Here is a good article from www.canadianmortgagetrends.com that speaks to some of the factors influencing our rates. Note the last line. With the bond yield update I send out, it should be very easy to track this.
April 26, 2009
“We Can't Go Any Lower”
That’s the opinion of Eric Lascelles, chief economics and rates strategist for TD Securities.
Lascelles was referencing the Bank of Canada’s all-time low 0.25% overnight target rate in his quote.
Canada’s most important banker, Marc Carney, seems to agree. Last week on BNN he said rates were at the "lowest possible level.” He said going from 0.25% to 0.00% is not an option because it would cause technical problems with the functioning of the money market.
Most now see two possible outcomes from here: sideways or up.
If inflation stays at bay, our current sideways interest-rate market could last up to 14 months—the duration Carney hopes to keep the Bank of Canada rate steady.
On the other hand, an uptrend could start as soon as the bond market anticipates a recovery. Bond yields have historically risen well in advance of economic recoveries.
Interestingly, very few people are predicting an imminent jump in bond yields. They feel it’s too unlikely with Canada’s GDP shrinking at the fastest pace on record.
Nonetheless, a short-term yield increase can happen for many reasons besides economic output and inflation. There can be technical reasons (e.g., technical analysts see a nice double-bottom on yield charts right now), supply reasons (if the government issues new debt to finance its activities), and asset allocation reasons (i.e., investors moving out of bonds to higher returning alternatives).
Monday, April 27, 2009
Thursday, April 23, 2009
Bank of Canada Explanation Today
There will be lots of information coming out today. Bank of Canada governor Mark Carney will be explaining (maybe vaguely) the reasons for the BoC rate drop and expectations we should have for the future, quantitative easing (printing money), and how this will all affect the Canadian economy. Here is an article from the Financial Post that expands on this. Keep an eye on this as it will affect bond rates/yields which could affect mortgage rates.
Terence Corcoran: Quantitative schemes at the Bank of Canada
Posted: April 22, 2009, 9:17 PM by Ron Nurwisah
Terence Corcoran, central banks
On Thursday we will learn what the Bank of Canada will do next to stimulate the economy, how it will apply the now famous “quantitative easing” phase of its ongoing effort.The bank is already giving away money, setting an overnight rate of 0.25% — “virtually zero,” as former governor John Crow says in his commentary. At the chartered banks, astute mortgage borrowers can almost lock in less than 2% for the next year, assuming borrowers are willing to take a flyer on current Governor Mark Carney’s statement that it will not be changing rates again for the next year.With mortgages going for next to nothing, you might expect house sales to be climbing. But they are not, at least not yet — an indication that there is more to getting an economy moving than monetary policy and interest-rate manipulation. Nor has there been much to show from the deficit spending extravaganzas announced by Ottawa and the provinces. And so now the Bank of Canada is apparently set to announce the next phase in its attempt to kick start borrowing and lending. The bank has already bought up more than $30-billion in various securities from private institutions over the last six months in an attempt to ease credit pressures in some markets. But it has done so carefully without creating excess monetary stimulus that would risk future inflation. This next phase will be different, “unconventional,” according to a Bank of Canada description.Until now, no Canadian central banker has ever used the words “quantitative easing.” Only in the last few weeks has the Bank of Canada issued quick definitions of the phrase. What is quantitative easing? It’s the bank’s “purchase of financial assets through creation of central bank reserves.” The result is twofold. First, the new reserves are also known as “printing money.” The reserves provide the chartered banks with new ability to increase their lending to business and households. Second, by buying financial securities, the Bank of Canada would be increasing the supply of money to a particular market, thereby driving down the interest rates on those securities. If the bank were to buy 10-year corporate bonds, for example, then 10-year bond rates should decline.So that’s the theory. Quantitative easing is supposed to do two things: increase the money supply via chartered bank expansion of lending and reduce longer-term interest rates in areas of the market the Bank of Canada usually has no influence over. The other technique, called “credit easing,” also involves buying private market securities, but in a way that does not necessarily increase the money supply and the risk of inflation.In its monetary report on Wednesday, the Bank is expected to more precisely identify how, when and even if it will start engaging in the business of buying up financial securities so as to drive down longer-term interest rates and increase the money supply beyond the rates of increase already taking place.The risks in this next phase are numerous. As John Crow reports, eventually the big run up in the Bank’s assets has to stop and the process will have to be reversed. The financial securities will have to be sold back into the market. Running around with mop, pail and squeegee to scoop up the excess monetary stimulus will require a degree of central bank fortitude that does not always come easy. The political pressure on central bankers to become what Mr. Crow calls “team players” in keeping growth up at the risk of higher inflation could weaken their resolve. In an odd note on this subject, the Bank of Canada’s recent Q & A says that “if a profound disagreement were to occur between the Bank and the government, the Minister of Finance could issue a written directive to the Governor ... This would most likely result in the Governor’s resignation.”That’s never happened, adds the bank, perhaps hopefully.Another uncertainty is that the quantitative and credit easings may not work. The credit markets and the economies of the world are stalled due to lack of confidence and a market belief that the investment climate is still too risky. The cause of the risk is not interest rates or lack of ready cash or liquidity. There is no absolute proof of this, but investors are likely holding back due to growing concern over government involvement in the economy, especially from the United States, the most crucial drag on the Canadian economy. The Obama administration is setting itself up as controlling manager and chief lever-puller of the banking and financial system, the auto industry and the energy markets. No amount of quantitative easing or stimulus activity in Canada can overcome that drag.
