Category Archives: debt

Falling interest rates drive gains

From the ‘duh’ files: falling interest rates contribute to rising home prices.

A recent study points to yet another powerful, if-often-ignored, driver of home prices — falling interest rates.

Despite the recent, small interest-rate increase by the Bank of Canada, real mortgage interest rates have fallen precipitously since 2000. In 2000, typical mortgages were obtained at an interest rate of seven per cent. Last year, they averaged 2.7 per cent — almost two-thirds lower.

What has this meant for the purchasing power of Canadians?

Interest-rate declines reduce the amount that income borrowers must spend on interest payments, which gives them greater capacity to borrow with the same amount of income. Consider that the average Canadian family income was $50,785 in 2000 (including couples and singles). With mortgage rates at seven per cent, the maximum mortgage amount this family could secure was $180,949. At 2016 rates (2.7 per cent), the same family could borrow $276,610, an increase of 53 per cent.

Read the full article here.

Your car insurance is going up.

BC Drivers pay some of the highest car insurance rates in the country while receiving the lowest payouts, and yet somehow ICBC is out of money.

A recent report from Ernst & Young painted a dire picture at the Crown corporation, concluding that rates must increase by 30 per cent by 2019 to cover costs. A separate forecast released last November by ICBC indicated rates would need to increase by 42 per cent over the next five years to make up for expenses.

McCandless pointed to a footnote in the ICBC report that an additional $1.5 billion is required in “capital from other sources” between 2017 and 2020. He calculated the cumulative rate hike to be closer to 117 per cent over four years.

Continue reading Your car insurance is going up.

New mortgage rules hit Genworth hard

New mortgage insurance rules are having an impact over at Genworth:

Genworth MI Canada Inc., which provides mortgage insurance for home buyers and financial institutions, said the total value of new insurance it wrote in the second quarter of 2017 was down 81 per cent to $6.1-billion from $31.7-billion in the same period last year.

Most of the decline was the result of a 96-per-cent drop in the value of portfolio insurance written in the quarter, which is bulk insurance bought by financial institutions for their portfolios of uninsured mortgages. New portfolio insurance fell to $1.1-billion from $25.9-billion in the second quarter last year.

Read the full article here.

CMHC keeps crying ‘Wolf’

The Canadian Mortgage and Housing Corporation keeps on giving the national real estate market it’s worst possible rating. You can probably guess which cities get singled out as the most at risk:

CMHC’s valuation is part of its quarterly Housing Market Assessment, something the Crown corporation calls an early warning system, alerting Canadians to areas of concern developing in housing markets so that they may take action in a way that promotes market stability.

In terms of the 15 individual markets studied, CMHC said it saw strong evidence of overall problematic conditions in Victoria, Vancouver, Saskatoon, Hamilton and Toronto – the same five markets singled out a quarter ago.

CMHC defines problematic conditions as imbalances in the housing market that occur when overbuilding, overvaluation, overheating and price acceleration, or combinations of those issues exceed historical norms.

Read the full article here.

Rate hikes threaten the middle-class dream

In Canada ‘middle class’ currently seems to mean ‘deep in debt’ and rate hikes are a looming threat on the middle class :

For one view of Canada’s rate hike, consider the case of David and Neera. He can’t get a raise, is worried about retirement and they borrowed money a couple years ago to fix the roof. Interest costs will jump now, with vacations and kids’ clothes already out of reach.

Justin Trudeau’s entire economic agenda is aimed at David and Neera — we know, because he invented them. Their story anchored the Liberal government’s debut budget, tying together the impact of all the prime minister’s measures. Now they’re a cautionary tale.

“Canadian families are also taking on more debt to make ends meet,” the 2016 budget said. “For David and Neera, this debt is a constant source of worry.”

Read the full article over that the Financial Post.