Lower interest rates send mortgage market into a frenzy as buyers race to take advantage

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Lower interest rates have sent the mortgage industry into a frenzy, as homeowners and buyers race to take advantage of cheaper loans.

Since the Bank of Canada slashed the benchmark interest rate to 1.25 per cent from 1.75 per cent last week, mortgage brokers have been inundated with requests for new loans, refinancings, preapprovals, renewals and demands to break current mortgages.

“It’s been wild,” said James Laird, president of CanWise Financial, a mortgage brokerage that has operations in most of the country. “Anyone who has a mortgage, they want to talk to us, and anyone considering getting a mortgage, they want to talk.”

The most popular type of mortgage – the five-year fixed-rate loan – is sitting as low as 2.29 per cent, according to CanWise. That’s close to the record low of 2.09 per cent offered in November, 2016, after oil prices crashed and the central bank had cut rates twice to stimulate the economy.

So far, the cheap money has overshadowed home buyer’s fears of the coronavirus, and activity in the real estate market is increasing despite a slowdown in other parts of the economy and huge losses in global stock markets.

In Calgary, where property prices have been depressed since the oil downturn, brokers said business was picking up. “Phone calls inquiring about rates and further reductions have doubled overnight,” said Trevor Yerema, president of Advanced Mortgage, which operates in Western Canada.

In Toronto, where sales are booming and the average selling price rose 17 per cent year over year to $910,290 in February, the rate cut has spurred even more activity.

“OMG, it is insane,” said Elan Weintraub, a mortgage broker with Mortgageoutlet.ca in Toronto, in an e-mail. “I’m going back to lenders to get my clients much lower rates than they had only one week ago.”

In Vancouver, where sales are soaring and prices are starting to rebound after the shock of stricter mortgage rules and the foreign buyers’ tax, the rate cut has also ignited interest .

“The market has picked up. A lot of preapprovals are happening. People want to know: How will it affect me?” said Jessica Kuan, a broker with Clear Trust Mortgages in Vancouver.

As investors flee the falling stock market and buy government-backed bonds, the return or yield on the five-year bond is dropping. That, in turn, influences five-year fixed mortgage rates and may eventually force the big lenders to further lower their rates.

It will also soon become easier for borrowers to qualify for a mortgage, with the federal government tweaking mortgage rules so they are more responsive to the market rate. The new rules take effect April 6 for insured mortgages, and the federal banking regulator is expected to make similar changes for uninsured mortgages.

Calum Ross, principal broker with the Mortgage Management Group, said business is “up dramatically.” After the rate cut, the number of inquiries more than tripled at his brokerage, which operates in Ontario, Alberta and British Columbia. “It is going to be a feeding frenzy because we already had a disparity between supply and demand,” he said.

In Toronto, the number of listed properties was down 34 per cent in February compared with the previous year. In other cities in Southern Ontario, as well as in Ottawa, Montreal, Vancouver and Victoria, demand has also outpaced supply.

After the central bank cut rates last Wednesday, Governor Stephen Poloz said: “Declining consumer confidence would naturally lead to reduced activity in the housing market. So in this context, lower interest rates will actually help to stabilize the housing market rather than contribute to froth.”

But Mr. Ross said the cut will spur demand: “There is just no situation in the housing market where interest rates get dropped by half a per cent, when interest rates are already close to a lifetime low, that doesn’t cause a huge surge in demand.”

COVID-19 concerns have realtors taking precautions such as not shaking hands, prominently displaying hand sanitizer in open houses and wiping down doorknobs after people traipse through a property.

Simeon Papailias, a realtor with Royal LePage Signature Realty, said agents are no longer bringing sushi, canapes and other communal food to open houses. “No one wants to share food,” he said. “We may bring individually packaged treats and bottles of Perrier.”

One Vancouver realtor pointed to a situation involving an elderly couple who were nervous about contracting the virus and only allowed buyers to view their property after they made an offer.

Some sellers and agents are reconsidering open houses and have voiced concerns among themselves in a private Facebook group for realtors. But that has not slowed down the slew of multiple offers, pre-emptive bids and premium offers, according to realtors in Toronto and Vancouver.

“Everyone was saying, ‘Ew, ew, the virus,’ and then with the interest rate [cut] everyone is saying, ‘What virus,’” said Sarah Richardson, a sales representative with Royal Lepage Urban Realty in Toronto.

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