July Sales and Average Price Up Compared to 2010

Toronto, August 4, 2011 —Greater Toronto REALTORS®reported 7,922 transactions through the TorontoMLS® system in July 2011, representing a 23 per cent increase over July 2010. Total sales through the first seven months of this year amounted to 55,863 –down by 1.3 per cent compared to the same period in 2010. After adjusting for seasonal fluctuations, the July figure continued to point to an annual sales result close to 90,000 –in line with results from the previous six months.

"Strong home sales continued in July, with a substantial rebound over last summer’s slow-down brought about by higher mortgage rates, new lending guidelines and misconceptions about the HST. The greatest rebound was seen in the condominium apartment segment in the City of Toronto," said Toronto Real Estate Board President Richard Silver. "If the current pace of sales holds up, we could see the second best year on record under the current TREB market area."

The average selling price in July was $459,122 –up by almost ten per cent compared to the July 2010 average of $418,675. “Tight market conditions have boosted the annual rate of price growth this year. However, the listings situation is starting to improve. A better supplied market later this year and into 2012 would lead to a more sustainable rate of price

Fixed, Variable, or Both?

Who can be blamed for thinking mortgage rates will stay in the basement for the foreseeable future? We’re witnessing:

•Surprisingly low U.S. jobs growth
•A contracting Canadian economy
•A U.S. Fed that’s pledging to remain on hold till 2013, and limiting the Bank of Canada’s options.

That’s got many wondering why on earth anyone would take a fixed mortgage rate.

Indeed, noted CIBC economist, Benjamin Tal, says: "We know the five-year (fixed) rate is attractive, but we also know short-term rates are not raising."

Despite the economic negatives, however, the rate choice is not clear cut. Prime rate could theoretically remain as-is for a year and a half (i.e., until near the expiry of the Fed’s conditional pledge) and then jump 150+ basis points. In that scenario, a four-year fixed near 3% could cost less than a variable over four years, other things being equal.

In the end, most people’s fixed/variable decision boils down to how much they want to pay (or need to pay) a lender for borrowing cost certainty.

Variable rates are roughly prime - 0.70% on the street at the moment. That’s 69-79 bps cheaper than a good 4-year fixed (arguably the best fixed term at the moment). At the outset, that variable rate would save you $37/month per $100,000 of mortgage.

Your financial breathing room will largely determine if this upfront savings is enough to gamble that rates stay low after 18 months or so. If you don’t want to bet all your chips you can always consider a hybrid (i.e., a mortgage split into fixed-rate and variable-rate portions).

Professor Moshe Milevsky, Canada’s best known mortgage researcher, recently told FP: "I still don't get why more Canadians don't split their mortgage."

Milevsky is a noted proponent of hybrid mortgages, for two reasons: 1) people have no clue where rates will go; and, 2) rate diversification offers the same benefits as investment diversification.