Terence Corcoran: Quantitative schemes at the Bank of Canada
Posted: April 22, 2009, 9:17 PM by Ron Nurwisah
Terence Corcoran, central banks
On Thursday we will learn what the Bank of Canada will do next to stimulate the economy, how it will apply the now famous “quantitative easing” phase of its ongoing effort.The bank is already giving away money, setting an overnight rate of 0.25% — “virtually zero,” as former governor John Crow says in his commentary. At the chartered banks, astute mortgage borrowers can almost lock in less than 2% for the next year, assuming borrowers are willing to take a flyer on current Governor Mark Carney’s statement that it will not be changing rates again for the next year.With mortgages going for next to nothing, you might expect house sales to be climbing. But they are not, at least not yet — an indication that there is more to getting an economy moving than monetary policy and interest-rate manipulation. Nor has there been much to show from the deficit spending extravaganzas announced by Ottawa and the provinces. And so now the Bank of Canada is apparently set to announce the next phase in its attempt to kick start borrowing and lending. The bank has already bought up more than $30-billion in various securities from private institutions over the last six months in an attempt to ease credit pressures in some markets. But it has done so carefully without creating excess monetary stimulus that would risk future inflation. This next phase will be different, “unconventional,” according to a Bank of Canada description.Until now, no Canadian central banker has ever used the words “quantitative easing.” Only in the last few weeks has the Bank of Canada issued quick definitions of the phrase. What is quantitative easing? It’s the bank’s “purchase of financial assets through creation of central bank reserves.” The result is twofold. First, the new reserves are also known as “printing money.” The reserves provide the chartered banks with new ability to increase their lending to business and households. Second, by buying financial securities, the Bank of Canada would be increasing the supply of money to a particular market, thereby driving down the interest rates on those securities. If the bank were to buy 10-year corporate bonds, for example, then 10-year bond rates should decline.So that’s the theory. Quantitative easing is supposed to do two things: increase the money supply via chartered bank expansion of lending and reduce longer-term interest rates in areas of the market the Bank of Canada usually has no influence over. The other technique, called “credit easing,” also involves buying private market securities, but in a way that does not necessarily increase the money supply and the risk of inflation.In its monetary report on Wednesday, the Bank is expected to more precisely identify how, when and even if it will start engaging in the business of buying up financial securities so as to drive down longer-term interest rates and increase the money supply beyond the rates of increase already taking place.The risks in this next phase are numerous. As John Crow reports, eventually the big run up in the Bank’s assets has to stop and the process will have to be reversed. The financial securities will have to be sold back into the market. Running around with mop, pail and squeegee to scoop up the excess monetary stimulus will require a degree of central bank fortitude that does not always come easy. The political pressure on central bankers to become what Mr. Crow calls “team players” in keeping growth up at the risk of higher inflation could weaken their resolve. In an odd note on this subject, the Bank of Canada’s recent Q & A says that “if a profound disagreement were to occur between the Bank and the government, the Minister of Finance could issue a written directive to the Governor ... This would most likely result in the Governor’s resignation.”That’s never happened, adds the bank, perhaps hopefully.Another uncertainty is that the quantitative and credit easings may not work. The credit markets and the economies of the world are stalled due to lack of confidence and a market belief that the investment climate is still too risky. The cause of the risk is not interest rates or lack of ready cash or liquidity. There is no absolute proof of this, but investors are likely holding back due to growing concern over government involvement in the economy, especially from the United States, the most crucial drag on the Canadian economy. The Obama administration is setting itself up as controlling manager and chief lever-puller of the banking and financial system, the auto industry and the energy markets. No amount of quantitative easing or stimulus activity in Canada can overcome that drag.
Wednesday, April 22, 2009
Rate Lock Considerations
This article (from www.canadianmortgagetrends.com) sounds very familiar to conversations I have been having with some of you recently. With the BoC dropping the overnight rate to 0.25% and most (if not all) of the banks dropping their Prime Rates to follow, a lot of folks feel that rates are at the bottom. Only time will tell. Merix also got a mention (of course I bolded it) about our great 3.69% Quick Close. When advising your clients, using the “don’t look a gift horse in the mouth” mentality may help. You cannot argue that rate are great today. And even if rates go down again, your clients are getting an incredible deal today.
April 18, 2009
Rate Lock Considerations
People know that mortgage rates are at all-time lows. What people don’t know is how long it will last.
