Interest Rates at a 60-Year Low
As for the world’s economy, 2011 was marked by the sovereign debt crisis in several countries in the euro zone and by concerns with the strength of the United States’ economic recovery. Uncertainty on global financial markets led to an influx of international capital in Canada, a country that is considered well-positioned on several fronts, particularly that of public finances. The purchase of Canadian government bonds, deemed less risky by investors, resulted in a reduction in bond yields. Because mortgage rates primarily follow bond yields, rather than increasing – as most observers had expected – five-year mortgage rates in Canada finished 2011 at virtually the same level as they started.
“The year 2012 will begin in the same manner, which should translate into very low mortgage rates,” said Paul Cardinal, manager of the Market Analysis Department at QFREB. “Home buyers will therefore continue to benefit from exceptionally low borrowing costs, which will help to stimulate the number of transactions,” he added.
Small Increase in Number of Sales
The QFREB anticipates a slight increase in the number of sales on the provincial MLS® system this year.
Some 79,000 sales are expected to take place in 2012, a 2 per cent increase compared to 2011 and only a 3 per cent decrease compared to the record-setting 80,657 sales in 2007.
In addition to very low mortgage rates, the province’s improved demographic situation in recent years will help stimulate the real estate market. According to data from the Institut de la statistique du Québec, in 2009 the province posted its largest increase in population since 1988 (79,779), and in 2010 it registered its best year for net migration in forty years, with close to 43,000 newcomers.
Increase in Number of Properties for Sale
The number of properties available for resale will increase in 2012, as it has for the past several years. Due to the increase in the number of properties for sale, buyers will benefit from a wider choice. Market conditions will continue to gradually relax in most of the province’s urban centres, although many of them will continue to favour sellers.
Price Increases Slightly Above Inflation
The median price of single-family homes increased by 4 per cent in Québec in 2011. This was the smallest increase since 2001 (+4 per cent). The gradual relaxing of market conditions should moderate price growth. We expect a 3 per cent increase in single-family home prices in Québec in 2012, with a median price of $223,000.
“Condominiums will continue to be highly in demand among first-time buyers who are seeking an affordable property and among households whose children have left the home,” said Paul Cardinal.
However, condominiums are also the property category that will have the fastest-growing supply of new dwellings. According to the CMHC, slightly more than half of the approximately 24,600 dwellings under construction in Québec at the end of 2011 were condominiums. In many areas, future condominium buyers will not suffer from a lack of choice, and the competition resulting from the construction of these new units will moderate the price increase of existing condominiums.