last year. And 35 per cent believe their personal economic situation will improve in the next year, while 15 per cent think it will get worse and 50 per cent say it will remain the same.
Analysts have long predicted that rising mortgage interest rates, combined with a shrinking pool of first-time buyers and rising average house prices, would slow down the housing market by the end of this year. While not all communities are setting new sales records like Toronto and Montreal, across the country the market is still very positive. Interest rates remain low by historic standards and as shown by the survey, employment remains stable -- good reasons for Canadians to remain optimistic.