There is going to be a time (perhaps sooner than some think) when bond yields run up and take fixed mortgage rates with them. This inevitably will be followed by throngs of homeowners rushing to lock in their mortgages.
Few can tell in advance when that time will come. The only way most people can time the market is with hindsight—when it’s clear by looking at a chart that rates have bottomed.
If you wait until then, however, you’ll probably miss the lowest fixed rates by 1/4% to 1/2% or more. So what do you do?
Assuming you don’t have a discounted variable rate, like prime – 0.50% (those are keepers), one option is to take a good fixed-rate deal when you can get it.
People already in a variable or 1-year convertible mortgage can lock in at tremendous rates today. Typical conversion rates are roughly 3.95%-4.15% at the moment. Compare that to posted fixed rates over the last 58 years (illustrated in this chart above). 4% is pretty darn good. If bond yields bolt above 2.00%-2.15% (they closed at 1.97% Friday) no one can be faulted for locking in at today’s low rates.
There are also some amazing bargains out there for purchases, switches, and refinances. One non-bank lender, Merix Financial, launched a new 5-year fixed promotion on Wednesday. This mortgage has all the bells and whistles--20% prepayment options, portability, skip-a-payment, etc.--for a historically low rate of 3.69%. That’s only 0.39% to 0.44% above most variable rates. [This mortgage must close by May 29, 2009. No pre-approvals.]
No-frills fixed-rate mortgages--with only 5% pre-payment privileges--are also available at slightly better rates (but only in certain provinces).
Of course, if you’re shopping for a new mortgage you will come across alternatives to a 5-year fixed. Some people are still advocating:
Variable-rate mortgages (Variables have had a long-term statistical edge, but today’s environment is different. Most current variable-rate proponents are people trying to squeeze every last basis point out of the market. They tell you to lock in when the time is “right,” but they rarely tell you when that is. If you’re going this route, good luck with both your timing and your rate conversion.)
1-year convertible/fixed mortgages (Same story as with variables.)
2-4 year fixed mortgages (While attractive last week, this week’s 3.69% 5-year option has reduced the allure of these terms--unless you plan to pay off your mortgage before five years, or plan to close after May 29.)
In general, the current alternatives are not overly compelling; however, exceptions do apply. Speak with a mortgage professional about your specific situation.
From a macro economic standpoint there are additional reasons to consider a long-term rate lock:
The Bank of Canada’s overnight target rate is down to 0.50% (changed to 0.25% after this article came out – David Neville). That means there is very little room for bankers' acceptance rates and prime rate to fall further. (Both influence variable mortgage rates.)
Most economists expect that stimulus-led inflation will push up bond yields (and fixed mortgages rates) well before the economy actually recovers.
Mortgage spreads have slowly been improving this year. As spreads get tighter lender margins often get smaller. This too may impede further fixed-rate declines.
Bonds have become heavily overbought because investors have flocked to them for safety. If traders start to value return more than safety, bonds will fall and bond yields will rise.
Indeed, yields on the 5-year bond have been somewhat suspect as of late. See the chart on the left (sorry, the chart did not carry over. However, you can see the 60day+ history of spreads on my Bond Yield chart – David Neville). Yields have been lingering quietly below the 2% mark for weeks now. They’re seemingly coiled like a spring--ready to leap higher at the first sign of economic strength.
Whatever the case, there is one simple question people should ask themselves: “If bond yields run up from here, is it worth staying in a variable or 1-year mortgage?”
If economists are right, this gamble might save you 0.39% to 0.44% over today’s fixed rates for 6-12 months. If they’re wrong (or you don’t time your rate lock properly), you could conceivably end up paying over 0.50% above today’s low rates…for the following 4 to 4 1/2 years!
(Chart data courtesy of the Bank of Canada)
April 18, 2009
Rate Lock Considerations
People know that mortgage rates are at all-time lows. What people don’t know is how long it will last.
There is going to be a time (perhaps sooner than some think) when bond yields run up and take fixed mortgage rates with them. This inevitably will be followed by throngs of homeowners rushing to lock in their mortgages.
Few can tell in advance when that time will come. The only way most people can time the market is with hindsight—when it’s clear by looking at a chart that rates have bottomed.
If you wait until then, however, you’ll probably miss the lowest fixed rates by 1/4% to 1/2% or more. So what do you do?
Assuming you don’t have a discounted variable rate, like prime – 0.50% (those are keepers), one option is to take a good fixed-rate deal when you can get it.
People already in a variable or 1-year convertible mortgage can lock in at tremendous rates today. Typical conversion rates are roughly 3.95%-4.15% at the moment. Compare that to posted fixed rates over the last 58 years (illustrated in this chart above). 4% is pretty darn good. If bond yields bolt above 2.00%-2.15% (they closed at 1.97% Friday) no one can be faulted for locking in at today’s low rates.
