Mortgage Minute for June 7, 2012

The Bank of Canada did what everyone expected this week and left the overnight rate unchanged at 1%.  This marks the 14th straight month with no change in prime.

For those with variable rate mortgages, this means you get to enjoy your low rates a little longer and in all likelihood, well into 2013.

The general tone of the announcement changed from being hawkish to more cautious as a serious sovereign debt crisis continues to loom over Europe, potentially pushing the region back into recession.  These concerns, along with a domestic economy that underperformed the bank’s expectations in the first quarter will largely subdue the need for the more immediate removal of economic stimulus.

All this goes against what OSFI is hoping to hear as they are likely to announce their proposed changes for banks later this month.  This will increase the due diligence required to ensure that borrowers can afford their mortgage payments now, and a few years later when rates inevitably increase.  Not the news that borrowers and brokers alike want to hear.

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Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each week for you to enjoy. Please remember to subscribe to the Spring Realty Insider list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments right to your inbox.


Mortgage Minute for May 10, 2012

Another quiet week but some housing numbers came out higher.  Most analysts expect those numbers to ease so they aren’t giving much attention to the results at this point.

The unemployment rate is announced on Friday and that may provide more of an indication of the strength of the improvement.

There has also been continued talk for the need to increase rates at some point as household debt continues to strangle families.  Other sources are noting that when it comes to borrowing, numbers are still in line and don’t appear to be over extended.

It will be interesting to watch over the upcoming months how the economy plays out and if Mark Carney will ever actually pull the trigger and increase rates.  Even if he did, he could only do it a little as Canadian manufacturing would go into a tailspin once the Canadian dollar increases further from its lofty price.

Todays Top Rates

Fixed – 1 year
Fixed – 3 year
Fixed – 5 year
Variable
2.74%
2.94%
3.05%
2.8%

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Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each Wednesday for you to enjoy. Please remember to subscribe to the Spring Realty Insider list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments right to your inbox.

 


Toronto’s Condo Bubble

In the last few days the Toronto Condo Bubble discussion has once again become a hot topic but here’s the thing – if you google “Toronto Condo Bubble”  you’ll see about 19,500 results.  The top hit goes to a Toronto Life article which I think is actually quite indicative of the typical discussion points.  It mentions rumours of irrational foreign investors, the fact that no one really knows, and that even the Economist totally missed the mark when it predicted doom and gloom in the market at the start of this year (we bit on that one).

This morning on cbc radio it was more of the same.  At least they stated that the viewpoint was completely unscientific and anecdotal.  For those who aren’t interested in listening (sorry it’s a flash media player link) the argument is based loosely on walking by a number of signs/builds and wondering if the residents are there to support the supply.  Another argument to support a bubble relates to whether an investment property can demand enough rent to pay expenses.

The Bank of Canada continues to leave interest rates at a stimulus level of 1% (prime at 3%) but would really like for us to act as if this wasn’t the case.  Like most Canadian’s I have a long mortgage ahead of me – I gambled with variable rates for the first 5 years of my mortgage and decided to double down when I renewed last October.  During this time there have been a few opportunities to pay down some of this debt however there is little incentive to do so.   My home is appreciating faster than the interest being paid to hold the debt.  There are simply better uses for any discretionary money such as a home improvement fund (don’t get me started on the stock market!).  So I become a statistic for holding higher debt than I ‘should’.
My personal opinion is that 10% year over year increases are not sustainable but it doesn’t have to end with a dramatic decrease in average home price.  I truly believe most home owners realize we’re in an unprecedented period of low cost borrowing.  When interest rates increase home owners with tight budgets are going to feel it however I think many will simply respond rationally like in previous decades by looking at how much interest they’re paying and get a bit more serious about paying off that mortgage.

 

Brian Hawrysh

Managing Director at Spring Realty

 


Mortgage Minute for April 19 2012

The Bank of Canada announced on Tuesday that they were maintaining interest rates. They
also noted that prospects are brighter for the future, with Europe expected to pull out of its recession
later this year and the United States recovering better than expected. The Canadian economy
is also doing well and more recent projections are calling for an increase to GDP projections.

The Canadian economy is pulling ahead due to lower borrowing costs that are fuelling household
spending and business investment. Exports are still weak and higher oil prices are not providing the
expected benefits, according to the government’s Monetary Policy Report.

Inflation is expected to firm up, but stay within the government’s target range.

