Hous­ing mar­ket builds on solid econ­omy

Winnipeg Free Press - Section G - - HOMES - By Mike Moore

Spec­u­la­tion is rife on what im­pact the bur­geon­ing loonie will have on the hous­ing mar­ket. There’s also fear of pend­ing in­creases in in­ter­est rates re­sult­ing in higher mort­gage rates.

The Cana­dian dol­lar has been hov­er­ing around par with the Amer­i­can dol­lar for the past cou­ple of weeks. Some prog­nos­ti­ca­tors call for it to break par this spring or sum­mer and con­tinue to be slightly above the U.S. dol­lar for a year or two. Oth­ers think it will set­tle just un­der-par by the end of the year. Ei­ther way, the Cana­dian dol­lar is per­form­ing con­sid­er­ably stronger than what we have been ac­cus­tomed to for decades.

Most Cana­dian busi­nesses do not have cost struc­tures that are com­pat­i­ble with a Cana­dian dol­lar at par. Many in man­u­fac­tur­ing are de­pen­dent on an his­toric dif­fer­ence of at least 20 cents be­tween the two dol­lars.

Some build­ing ma­te­ri­als are im- ported from the U.S. and the el­e­vated Cana­dian dol­lar could make these prod­ucts cheaper for con­sumers. But if the prod­uct has been in in­ven­tory for any length of time, it would have been pur­chased at the higher ex­change rate. Even though the U.S. new-home mar­ket has not bounced back yet, the de­mand for lum­ber is high and costs have been in­creas­ing steadily.

There’s also an­tic­i­pa­tion of a slight move on in­ter­est rates in June or July of this year, fol­lowed by a se­ries of 25 ba­sis-point in­creases the re­main­der of this year through mid-2011. The Bank of Canada says this in­crease is in re­sponse to more ro­bust eco­nomic growth and ris­ing in­fla­tion.

This could re­sult in an in­crease up to one per cent this year and the same next year. Many new-home buy­ers are lock­ing into long-term mort­gages now in an­tic­i­pa­tion of these in­creases. How­ever, mort­gage rates have been main­tained at ex­tremely low lev­els for a num­ber of years and, even at five or six per cent, are among low­est in over 40 years.

In sum­mary, the growth in the res­i­den­tial con­struc­tion in­dus­try in Man­i­toba this year has been grad­ual and very much un­der con­trol. Ex­ter­nal in­flu­ences such as new taxes, cur­rency value fluc­tu­a­tions and in­ter­est rate changes have not im­pacted us as much as some other re­gions of the coun­try, thereby mak­ing Man­i­toba a solid econ­omy in which to pur­chase a new home.

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