There are also some amazing bargains out there for purchases, switches, and refinances. One non-bank lender, Merix Financial, launched a new 5-year fixed promotion on Wednesday. This mortgage has all the bells and whistles--20% prepayment options, portability, skip-a-payment, etc.--for a historically low rate of 3.69%. That’s only 0.39% to 0.44% above most variable rates. [This mortgage must close by May 29, 2009. No pre-approvals.]
No-frills fixed-rate mortgages--with only 5% pre-payment privileges--are also available at slightly better rates (but only in certain provinces).
Of course, if you’re shopping for a new mortgage you will come across alternatives to a 5-year fixed. Some people are still advocating:
Variable-rate mortgages (Variables have had a long-term statistical edge, but today’s environment is different. Most current variable-rate proponents are people trying to squeeze every last basis point out of the market. They tell you to lock in when the time is “right,” but they rarely tell you when that is. If you’re going this route, good luck with both your timing and your rate conversion.)
1-year convertible/fixed mortgages (Same story as with variables.)
2-4 year fixed mortgages (While attractive last week, this week’s 3.69% 5-year option has reduced the allure of these terms--unless you plan to pay off your mortgage before five years, or plan to close after May 29.)
In general, the current alternatives are not overly compelling; however, exceptions do apply. Speak with a mortgage professional about your specific situation.
From a macro economic standpoint there are additional reasons to consider a long-term rate lock:
The Bank of Canada’s overnight target rate is down to 0.50% (changed to 0.25% after this article came out – David Neville). That means there is very little room for bankers' acceptance rates and prime rate to fall further. (Both influence variable mortgage rates.)
Most economists expect that stimulus-led inflation will push up bond yields (and fixed mortgages rates) well before the economy actually recovers.
Mortgage spreads have slowly been improving this year. As spreads get tighter lender margins often get smaller. This too may impede further fixed-rate declines.
Bonds have become heavily overbought because investors have flocked to them for safety. If traders start to value return more than safety, bonds will fall and bond yields will rise.
Indeed, yields on the 5-year bond have been somewhat suspect as of late. See the chart on the left (sorry, the chart did not carry over. However, you can see the 60day+ history of spreads on my Bond Yield chart – David Neville). Yields have been lingering quietly below the 2% mark for weeks now. They’re seemingly coiled like a spring--ready to leap higher at the first sign of economic strength.
Whatever the case, there is one simple question people should ask themselves: “If bond yields run up from here, is it worth staying in a variable or 1-year mortgage?”
If economists are right, this gamble might save you 0.39% to 0.44% over today’s fixed rates for 6-12 months. If they’re wrong (or you don’t time your rate lock properly), you could conceivably end up paying over 0.50% above today’s low rates…for the following 4 to 4 1/2 years!
(Chart data courtesy of the Bank of Canada)
Thursday, April 16, 2009
Atlantic Canada's housing markets resisting downturn
Some good and bad news in this one, but like most news these days, it does have an optimistic overtone to it. When you look at the news from other regions (BC, Alberta, etc.), Atlantic Canada is looking like the safest housing market in Canada today. (David Neville)
Atlantic Canada's housing markets resisting downturn but cracks are beginning to show, says RBC Economics
TORONTO, April 16 /CNW/ - Atlantic Canada's housing markets remain stable
against the general housing downturn, but some cracks are finally starting to
show according to the latest housing report released today by RBC Economics.
"Sales of existing homes in Atlantic Canada have dropped in recent
months," said Robert Hogue, senior economist, RBC. "With demand for housing
facing significant headwinds, market sentiment is set to tone down."
However, St. John's has become the housing hot spot in Canada, having
taken the lead with the fastest pace of price appreciation while other markets
like Halifax and Saint John have maintained a steady upward price momentum.
RBC's Housing Affordability measure for Atlantic Canada, which captures
the proportion of pre-tax household income needed to service the costs of
owning a home, improved modestly across all four classes in the last quarter
of 2008 as the benchmark detached bungalow moved to 34.8 per cent, the
standard townhouse to 30 per cent, the standard condo to 27.5 per cent and the
standard two-storey home to 40.6 per cent respectively.
Atlantic housing markets continue to be supported by a good balance
between buyers and sellers. The report noted that improving affordability is
also a positive factor with lower mortgage rates and rising income helping to
repair some of the deterioration over the past few years. Nonetheless, the all
around economic gloom is likely to soften market conditions in the period
ahead.
RBC's Affordability measure for a detached bungalow for Canada's largest
cities is as follows: Vancouver 70.3 per cent, Toronto 51.3 per cent, Calgary
42.7 per cent, Ottawa 42.7 per cent and Montreal 39.4 per cent.
The report also looked at mortgage carrying costs relative to incomes for
a broader sampling of cities across the country, including St. John's, Saint
John, and Halifax. For these cities, RBC has used a narrower measure of
housing affordability that only takes mortgage payments relative to income
into account.