The government is still saying that household debt is still the number one threat to the Canadian
economy. There is increased concern over the use of home equity lines of credit and the
ATM effect on household net worth. As homes increase in value, homeowners are quick to spend the
appreciation they have experienced. Eventually, as the economy starts to soften, there is concern that
debt levels will be too much and payments too high as rates inevitably increase. This has prompted calls
for tighter rules around this form of lending.

The net effect of all this was no change to rates, but some analysts are looking for an increase in prime
before the end of the year, most likely in Q4. Once that happens, any benefit that could have been
achieved with today’s variable rates is basically eliminated. All the more reason to go with something
more secure like the 3, 4, or 5 year rates that are being offered today.

For those of you looking for more peace of mind, the 10 year rate 3.89% offers a great rate for an
extended period of time. I’m not usually an advocate of 10 year rates, but for those who are really risk
averse, this is not a bad option, not bad at all by historical standards.

Todays Top Rates

Fixed – 1 year
Fixed – 3 year
Fixed – 5 year
Variable
2.74%
2.89%
3.19%
2.8%

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Lee Welbanks is a Mortgage Broker with The Mortgage Centre and trusted Spring Realty mortgage expert. To learn more about your funding options please Contact Lee today. Lee will be posting these informative “Market Minutes” each Wednesday for you to enjoy. Please remember to subscribe to the Spring Realty Insider list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments.


Midweek Mortgage Minute for April 11 2012

Household debt in Canada continues to cause concern. In the past week both Bank of Canada governor Mark Carney and the economic think-tank, The C.D. Howe Institute, commented in very clear terms.

In a report entitled The Rise in Consumer Credit and Bankruptcy: Cause for Concern?, The C.D. Howe points out that consumer credit accounts for about 45% of household interest payments. The report raises concerns about the sustainability of household finances and the risks to the broader economy. It cautions that Canadian consumers are vulnerable to any sharp rise in interest rates or an economic downturn.

The report echoes what Bank of Canada Governor Carney has been saying for months, and what he repeated in an interview with the Canadian Press. Carney pledged an intervention if there are “exceptional circumstances”, such as household debt threatening financial stability. He also indicated those “exceptional circumstances” are not far off. Carney warned that 10% of Canadians (20% of mortgagors according to CAAMP) are vulnerable to the inevitable normalization of interest rates. Interest hikes combined with a drop in home prices would be enough stall consumer spending and trigger an economic slowdown.

Todays Top Rates

Fixed – 1 year
Fixed – 3 year
Fixed – 5 year
Variable
2.8%
2.89%
3.2%
2.75%

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Lee Welbanks is a Mortgage Broker with The Mortgage Centre and trusted Spring Realty mortgage expert. To learn more about your funding options please Contact Lee today. Lee will be posting these informative “Market Minutes” each Wednesday for you to enjoy. Please remember to subscribe to the Spring Realty Insider list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments.


Mortgage Minute for April 4 2012

This week we all watched to see how rates changed post-2.99%.  Most lenders had increased their 5 year rates but a few are still quite low.  The four year terms were equally active since most lenders had 2.99% as a 4 year offering so adjustments were needed.  All 4 year rates are now above 3% with the best one at 3.09% offering full prepayment options.

Most consumers are finding it hard to accept the new rates, but with spreads as thin as they are, there simply isn’t the margin to offer the promotional rates anymore.


Monthly Resale Figures – March 2012

 

The month of March 2012 levelled off after seeing sharp month over month increases in average resale home prices across property types.  Prices remain up sharply on year over year resale in the ‘416’ with TREB reporting a 10% increase in detached homes, 9% in Semi-Detached, and 8% for Condos.

There are a few market forces at play here:

  • There has been a lot of discussion about changing mortgage qualification rules including higher down payments and shorter amortization periods.  Lenders  and policy makers  are currently trying to determine what (if any) intervention may take place.
  • CMHC has indicated it has essentially hit its 600-billion limit for insuring mortgages and would be rationing bulk insurance offered to lenders.
  • 30% more homes traded hands in March over February lessening the potential for high priced homes across property types skewing the averages.

Many analysts have been raising concern over a real estate bubble for some time now.  Price stability is important for the real estate market – no one wants to face a scenario where their mortgage exceeds their home’s market value.  When deflation occurs new entrants (like first time home buyers) will have no economic incentive to enter the market which drastically alters the demand / supply ratio and can lead to a ‘bubble burst’.  When the bottom dropped out of the US market our local market faced a period where home prices went fairly flat and inventories increased however there were no sharp price decreases as sellers were able to wait it out.  Canadian lenders have been far more responsible than our neighbours to the south and a such we expect further levelling out of the market over the medium term without sharp price decreases.

