Mortgage rates unlikely to fall further: Brookfield

Sean B. Pasternak, Bloomberg Financial Post Mortgage rates in Canada, which have plunged by almost 50% in the last year, aren't likely to fall further, said Phil Soper, chief executive of Brookfield Real Estate Services Fund.

"Certainly with the Bank of Canada's target rate set at virtually zero, there's very little room," Mr. Soper said Tuesday at a conference in Toronto on Canada's real estate market. The rate is "the lowest it's been in anyone in this room's lifetime."

Rates for home loans have been dropping during the biggest financial crisis since the Great Depression, with some lenders offering mortgages approaching 4%, Mr. Soper said. That compares with an average posted five-year rate of 7.5% a year ago, according to the Bank of Canada. He added that home prices in Canada aren't likely to rise "sharply" over the next two years.

Bank of Montreal, which sponsored the conference, lowered its rate for a five-year fixed-rate mortgage this month to 4.15%.

"We are approaching almost zero interest rates," at the Bank of Canada, said John Turner, the Toronto-based bank's director of mortgages. "The question becomes, how much upward pressure will there be as we come out of this recession?"

The Bank of Canada last month cut its benchmark lending rate to 0.5%, its lowest ever, and said it's preparing to use policies beyond interest rate moves to revive an economy hit by a recession and tight credit markets. The next rate announcement is April 21.

Canadian existing home sales rose in February for the first time since September as buyers took advantage of lower mortgage rates and prices, according to the Canadian Real Estate Association's Multiple Listing Service. Sales of existing homes rose 8.6% from January to 28,669 units.

Bank of Montreal senior economist Sal Guatieri predicted that Canada's housing market will decline further this year, without the "crash" experienced in the U.S.

Housing starts post surprise jump

Financial Post

OTTAWA - Home construction rose unexpectedly in March, led by Ontario and Quebec, Canada Mortgage and Housing Corporation said Wednesday.

There were 154,700 housing starts on an annualized basis during the month, up from a revised 136,100 units in February, the government agency said.

Many economists had expected housing starts to dip to 130,000 units in March.

"Higher multiple starts in Ontario and Quebec were the main contributors to the rise in new construction activity in March," said Bob Dugan, CMHC's chief economist.

"While the multiples segment experienced the largest increase, the overall boost in starts was broad based, encompassing the singles segment as well."

Urban housing starts were up 17% to 127,900 units in March, the agency said. Urban multiple starts rose 28.3% to 81,500 and urban single starts were 1.3% higher at 46,400.

Construction of urban units rose by an annualized 35% in Ontario and 23.3% in Quebec. Meanwhile, urban activity fell 17.3% in British Columbia, 7.9% in Atlantic Canada and by 7.5% in the Prairies.

Rural starts were flat at 26,800 units in March.

"New home construction is now at a more sustainable level after having been exceptionally strong over the past seven years, exceeding 200,000 units per year," CMHC said.

Millan Mulraine, economics strategist at TD Securities, said the report "suggests that new housing starts activity pickup aggressively in March after six consecutive monthly declines."

"However, in the grand scheme of things, the key economic fundamental factors continue to point to further weakness in Canadian housing sector activity, and as such we believe that this surprising pickup in construction activity is likely to be a one-month wonder, and expect activity to soften in the coming months," he said.

The CMHC report comes a day after TD Economic forecast average Canadian house prices to fall to about $246,000 in 2009 - down 24% from the peak of $324,000 in 2007 - while overbuilding in the residential market, particularly in the Prairies, should prevent the sector from making a quick recovery from the current downturn in sales, prices and construction.

"A glut in the housing stock means that builders will have to rein in residential construction further - particularly in the most overbuilt markets. As well, excess inventories in certain markets will prove an additional drag on home prices," it said.

The TD report said house prices have been overshooting their fundamental value by about 9% since 2005 as speculation drove up prices and encouraged overbuilding.