The Housing Affordability measure, which RBC has compiled since 1985, is
based on the costs of owning a detached bungalow, a reasonable property
benchmark for the housing market. Alternative housing types are also presented
including a standard two-storey home, a standard townhouse and a standard
condominium. The higher the reading, the more costly it is to afford a home.
For example, an Affordability reading of 50 per cent means that homeownership
costs, including mortgage payments, utilities and property taxes, take up 50
per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Housing markets remain under heavy downward
pressure, and prices and sales continue to slide. In the past year,
there has been a notable improvement in affordability, though the
recovery process has far to go.
- Alberta: Since last fall, the declining Alberta economy has
intensified the downdraft on the province's housing markets, causing
home resales to drop to a 12-year low at the end of 2008 and rebound
only modestly since. Affordability has been on an improving track
since about the middle of 2007.
- Saskatchewan: Market activity has cooled considerably from the
frenzied pace from 2006 to early 2008 and prices have begun to
decline. Nonetheless, economic and demographic fundamentals are still
largely supportive of the housing market and overshadow extremely
poor affordability levels.
- Manitoba: Manitoba's housing markets have fared much better than the
vast majority in Canada: resale activity has slowed moderately and
prices have either held their own or edged down just slightly.
Affordability has been kept out of the danger zone, helping to
minimize any downside risks.
- Ontario: With the recession pounding many communities, housing market
conditions have deteriorated considerably. However, the impact is
unlikely to develop into an all-out rout similar to that of the early
1990s. Affordability, while still causing some stress, is quickly
being restored to levels closer to long-term averages.
- Quebec: The province's housing markets have been among the last in
Canada to yield to the weakening trend. The main sign of cooling thus
far has been a drop in resale activity, as prices have held up
reasonably well. Some of the persisting market strength can be
ascribed to sensible affordability levels, which had eroded only
modestly in recent years.
The full RBC Housing Affordability report is available online, as of 8
a.m. E.D.T. today at www.rbc.com/economics/market/pdf/house.pdf.
Atlantic Canada's housing markets resisting downturn but cracks are beginning to show, says RBC Economics
TORONTO, April 16 /CNW/ - Atlantic Canada's housing markets remain stable
against the general housing downturn, but some cracks are finally starting to
show according to the latest housing report released today by RBC Economics.
"Sales of existing homes in Atlantic Canada have dropped in recent
months," said Robert Hogue, senior economist, RBC. "With demand for housing
facing significant headwinds, market sentiment is set to tone down."
However, St. John's has become the housing hot spot in Canada, having
taken the lead with the fastest pace of price appreciation while other markets
like Halifax and Saint John have maintained a steady upward price momentum.
RBC's Housing Affordability measure for Atlantic Canada, which captures
the proportion of pre-tax household income needed to service the costs of
owning a home, improved modestly across all four classes in the last quarter
of 2008 as the benchmark detached bungalow moved to 34.8 per cent, the
standard townhouse to 30 per cent, the standard condo to 27.5 per cent and the
standard two-storey home to 40.6 per cent respectively.
Atlantic housing markets continue to be supported by a good balance
between buyers and sellers. The report noted that improving affordability is
also a positive factor with lower mortgage rates and rising income helping to
repair some of the deterioration over the past few years. Nonetheless, the all
around economic gloom is likely to soften market conditions in the period
ahead.
RBC's Affordability measure for a detached bungalow for Canada's largest
cities is as follows: Vancouver 70.3 per cent, Toronto 51.3 per cent, Calgary
42.7 per cent, Ottawa 42.7 per cent and Montreal 39.4 per cent.
The report also looked at mortgage carrying costs relative to incomes for
a broader sampling of cities across the country, including St. John's, Saint
John, and Halifax. For these cities, RBC has used a narrower measure of
housing affordability that only takes mortgage payments relative to income
into account.
The Housing Affordability measure, which RBC has compiled since 1985, is
based on the costs of owning a detached bungalow, a reasonable property
benchmark for the housing market. Alternative housing types are also presented
including a standard two-storey home, a standard townhouse and a standard
condominium. The higher the reading, the more costly it is to afford a home.
For example, an Affordability reading of 50 per cent means that homeownership
costs, including mortgage payments, utilities and property taxes, take up 50
per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Housing markets remain under heavy downward
pressure, and prices and sales continue to slide. In the past year,
there has been a notable improvement in affordability, though the
recovery process has far to go.
- Alberta: Since last fall, the declining Alberta economy has
intensified the downdraft on the province's housing markets, causing
home resales to drop to a 12-year low at the end of 2008 and rebound
only modestly since. Affordability has been on an improving track
since about the middle of 2007.
- Saskatchewan: Market activity has cooled considerably from the
frenzied pace from 2006 to early 2008 and prices have begun to
decline. Nonetheless, economic and demographic fundamentals are still
largely supportive of the housing market and overshadow extremely
poor affordability levels.
- Manitoba: Manitoba's housing markets have fared much better than the
vast majority in Canada: resale activity has slowed moderately and
prices have either held their own or edged down just slightly.
