Canadian Mortgage Rates in 2011

Last weekend during the free-for-all discussion two readers – Best Place on Meth and Troll predicted that mortgage rates would be going up this week, and lo and behold Monday saw an announcement from both TD and CIBC that they were raising their rates. How did they pull off this prediction?

Does it have anything to do with those mysterious 5 year bond yields?

Thanks goes to VHB for the graphs!

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Bizznitch
Guest
Bizznitch

2011 is going to be a stellar year for the bulls..*cough* Going to be hearing a lot of bovine scatology from them in the next while, as house prices continue to plummet. Maybe a cruise ship or rickety tug boat chock-a-lock full of rich Asians from Mongolia will arrive in the next while to save their bacon.

sluggo
Guest
sluggo

Sorry if I'm a bit late here folks, but I'm still pumped by paulb's numbers….even the price cuts are starting to pile up.

Gonna be an awesome spring!!!!!

jesse
Member

The long graph really puts the recent uptick into perspective.

Anonymous
Guest
Anonymous

More people choosing to rent, not buy, their home

The share of Americans who own their home dropped again last year, but that decline is not being driven by foreclosures pushing people out of the real-estate market. Instead, more people appear to be rejecting the idea of a home as an investment.

http://www.marketwatch.com/story/more-people-choo

IT__Pro
Guest
IT__Pro

@Dave: “affordability drives the market”…

…until it doesn't (ie. it only drives the market on the way up and at the top). Once the bubble starts to deflate, affordability will take a back seat to fundamentals.

30yr amort + rate hike = 2 more nails in the coffin = Good bye spring rebound.

VHB
Member
VHB

@IT__Pro: Correctamundo. Affordability is a **ceiling** to the market, not a floor. And the ceiling is caving in . . .

short-houses
Guest
short-houses

I have a suggestion for VHB (who genuinely seems to put in some elbow grease to get the 5 day moving averages on sales and listings, and then project out the rest of the month). The suggestion is – please put the projections in a separate forum thread, or in the February 2011 daily numbers thread. Or, post them in the daily thread, but copy and paste into one of those other threads. For anyone the least bit curious about the math and the stability/instability (or perhaps variance) of the projections (particularly the early part of the month) – it will be much easier seeing them all in one place rather than finding them on the daily thread. Regardless – keep up the good work.

VHB
Member
VHB

@short-houses: thanks for the idea. I'd be happy to put those posts in the 'daily numbers' thread. But, myself I like posting it here for the same reason I like to see paulb's daily numbers here–you don't have to go looking for it; it just comes up as part of the comment stream.

It's not much work actually. The spreadsheet is all set up–all I have to do is type in the two numbers (sell and list) and everything else just gets spit out.

Is the problem that the report is too long? Too busy? Too many numbers?

Anyway. How about this: If you like me posting the month-end projections here in the comment thread, then vote this post up. If you prefer it in the forum then vote this post down.

I'm easy either way.

short-houses
Guest
short-houses

VHB: I would say both. Its helpful to see in the comments, but it wold be nice to see the numbers, over time, in the forum.

By the way – I've been reading this blog, on and off, for quite a while now. I'm actually fairly curious about everyone's thoughts about the end-game. The documenting of sales and prices, the parsing of of anecdotes and links, and the (endless) opinions – this is all perfectly entertaining. But the real insight will be around the question of what to do (and importantly when to do it) when things actually go south.

patriotz
Member
Active Member

@Anonymous:

Instead, more people (in the US) appear to be rejecting the idea of a home as an investment.

A given asset with given earnings (rental value in the case of a house) is a better investment the cheaper it is and a worse investment the more expensive it is.

Polls in both the US and Canada show that people have it completely ass-backwards, i.e. they think more expensive RE gets, the better an investment it is, etc. This is the fallacy that drives bubbles (and busts).

Not to say US RE is a good investment now, the fundamentals still don't look good (i.e. it's still too expensive).

patriotz
Member
Active Member

Whether you own a house or are looking to buy, rising mortgage rates are your enemy.

Let's rewrite that a bit.

"Whether you are a bond owner or a prospective bond buyer, rising interest rates are your enemy". Duh.

And this guy claims to be a business reporter.

http://www.theglobeandmail.com/globe-investor/per

blueskies
Guest
blueskies

Battling inflation, China hikes rates
http://tinyurl.com/4695m6k

China raised interest rates on Tuesday, its second increase in just over six weeks, intensifying its campaign against stubbornly high inflation.
The timing was a surprise, coming on the final day of China’s Lunar New Year.

