Archive for the ‘rates’ Category

Party like it’s 1981

Wednesday, July 1st, 2015

Remember the 80’s?

Big hair, jelly bracelets and 20% interest rates.

Homebuyers back then had a tough time, they had to save up for a big down payment and the cost of holding a mortgage was high.  All that hard work and sacrifice was well rewarded though as Rob Carrick points out in the Globe and Mail:

The high interest rates of the early 1980s must have felt unbearable for all Canadians buying homes and arranging mortgages (it was heaven for savers, but never mind). The reward for perseverance was a 30-year run in which resale house prices on a national basis surged by an average annual 5 per cent and were up in 28 of 34 years.

This rally was fed by falling interest rates. After the visit to high-rate hell in the early 1980s, home owners benefited from a long decline in rates that continued into 2015. House prices haven’t gone up because homes are a great investment, because of immigration, because of foreign money or because home ownership is awesome. It’s because we’ve had a 30-year sale on the cost of financing a home purchase, with ever-increasing deep discounts.

That sale may be ending. There’s a growing sense that the U.S. economy is on the upswing, and interest rates in the bond market have already started to creep higher. Mortgage rates take their cue from rates in the bond market, so we could see lenders increase fixed-rate mortgage costs at some point this year or next.

For the historical perspective read the full article here.

The thing that may surprise you is that despite a housing market that has provided magical returns for older buyers and cheaper and cheaper debt seniors are still going bankrupt in record numbers.

Time for another recession?

Tuesday, June 30th, 2015

It seems like it was just a few years ago we had a recession, could it really be time for another already?

The Canadian economy has now contracted four months in a row and if that trend continues will Poloz have to cut rates again?

Economists have already written off the first half the year, but something better was still expected for April.

This also brings into question the outlook that had been painted by Bank of Canada Governor Stephen Poloz.

A recession is typically defined as two consecutive quarters of contraction, meaning May and June will have to be stronger to avert that in Canada.

Even if the May showing is flat, said Andrew Grantham of CIBC World Markets, there could still be a “modest negative” for the second quarter.

“It probably already feels like a recession for people in Alberta and Saskatchewan,” he said.

Read the full article here.

Who’s worried about debt?

Monday, June 15th, 2015

According to this article over at the CBC, Canadians love a good home equity line of credit – they’re practically addicted to that sweet sweet HELOC money at rock bottom rates.

“We are addicted for sure. Who wouldn’t be addicted to something so easy [to get]?” says 35-year-old Ali about the free-flowing lines of credit that have enabled him to splurge on the finer things in life.

“It’s easy, accessible cash at a very cheap price. The banks make it so easy for you to obtain it,” says the software engineer.

Some people say the national reliance on debt is a risk to our economy and to the lifestyles of the indebted.  But the Canadian Bankers Association isn’t worried and spenders say they are aware of the risks:

While Ali and Haji like to spend, they believe they’re behaving responsibly and say they’re aware of potential pitfalls. That’s why they’re still undecided about another loan.

“If you get a line on this [house] and God forbid something happens to me or [my wife] and we are unable to sustain our lifestyle or stream of income that we have, then we would be in trouble and that may lead to us losing this house,” says Ali.

And that’s why some rooms in the family’s home remain empty. Ali shows CBC News his large, mostly barren master bedroom and talks about his grand plans to furnish it — sometime in the future.

“Without the credit line, it’s slow,” he laments.

But things could always change. The couple says just last week the bank called, inquiring if the family was interested in another loan.

Read the full article here.

 

House-poor Canadians

Thursday, May 28th, 2015

Southseacompany pointed out this article.  Seems like the more valuable our real estate gets the more house-poor Canadians become.

“Campbell says that many, like Edgerton and Camus, are surviving now, but the big question is what happens if there’s an unplanned setback — from a job loss to a rise in interest rates.”

“”If the housing market goes down and those individuals have to sell, we’re going to see a lot of houses on the market, which will further reduce the house market in general,”

‘Canada has among the highest home ownership rates in the world; owning a home is one of the ultimate Canadian dreams. And it’s perhaps why so many people choose to live house poor rather than sell their home.”

Read the full article at the CBC.

Canadians deep in debt and getting deeper

Monday, May 11th, 2015

The Globe and Mail nicely sums up the current Canadian obsession with taking on household debt. This infographic has all the pretty charts related to the current situation in which current debt totals a record $1.8 trillion. Just over a trillion of that is Mortgage debt, with the other big growth seen in lines of credit and car loans.

One Trillion is a big number and it can be hard to visualize.  Here’s one way to put it into perspective:

If you spent $1-million every day, it would take you 2,740 years to spend $1-trillion.

Albertans carry the largest debt to income ratio followed by BC. It seems the nation loves debt, but the west loves it best.

Read the full article here.

Tiny lenders chop rates to grab mortgage customers

Tuesday, February 17th, 2015

Rates have dropped and that means better deals on mortgages. The big banks have dropped discount rates to an average of 2.79% on a 5 year mortgage.