Affordability has been kept out of the danger zone, helping to
minimize any downside risks.
- Ontario: With the recession pounding many communities, housing market
conditions have deteriorated considerably. However, the impact is
unlikely to develop into an all-out rout similar to that of the early
1990s. Affordability, while still causing some stress, is quickly
being restored to levels closer to long-term averages.
- Quebec: The province's housing markets have been among the last in
Canada to yield to the weakening trend. The main sign of cooling thus
far has been a drop in resale activity, as prices have held up
reasonably well. Some of the persisting market strength can be
ascribed to sensible affordability levels, which had eroded only
modestly in recent years.
The full RBC Housing Affordability report is available online, as of 8
a.m. E.D.T. today at www.rbc.com/economics/market/pdf/house.pdf.
Wednesday, April 15, 2009
First-time home buyers could find a welcoming market
Here is a great article. And some food for thought, first time home buyers will not be facing an !RD penalty, so little chance of the deal dying an “unnatural death”. (David Neville)
First-time home buyers could find a welcoming market, but approach with caution
By Kristine Owram, The Canadian Press TORONTO - Real-estate experts say low mortgage rates and more affordable homes in many markets are drawing out first-time home buyers in droves, but one independent analyst says the correction in Canadian home prices hasn't been nearly as dramatic as some believe.
Phil Soper, chief executive of Brookfield Real Estate Services, which operates under the Royal LePage banner, said prices are falling and lenders are lowering their rates making the market more attractive to people looking to buy their first home.
"The uptick in first-time home buyer purchases across the country is quite astonishing," said Soper, speaking Tuesday at a BMO conference on Canada's housing market. "Affordability in places like Vancouver has improved for the first time in a very long time."
BMO senior economist Sal Guatieri said the average mortgage payment has fallen by one-third or $600 a month from its peak, while average resale home prices have fallen 14 per cent from their highs.
Guatieri said he expects resale prices to fall "moderately further" this year for a cumulative decline in prices of approximately 20 per cent.
But Peter Norman, a consultant with independent real-estate adviser Altus Group, said the dramatic drops in home prices seen in places like Vancouver, Edmonton and Calgary are the exception rather than the norm.
"This is not a housing adjustment period in Canada," Norman said in an interview.
"Certainly housing demand has slowed down because the economy is the pits, but housing supply has slowed down a lot as well as a result.... Outside of a couple of sub-markets there hasn't been much of a downward adjustment on price."
Still, other changes in the market are making this a good time to buy a first home - as long as the buyer can afford it, Norman said.
"There are a lot fewer of those stories of really rapidly selling houses, bidding wars, all that kind of stuff, so I think it can be a bit more of a sane market for somebody who's trying to buy right now," Norman said. "It may take away some of the anxiety or it may help you make a better decision."
And most importantly, overall affordability in the housing market has improved.
"If it wasn't for the recession and the aversion to financial risk that people have right now, it would probably be a very active market and a very good market," Norman said.
The Canadian Real Estate Association reported that house prices and sales continued to slide across Canada in February - the latest month for which data is available - compared to the same time last year, but activity was up for the first time since September.
The association said resale home prices fell 9.2 per cent across Canada in February to an average of $281,972 while sales fell 31 per cent to 25,373 units, the smallest year-over-year decline since October 2008. Seasonally adjusted sales fell 26.8 per cent.
Meanwhile, the number of homes that traded hands on the multiple listing service, or MLS, was up 8.6 per cent above seasonally adjusted levels in January.
First-time home buyers could find a welcoming market, but approach with caution
By Kristine Owram, The Canadian Press TORONTO - Real-estate experts say low mortgage rates and more affordable homes in many markets are drawing out first-time home buyers in droves, but one independent analyst says the correction in Canadian home prices hasn't been nearly as dramatic as some believe.
Phil Soper, chief executive of Brookfield Real Estate Services, which operates under the Royal LePage banner, said prices are falling and lenders are lowering their rates making the market more attractive to people looking to buy their first home.
"The uptick in first-time home buyer purchases across the country is quite astonishing," said Soper, speaking Tuesday at a BMO conference on Canada's housing market. "Affordability in places like Vancouver has improved for the first time in a very long time."
BMO senior economist Sal Guatieri said the average mortgage payment has fallen by one-third or $600 a month from its peak, while average resale home prices have fallen 14 per cent from their highs.
Guatieri said he expects resale prices to fall "moderately further" this year for a cumulative decline in prices of approximately 20 per cent.
But Peter Norman, a consultant with independent real-estate adviser Altus Group, said the dramatic drops in home prices seen in places like Vancouver, Edmonton and Calgary are the exception rather than the norm.
"This is not a housing adjustment period in Canada," Norman said in an interview.
"Certainly housing demand has slowed down because the economy is the pits, but housing supply has slowed down a lot as well as a result.... Outside of a couple of sub-markets there hasn't been much of a downward adjustment on price."