25 basis points…..

vreaa
Member
@short-houses: But the real insight will be around the question of what to do (and importantly when to do it) when things actually go south. —– From what perspective? If one is a prospective seller, sell ASAP. If one is a prospective buyer, once things start imploding, there should be absolutely no rush to buy, whatsoever. IMHO prices will be serially lower over 2, 4, 6 years, perhaps longer. We may get a price bounce at the 2009 lows, but that price level won't hold. The trough will be many years out. Some will step in at the 2009 lows (so we may get a 'right shoulder' to a H&S top), but IMO that'd be a mistake. The trickiest thing will be for buyers who have seen the bubble for what it is, and have been on the sidelines, wanting… Read more »
vreaa
Member

@vreaa: "One strategy may be to buy when your prospective primary residence hits ‘x’% of your net-worth. 40%? 50%? 30%? [NOT 120%]."

I should have added: [NOT 120%, "and definitely NOT 500%"].

(That's the kind of leverage people are using now, at 'nose-bleed' price levels. …Bloodbath!)

vreaa
Member

BTW, VHB, do these mortgage moves this week go someway to resolving the 5yr bond/mortgage spread anomaly you pointed to?

The charts all look like the spread is pretty much within normal range.

vreaa
Member

Don sent me a link to a (new?) site that allows one to explore data about online mortgage applications in Canada.

One chart for BC seems particularly interesting:

http://www.canequity.com/british-columbia/graphs/

It looks like 2011 has been a quiet January for online mortgage applications in BC, the quietist January on the chart, which goes back to 2002.

If true, this'd possibly predict weaker sales for the spring.

patriotz
Member
Active Member

@blueskies:

As long as China pegs its currency against the USD (and it's still pegged for all practical purposes), it will import inflation from the US.

If they want to stop inflation they will have to let the yuan float. They can't have it both ways.

vreaa
Member

@vreaa: BTW, that BC mortgage chart appears to be an expression of percentages of mortgages originating in BC _compared_with_ the rest of Canada. So the 'quiet' Jan 2011 is quiet _relative_ to rest of Canada, not necessarily _absolutely_ quiet.

(!)

rp1
Guest
rp1

#17 @patriotz: The yuan floats whether China allows it or not. Restricting access to foreign exchange simply disadvantages the general population to the benefit of those who can work around it.

Renting
Guest
Renting

@short-houses:

curious about everyone’s thoughts about the end-game

The end game for me will be to buy when it is cheaper than renting when factoring in all costs.

Personally I think it could take 5 to 10 years to hit bottom. Look at the US at almost 5 years into their contraction and they still may have another 5 years to go to hit bottom. What will happen in the US once rates start rising?

In the mean time it will be fun to watch the cheer leaders squirm.

pricedoutfornow
Guest
pricedoutfornow

@short-houses:

"curious about everyone’s thoughts about the end-game.But the real insight will be around the question of what to do (and importantly when to do it) when things actually go south."

My future inlaws always berate me for not buying real estate (throwing away money on rent, real estate always goes up, all that garbage).

I'll know it's time to buy when they start saying "Why are you thinking of buying a house? Don't you know real estate is a bad investment?"

Yup, then it will be really time to buy.

The Curse of 4444
Guest
The Curse of 4444

Funny funny guys at 98 Radio , and RE peddlers who claim good news.

Hype is no match for Curse of 4444,and economics, both taking hold.

Tick tock tick tock

44444444444
Guest
44444444444

444444444444444

Joshua
Member
Joshua

@vreaa: very interesting… so the extreme drop in mortgage applications originating in BC as compared to the rest of Canada is due to: a) significant increase in mortgage applications in the rest of Canada; and/or b) significant decrease in mortgage applications originating in BC. My money is on b).

Not much of a name..
Guest
Not much of a name..

VHB…just a question about your math from post 367 from the FFFA.

You used 40% as the max TDSR for your calculation of the maximum amount of a mortgage. Shouldn't you be using 32% GDSR instead which is the maximum being spent on housing? TDSR accounts for all debt payments including housing, credit cards, car payment, etc.

Correct me if I'm wrong, but the amount that a person could borrow on a salary of $100k per year would be lower than what you worked out.

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