Hold Off in Bank Of Canada Rate Likely to keep The housing Market hot   We started the year off anticipating a steady increase to the Prime interest rate, which would subsequently increase the variable mortgage rate. Now, with the Bank of Canada (BoC) widely expected to hold off on a rate hike likely until 2012, house prices in Canada are projected to stay hot for a few months longer. This is also true of bond yields, which determines the fixed rates on mortgage. At the beginning of 2011, fixed rates were rising, now they have come down as low as 3.59% for qualified borrowers.

With signs the U.S. and global economies have entered a soft patch and the European debt crisis continuing to roll, most economists do not expect the bank to raise its overnight target rate until early 2012. That would mark a hold on interest rates for the BoC of longer than a full year. The last raise was in September 2010.   The good news is that low lending rates will continue to a fuel a Canadian housing market that appears in full bloom. Average prices hit $372,544 in April, up 8% year over year for the third straight month led by a supercharged Vancouver market according to a recent report from the Canadian Housing and Mortgage Corporation (CMHC). This will lead to more strength in housing.   Economists are now predicting a far more gentle approach to monetary policy, with the overnight rate rising to just 2 per cent next year, and to 3 per cent by 2013.    Previously, TD economists had expected the Bank of Canada to take a more aggressive approach, resuming rate increases in July and taking the overnight rate to 3 per cent by mid-2012.  There are concerns about how the sovereign debt crisis in Europe will unfold with the main worry on  how a debt restructuring would impact European bank balance sheets; whether a restructuring by Greece would set off a series of debt restructurings in other countries, and ultimately whether a Greek restructuring would trigger a new systemic financial crisis. Although Canada has limited direct exposure to the at-risk European debt, the Canadian and U.S. financial systems would be impacted by any significant financial instability that might occur. Meanwhile, the situation in the United States remains uncertain. Given the enormous inventory of unsold and foreclosed homes, there are clear risks of further home price declines that could weaken consumer spending and constrain the willingness of financial institutions to make new loans.   A look at housing  After a strong start in 2010, housing starts moderated, however are expected to edge higher in the second quarter of 2011 after which they will level off. In 2012, housing starts are expected to increase markedly in British Columbia, and Alberta, while Manitoba, Ontario, and Saskatchewan will experience modest growth. The national resale market has moved from a balanced to a sellers' market. The average MLS® price increased by the first quarter of 2011, with the average MLS® price of an existing home at $365,648 compared to $342,441 in the fourth quarter of 2010. For the remainder of 2011, the average MLS® price will moderate. Nevertheless, the average MLS® price will experience an overall increase this year.     Trending   Employment: Employment growth is shifting from part-time employment to more full-time employment. Continued employment growth in 2011 and 2012 will support the housing market. Income: Income will continue to grow at a modest pace in 2011 and 2012 and will positively affect housing demand.   Resales: Market conditions for most of 2011 and 2012 are expected to be balanced.

Article compliments of Carlo Carpino. Mortgage Specialist. A MyDaddyhomes contributing writer.