Still, other changes in the market are making this a good time to buy a first home - as long as the buyer can afford it, Norman said.
"There are a lot fewer of those stories of really rapidly selling houses, bidding wars, all that kind of stuff, so I think it can be a bit more of a sane market for somebody who's trying to buy right now," Norman said. "It may take away some of the anxiety or it may help you make a better decision."
And most importantly, overall affordability in the housing market has improved.
"If it wasn't for the recession and the aversion to financial risk that people have right now, it would probably be a very active market and a very good market," Norman said.
The Canadian Real Estate Association reported that house prices and sales continued to slide across Canada in February - the latest month for which data is available - compared to the same time last year, but activity was up for the first time since September.
The association said resale home prices fell 9.2 per cent across Canada in February to an average of $281,972 while sales fell 31 per cent to 25,373 units, the smallest year-over-year decline since October 2008. Seasonally adjusted sales fell 26.8 per cent.
Meanwhile, the number of homes that traded hands on the multiple listing service, or MLS, was up 8.6 per cent above seasonally adjusted levels in January.
Friday, April 3, 2009
Walmart Pricing
This was this morning’s post on www.canadianmortgagetrends.com. I sent out a similar item a few weeks ago when the 3 year rate went from 3.75% to 4.00% and I suggested a rate buydown by 0.01% to give you that “Walmart pricing”. It is purely psychological. The underlying message here is that sometimes “best rate” is not always the “best deal”.
April 02, 2009
Walmart Pricing
If you walk down any aisle at Walmart you’ll see a lot of products priced at $4.99, $9.99, $19.99, and so on. When it comes to choosing between purchases, people instinctively gravitate to prices with lower leading digits.
Not surprisingly, it’s no different in the mortgage world. At the moment, for example, there’s no shortage of 5-year fixed rates at 3.99%. Lots of non-bank lenders now seem to be congregating there, like a herd of buffalo waiting for the next buffalo to run.
There’s no magic to 3.99%. It’s not based on any specific cost of funds formula. It’s simply a number that makes people say “Wow, under 4% for a 5-year mortgage sounds great!”
As such, don’t expect to see a lot of 4.00% mortgage offers out there. If you do see another mortgage that’s 0.01%-0.02% more expensive, forget the psychology. Compare that mortgage’s features with the alternatives. A 0.01% discount saves the average borrower just $60.58 over five years (given the average Canadian mortgage of $127,000, a 25-year amortization, etc.). Yet, feature differences or little quirks in pre-payments, penalty calculation, fees, rate holds, etc. can cost you FAR FAR more. In the mortgage business, looking at the forest instead of the trees can be quite fruitful indeed.
Posted at 05:26 AM in Mortgage Commentary, Mortgage Tips & Advice Permalink
April 02, 2009
Walmart Pricing
If you walk down any aisle at Walmart you’ll see a lot of products priced at $4.99, $9.99, $19.99, and so on. When it comes to choosing between purchases, people instinctively gravitate to prices with lower leading digits.
Not surprisingly, it’s no different in the mortgage world. At the moment, for example, there’s no shortage of 5-year fixed rates at 3.99%. Lots of non-bank lenders now seem to be congregating there, like a herd of buffalo waiting for the next buffalo to run.
There’s no magic to 3.99%. It’s not based on any specific cost of funds formula. It’s simply a number that makes people say “Wow, under 4% for a 5-year mortgage sounds great!”
As such, don’t expect to see a lot of 4.00% mortgage offers out there. If you do see another mortgage that’s 0.01%-0.02% more expensive, forget the psychology. Compare that mortgage’s features with the alternatives. A 0.01% discount saves the average borrower just $60.58 over five years (given the average Canadian mortgage of $127,000, a 25-year amortization, etc.). Yet, feature differences or little quirks in pre-payments, penalty calculation, fees, rate holds, etc. can cost you FAR FAR more. In the mortgage business, looking at the forest instead of the trees can be quite fruitful indeed.
Posted at 05:26 AM in Mortgage Commentary, Mortgage Tips & Advice Permalink
Thursday, April 2, 2009
Low Rates Not The Only Factor
Here is an interesting article. My favourite thing is that it is telling clients to contact their mortgage broker/originator.
Low rates not the only factor
Financial Planning
Helen Morris, Financial Post, March 30/09
As mortgage rates remain low, homeowners looking to renew their mortgages can get some great deals. However, those people who are hoping to secure a good rate are also likely to be assessing their own wider financial well-being, what with increasing job losses, stock-market routs and the recession.
"If you [are] in a market sector that may be subject to layoffs or you believe that your employer may have issues and may not be there for you tomorrow," says Peter Veselinovich, vice-president, banking and mortgage operations at Investors Group, "you may want to adjust the amount of your payments to reflect what a reduced cash flow or revenue flow into your home might look like."
This could mean looking at a longer amortization period.
