Shenanigans in the US Capitol and the prospect of a tapering in government bond purchases stand to make financing more expensive for both developers and home buyers, Scotiabank's chief economist said during a visit to Vancouver last week.
Warren Jestin expects the deadlock between Democrat and Republican lawmakers to work itself out, but the uncertainty it creates and the inevitable scaling back of government bond purchases in 2014now US$85 billion a monthwill ultimately boost borrowing costs.
A reduction in U.S. government purchases of Treasuries will increase bond yields market-wide and, in turn, borrowing costs for developers and homebuyers alike.
Jestin sees mortgage rates rising a half percentage point or more on three- and five-year mortgages when tapering begins. This will dampen home-buying activity because the five-year rate is what banks use to assess borrowers for mortgages.
But BC may be well placed to weather the transition. Population growth has slowed and owners have tempered expectations of significant capital gains, while the coming year could bring some good economic news. Jestin said, "[The Lower Mainland] doesn't have that strong momentum that existed in previous years, but we still feel it's a market where there's lots of opportunity."
See also:
BCREA "Mortgage Rate Forecast"from Fourth Quarter Housing Forecast October 2013
