Change in mortgage criteria causes increase in home sales

Daniel Smyth

September, 2010

The next surge in the Montreal real-estate market is expected to start this month and last until November. Typically, this second peak is much smaller than the first, between January and May.

However, an interesting phenomenon has occurred in the market, which began as a result of a change in the mortgage qualification criteria announced by the Bank of Canada. This caused a sudden increase in the number of sale transactions, as buyers purchased prior to the rules coming into force in April.

After the implementation of new mortgage regulations this year, the number of expected transactions decreased between May and July and continues to be less than seasonal norms despite following the usual transaction pattern. Transactions in August were less than expected halfway through the month.

Despite the reduction in sale transactions for May, June and July, year-to-date sale transaction numbers are above 2009 for all classes of residential buildings by an average of 10.6 per cent.

Average sale prices for a single-family dwelling (9.3 per cent), a condominium (11 per cent), and a plex (duplex to five-plex; 10.7 per cent to 19.4 per cent) are up compared with 2009. The 2010 real estate market to date has been very healthy and continues to support the seller.

Interest rates are rising and are expected to reach as high as six per cent or seven per cent by the end of 2010. Economists predict the majority of consumers will be able to handle the increase in the five-year fixed rate and about 10 per cent say the opposite.

Daniel Smyth is a broker with Groupe Sutton-Clodem Inc.