Ottawa is a hot home seller’s market right now. This competitive situation, combined with uncertain financial times and the additional stresses of Covid, make it very important to not only get a great mortgage rate, but also terms and conditions that are well suited for your particular needs and goals. This is where an experienced mortgage broker, with access to solid and flexible lenders and a thorough knowledge of the local market dynamics can make all the difference… by offering personalized service to quickly process your mortgage application and lock in the financing for your Ottawa home purchase.
Factors Driving the Surge in the Ottawa Housing Market
The immense shock of the Covid-19 Pandemic has had a significant impact on the Ottawa housing market. The initial busy spring real estate season was put on hold, as we were all instructed to ‘shelter in place’ amidst a wave of uncertainty around how the virus is transmitted and fears that our healthcare system could be overwhelmed if immediate, drastic measures were not taken. This unusual pause created a huge pent up demand for residential real estate in our nation’s capital.
When Ottawa emerged from the strict lockdown measures in June, this demand combined with low inventory levels of available homes for sale and a shift in homebuyer and lifestyle interest, fueled by an increased emphasis on working remotely, attracted buyers away from dense urban areas like Toronto to the slower pace and larger spaces that Ottawa has to offer. According to the Remax Fall Market Outlook Report:
At this point when economies began reopening, home sales [in Ottawa] increased by 2% year-over-year, and average home prices continue to climb, with residential home prices up as much as 14% year-over-year. Price growth is expected to continue… Lack of inventory and a desire to get into the market has positioned Ottawa as a strong seller’s market. Rural areas in the region have seen an uptick in interest, as buyers look to secure more space and amenities to accommodate a shift toward working from home… Ottawa’s recreational market has seen a massive increase in interest, with buyers coming from major cities such as Toronto, to access larger properties and more space. Of all the markets within Ottawa, the luxury market is currently performing the best, with those who can afford larger homes looking to move up in the market post-COVID 19. – Remax
High demand for Ottawa real estate is expected to continue through the end of 2020 into 2021, with industry insiders predicting average price increases between 3 and 10 per cent. The upward pressure on Canadian real estate prices, in hot markets like Ottawa, has highlighted the rift between low-income Canadians, who have suffered a disproportional amount of job losses due to the pandemic compared to more affluent Canadians, many of whom have been able to continue with their jobs by working from home.
On October 14, in an episode of the Financial Post’s podcast Down to Business, Benjamin Tal, Deputy Chief Economist at CIBC, said this means that: “People who may already have been priced out of buying property have been hurt the worst. Meanwhile, everybody else is taking advantage of low-interest rates to upsize their living space.” Tal goes on to say that, “he thinks the housing market will cool off in the next few months, as the impact of the recession catches up with people in higher-income brackets.”
Pandemic Has Driven Down Mortgage Rates to Historic Lows… but for How Long?
In addition to changing work habits, the Pandemic has also resulted in record low Canadian mortgage rates which has further intensified an increase in real estate transactions and driven up prices in the Ottawa housing market. The Bank of Canada has played a key role in driving down both fixed and variable mortgage rates.
When the Pandemic hit Canada in March, our central bank responded to the economic crisis by slashing its key policy rate three times in quick succession, dropping from 1.75 per cent all the way down to its current 0.25 per cent, where it is expected to hold well into 2021 and possibly beyond. As a result, major lenders dropped their prime rates and variable mortgage rates followed suit, but not as drastically, with 5-year variable rates only falling by about 0.5 per cent. As the economic reality of Covid set in, unemployment rates spiked and many businesses were forced to shut down, resulting in additional risk premiums applied to variable mortgage rates, which offset a large portion of the prime rate discounts.
Fixed mortgage rates have also dropped significantly, since the Pandemic hit Canada in March. In efforts to stave off complete economic collapse, Governments around the world have been influencing fixed mortgage rates by buying up their own nation’s debt. For example, the U.S. Fed has bought up over 16 per cent of America’s Treasury market. The Bank of Canada has been even more aggressive, buying up over 30 per cent of the Government of Canada Bonds and Treasury Bills, putting significant downward pressure on bond yields, which have in turn helped to keep fixed mortgage rates extremely low over the past 2 quarters.
The economic risks of Covid have been largely mitigated by government spending on emergency benefits and new infrastructure announcements. The Bank of Canada has signaled that it will keep its key policy rate low for the foreseeable future and continue to buy up government debt. As a result, major mortgage lenders will likely continue to offer low mortgage rates well into 2021.
This situation could change if the Canadian economy rebounds quicker than expected going into 2021, and our central bank has to contend with inflationary pressures. Equally, we cannot ignore the economic forces at play south of our border and how the results of the pending U.S. election play into how quickly the U.S. can get a grip on its own Covid crisis. Earlier in October, the U.S. Fed announced that it would ease off on purchasing more long-term U.S. government debt, resulting in the highest 10-year U.S. Treasury yield in the past four months, which could result in upward pressure on Canadian fixed mortgage rates in the coming months, depending on how high the U.S. Treasury yields climb.
Low Mortgage Rates Don’t Help Much if You Don’t Have a Job
Even if Canadian mortgage rates continue to stay at record lows, as many experts are currently predicting, if the Pandemic continues to drag down our economy over the long-term, low mortgage rates won’t help much if potential home buyers don’t have a job, and as Tal predicts the recession starts to catch up with affluent Canadians as well.
In these uncertain and turbulent economic times, the Ottawa housing market is an attractive investment as the economy in the national capital is anchored by the stability of the federal civil service. Ottawa also offers more open spaces, with a very large geographic boundary, and better bang for the buck for real estate than other large urban areas in Canada, while still having many of the amenities and infrastructure one can expect in a large city, with various rural real estate options only a short drive out of the city.
Regardless of the Economic Conditions, Hatch Can Get You the Right Mortgage for Your Needs
Hatch has well established long-term relationships with a variety of solid mortgage lenders. This means that we can get you the best mortgage rate for your home purchase in the very competitive Ottawa real estate market, which we know intimately. Not only can we get you a great mortgage rate, our Principal Broker, Dan Martel, has over 30 years’ experience as an award-winning mortgage broker. Dan uses a very personalized approach to help guide you through the variety of terms and available options for your mortgage application and will work diligently for your mortgage approval, even if your financial situation is less than ideal, so you can get the best financing possible for your Ottawa home purchase. Simply fill out our easy-to-use online application and Hatch will get cracking right away on your mortgage.
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