 


Midweek Mortgage Minute for March 21, 2012

Bond yields have risen fairly significantly over the last two weeks, giving some pressure to current mortgage rates and more notably, our 2.99% specials. Bank of Nova Scotia withdrew their 2.99% promotion this week and I wouldn’t be surprised to see more lenders do so.

There has also been more discussion this week about upcoming mortgage changes that the government may announce along with the upcoming budget on March 29th. There have been a whole range of recommendations from both the private sector (TD Chief Economist Don Drummond) and OSFI (Office of the Superintendent of Financial Institutions) that include:

  • Increasing minimum down payment from 5% to 7%
  • Reducing the maximum amortization to 25 years
  • Cash back should not be considered part of down payment (eliminates 100% financing)
  • CMHC premiums to be included in ratios
  • Increasing CMHC premiums
  • Reducing the amount of “exceptions” made to approve deals

This isn’t an exhaustive list but highlights some of the ideas on the table. Once Mark Carney announces his budget in a week’s time, we’re likely to see the final product of the discussions that have been taking place between the government and the country’s top economists.

Inflation numbers will also be released this Friday which may influence the final version of the mortgage changes that we see.

 

 

 

 

 

 

 

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Lee Welbanks is a Mortgage Broker with The Mortgage Centre and trusted Spring Realty mortgage expert. To learn more about your funding options please Contact Lee today. Lee will be posting these informative “Market Minutes” each Wednesday for you to enjoy. Please remember to subscribe to the Spring Realty Insider list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments.


Midweek Mortgage Minute for March 7, 2011

The week is starting out quiet but the Bank of Canada rate announcement is tomorrow and the latest employment numbers are released on Friday.  Of course, the big one to watch is the Bank of Canada announcement as this is the major indicator as to what direction interest rates are headed in Canada.  Most economists are expecting the status quo, but there is increased talk of an increase before the end of the year, and this would be counter to much of the talk for no increases until well into 2013.

 If inflation is picking up in the West, then it will prompt Bank of Canada Governor Mark Carney to rethink the direction on rates a bit earlier.  It won’t be the cause of too many increases since there are still many signs pointing to low rates for the foreseeable future.   But, some increase may have to happen in order quell inflationary pressures on the other side of the country.

Employment numbers are also going to be released this week and they will also give some insight into the strength of the Canadian labour market.  Last week’s GDP numbers indicated a bit of a pull back so no one is expecting employment numbers to come out overly rosy.

In the meantime, bond yields seem to be leveling off and there are no major changes to mortgage rates.

Lee Welbanks is a Mortgage Broker with The Mortgage Centre and trusted Spring Realty mortgage expert. To learn more about your funding options please Contact Lee today. Lee will be posting these informative “Market Minutes” each Wednesday for you to enjoy. Please remember to subscribe to the Spring Realty Insider list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments.


Mid Week Mortgage Minute for Feb 29th 2012

There was a lot of talk this past week about the potential for legislated mortgage changes this year.  The government has publicly shared their concern over a heated real estate market and record debt-to-income levels.  Changing interest rates effects the whole economy so the only other alternative is to change policy to affect homeowners.

This kind of interference is exactly what industry insiders would like to avoid as they feel the markets are fine as they are and there are no signs of a housing bubble.  Further intervention would mark the fourth time since 2008 that the government has stepped in to affect the housing market without changing rates.

Most experts are predicting the following as possible options to help slowdown our “hot” housing market:

1.       Increase the minimum down payment from 5% to 10%

2.       Reducing the maximum amortization for CMHC insured mortgage to 25 years

3.       Increasing CMHC premiums

Most experts expect some combination of these changes to happen before the spring market goes into high gear, and before the next federal budget, which is expected at the end of March.

With this news capturing most of the lending headlines this past week, there was little else that has affected rates.  They have stayed the course while pundits watch for next week’s Bank of Canada interest rate announcement and employment numbers as a gauge for future rate direction.

Lee Welbanks is a Mortgage Broker with The Mortgage Centre and trusted Spring Realty mortgage expert. To learn more about your funding options please Contact Lee today. Lee will be posting these informative “Market Minutes” each Wednesday for you to enjoy. Please remember to subscribe to the Spring Realty Insider list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments.