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Detailed Analysis of GTA Housing Market – up to August 2010
I have been posting housing stats for a couple months now but I never thought about seasonality… housing moves in cycles – like a lot of other markets – due to two major factors: weather and school.
The seasonal trend is very clear from this sales chart – sales increase from January to May, then slowly decrease from June to August, pick-up marginally in September and then decline gradually with a sharp drop-off in December
The next logical question is how does seasonality affect prices?
To look at the seasonal trend, I have charted the month-over-month change in resale home prices since 2005.
Even though most market pundits and MSM claim 2009 to be an anomaly, I think the 2009 monthly price trend sticks well to the seasonality.
Here is a line chart with the same data as above (take your pick 😉
(Note: Legend is same in all charts)
This table summarizes the above chart and shows the direction of price movement in a given month:
| Period | Price Direction |
| November-January, Jun-Aug | Decreasing |
| Feb-May, Sep-Oct | Increasing |
So how does this fit into the current numbers ?
Well, GTA prices declined about 8% from Jun-Aug… believe it or not GTA prices declined between 5-8% from 2006-2008, only in 2009 they declined by 2%… so the current trend should not be alarming. Similarly, the decline in Sales is almost in line with previous sales decline of 25-30%.
Is this good news?
To answer this, lets look at the year-over-year changes
Again, line chart with the same data as above year-over-year column chart
(Note: Legend is same in all charts)
The yearly downtrend is against the seasonal uptrend… so the next couple months/quarters should be key.
Low mortgage rates might again drive demand!
Even though prime rate has risen by 75bp or 0.75%, variable mortgage rates have not increased proportionally due to heavier discounting by mortgage brokers/banks.
Before Bank of Canada increased rates, the lowest Variable Rate was around 1.75%. Today, even after a 0.75% increase in rates, the variable mortgage rate is 2.10% – a mere 0.35% increase… so rates haven’t increased as dramatically as the media makes it sound!
Fixed Rates have been dropping in absolute in term due to the recent rally in bond markets… today you can get a 5-year fixed rate mortgage for 3.59%… which is very close to the lowest mortgage rates in 2009!
Mortgage Rates – Fixed or Variable? Redux…
There are plenty of debates on which mortgage rate is better/cheaper to the customer… fixed or variable? Historically variable rates have been lower than fixed rates… agree but just by looking at the two rates at a point in time doesn’t prove that Variable Rate is cheaper than Fixed…
I have seen just one chart comparing the 5-year discounted Fixed Rate to the then Prime Rate (which is a proxy for Variable Rate)… This only shows that variable rate is generally lower than fixed rate at a given point in time… Most brokers forget that variable rates change throughout the term as Bank of Canada changes the bank rate…
To really prove that Variable rate is better than fixed…mostly… i took data from 1973 and calculated the Realized mortgage rate (average rate) on a Variable Rate mortgage over the 5-year term and compared it to the 5-year Fixed rate at the beginning of the mortgage term… The realized variable rate can be thought of as the average or equivalent fixed rate over the 5-year period…
And here are the results… there have been 4 instances in the past 38 years when the variable rate is cheaper than fixed rate at mortgage initation but ends up costing more than fixed rate over the full 5-year term!!
Source: Bank of Canada
what are your thoughts?
Average Prime Rate Spread by Decade
Yesterday I showed the historical difference between the Prime Rate and the Bank of Canada rate going back to 1935… that chart is quite impressive and clearly shows the low interest rate era we are living in. To draw some conclusions from that chart, I created the same chart but averaged the rate difference by decades and the numbers are quite interesting…
The Prime Rate in the current decade is 0.25% higher than the past 4 decades! What does this mean to you? Simple, higher interest costs if you have a variable rate mortgage or loan or line or credit.
Source: Bank of Canada
Historical Relationship – Bank of Canada Bank Rate vs Prime Rate
Yesterday I posted a 10-year chart showing the difference between the Bank Rate which is set by Bank of Canada and the Prime Rate which is set by the chartered banks and is the rate the banks will lend to their most creditworthy customers.
Today I bring to you the same chart but going back since 1935… that’s right, the relationship between Bank Rate & Prime rate since 1935!
The spread is clearly at historic lows compared to the earlier half of 20th century but relatively high compared to the latter half
Source: Bank of Canada
simple financial analysis 