Mr. Veselinovich says it is crucial not to look at your mortgage in isolation but as part of your overall financial plan. Mortgage professionals suggest shopping for rates well before your renewal date.
"I would consult with a mortgage broker 120 days prior to your renewal date because we can hold a rate for you," says Heather Paterson, mortgage specialist with Invis in Toronto, an independent mortgage brokerage. "If rates go down, we can get you a lower rate; if rates go up, then we've got you protected at today's rate."
The sub-prime fiasco aside, there are many products and lenders operating in what's known as the conventional mortgage market in Canada. These are the lenders who provide mortgages for individuals with regular jobs and decent credit ratings.
"The overall mortgage rate environment in Canada is exceedingly good. You can get a five-year fixed mortgage for less than 5% ... there have been increases in the variable rate product -- it used to be there was a discount up to 1%," says Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP). "Today the best you can do is probably prime plus 0.6%."
This means that as the prime rate has fallen, variable customers could be looking at a rate as low as 3.6%.
"The difference in those rates is really the insurance premium for peace of mind you're going to get by locking in your rate," Mr. Veselinovich says. "I like to call it the insomnia factor ... if you're going to be concerned that ... any material movement in interest rates could reflect a payment that you could no longer afford ... then you should be looking at a fixed-rate mortgage."
Many economists expect rates to continue to decline.
"Going into the second half of this year, we will start to see a lower mortgage rate," says James Marple, economist in economic forecasting at TD Economics. "Going into 2010, we're starting to see signs of an economic recovery ... We start to see inflation picking up and we will see short-term interest rates rise."
Mr. Murphy says it is crucial to ask lots of questions and not only about the rate. If you are thinking of moving house in the near future, check whether your mortgage is portable without penalty if, for example, you move to another province. Most national lenders will be happy to do this but some smaller regional institutions may not be able to. Each mortgage deal has many varied aspects, so analyzing it in detail is crucial. For example, many have penalties associated with early repayment or early exit from the deal.
"If you're not satisfied with the answers you're getting, go to somebody else," Mr. Murphy says. "The rate environment itself is low and going lower. I think the lenders are trying to provide the best products they can in uncertain times."
Low rates not the only factor
Financial Planning
Helen Morris, Financial Post, March 30/09
As mortgage rates remain low, homeowners looking to renew their mortgages can get some great deals. However, those people who are hoping to secure a good rate are also likely to be assessing their own wider financial well-being, what with increasing job losses, stock-market routs and the recession.
"If you [are] in a market sector that may be subject to layoffs or you believe that your employer may have issues and may not be there for you tomorrow," says Peter Veselinovich, vice-president, banking and mortgage operations at Investors Group, "you may want to adjust the amount of your payments to reflect what a reduced cash flow or revenue flow into your home might look like."
This could mean looking at a longer amortization period.
Mr. Veselinovich says it is crucial not to look at your mortgage in isolation but as part of your overall financial plan. Mortgage professionals suggest shopping for rates well before your renewal date.
"I would consult with a mortgage broker 120 days prior to your renewal date because we can hold a rate for you," says Heather Paterson, mortgage specialist with Invis in Toronto, an independent mortgage brokerage. "If rates go down, we can get you a lower rate; if rates go up, then we've got you protected at today's rate."
The sub-prime fiasco aside, there are many products and lenders operating in what's known as the conventional mortgage market in Canada. These are the lenders who provide mortgages for individuals with regular jobs and decent credit ratings.
"The overall mortgage rate environment in Canada is exceedingly good. You can get a five-year fixed mortgage for less than 5% ... there have been increases in the variable rate product -- it used to be there was a discount up to 1%," says Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP). "Today the best you can do is probably prime plus 0.6%."
This means that as the prime rate has fallen, variable customers could be looking at a rate as low as 3.6%.
"The difference in those rates is really the insurance premium for peace of mind you're going to get by locking in your rate," Mr. Veselinovich says. "I like to call it the insomnia factor ... if you're going to be concerned that ... any material movement in interest rates could reflect a payment that you could no longer afford ... then you should be looking at a fixed-rate mortgage."
Many economists expect rates to continue to decline.
"Going into the second half of this year, we will start to see a lower mortgage rate," says James Marple, economist in economic forecasting at TD Economics. "Going into 2010, we're starting to see signs of an economic recovery ... We start to see inflation picking up and we will see short-term interest rates rise."
Mr. Murphy says it is crucial to ask lots of questions and not only about the rate. If you are thinking of moving house in the near future, check whether your mortgage is portable without penalty if, for example, you move to another province. Most national lenders will be happy to do this but some smaller regional institutions may not be able to. Each mortgage deal has many varied aspects, so analyzing it in detail is crucial. For example, many have penalties associated with early repayment or early exit from the deal.
"If you're not satisfied with the answers you're getting, go to somebody else," Mr. Murphy says. "The rate environment itself is low and going lower. I think the lenders are trying to provide the best products they can in uncertain times."
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