Meanwhile the smaller lenders are hungry for more business so they’re cutting profits to compete on lower rates.

Mortgage Brokers are also taking cuts on commission to compete in the race to the lowest rate:

The rate war is even more intense among mortgage brokers, many of whom are shifting away from the traditional full-service model that saw brokers spending hours working with clients to select the best mortgage and earning hefty commissions. These days, more borrowers are turning to online and “self-service” brokerages that compete on volume, offering less personalized service and sacrificing some of the commissions they earn from lenders in order to discount rates even further.

Not everyone is a fan of the model. Some are worried that with interest rates already so low, brokers are having to dig deep into their commissions to offer meaningful discounts, a model that some brokers argue could threaten the industry as a whole.

“The majority of people don’t like what we’re doing and it’s a troublesome thing for us to digest because ultimately it’s the best for the consumer,” said Jeff Mark, co-founder of Spin Mortgage, an 18-month-old online brokerage that is advertising a five-year fixed rate at 2.49 per cent, well below the typical bank rate, by sacrificing some of its commissions. “We make less money per deal. I don’t know how that isn’t a good thing for the market.”

Read the full article here.

Are you ready for higher interest rates?

Tuesday, January 27th, 2015

That seems like a really weird question as rates continue to drop.

But over at the Vancouver Sun, Barbara Yaffe says ‘Prepare now for interest rate shock‘.

On top of the Bank of Canada recent surprise .25% rate cut there are a number of people predicting another cut coming this year, so why worry about interest rates at all?

The size of the average mortgage on a dwelling in Greater Vancouver is $400,000, reports Jeff Johnson, mortgage broker at Cloverdale-based Dominion Lending Centres Canadian Mortgage Experts, with offices in B.C. and Alberta.

That jumbo figure is based on the average 2014 value of a Vancouver property, $801,000, and a Canadian Association of Mortgage Professionals survey last year showing the average equity position assumed by borrowers is 50 per cent.

Johnson notes that if interest rates rise in 2015 by even just half a percentage point, monthly payments on a typical variable rate $400,000 mortgage could increase by $100 to $1,872.

“And this is the best case scenario, as rates could continue to slowly increase (thereafter).”

Elyea points out such increases would be coming on top of 2015 hikes imposed on B.C. residents for MSP premiums, car insurance and BC Hydro.

And it is worth remembering British Columbians have more modest employment earnings than elsewhere in Canada. The B.C. average weekly wage last year was about $890, compared to $940 across Canada.

Ok, sure. But we know all that already. How long have we been hearing the warnings about ‘being ready’ for rate increases while they just stay down at record lows or continue to drop?

It’s like that old story ‘The Boy who cried Wolf’.  Eventually the villagers get sick of hearing all the false warnings, learn to ignore them and live happily ever after.

RBC first to cut mortgage rate

Monday, January 26th, 2015

Last week when the Bank of Canada announced their surprise rate cut none of the big banks seemed to be in a rush to announce lower lending rates on mortgages.

We asked which will be the first lender to lower mortgage rates and now we have the answer:

RBC is the first to cut mortgage rates as bond yields plunge.

Royal Bank, the country’s second-biggest lender by assets, offered a five-year fixed rate of 2.84 per cent on Jan. 24, down from 2.94 per cent last week, according to rate-tracking website Ratespy.com. That’s below RBC’s posted rate of 4.84 per cent. The bank also trimmed its three-, seven-, and 10-year rates, according to CanadianMortgageTrends.com, an industry news website.

Race to the bottom or just a good time to renew?

Who will be the first lender to drop mortgage rates?

Thursday, January 22nd, 2015

After yesterdays Bank of Canada rate cut we’re seeing lots of articles about what this means for the housing market.

Reasonably enough economists are predicting a dip in mortgage rates after this cut, but so far the big banks don’t seem to be in a hurry.

However, TD Bank was quick to announce Wednesday it will maintain its prime interest rate at three per cent, noting that factors beyond the central bank influence its rates.

“Not only do we operate in a competitive environment, but our prime rate is influenced by the broader economic environment, and its impact on credit,” the bank said in a statement.

And the Royal Bank appeared in no hurry to drop rates either, saying in an email response to a query that “while we don’t have any product announcements to make at this time, we are considering the impact of today’s Bank of Canada decision.”

It was anticipated that the Bank of Canada would move to increase its overnight rate later this year due to an improving economy, until crude prices started to slide and dropped below US$50 a barrel.

Phil Soper, president of realtor Royal LePage, predicted Canadians could be shopping for cheaper mortgages within days.

“It doesn’t take long to react to a policy change like this,” Soper said. “That’s why it’s such a powerful tool.”

Read the full article over at Yahoo.

BOC chops rate in race for bottom

Wednesday, January 21st, 2015

If you’ll recall you’ve been warned many times by a number of government talking heads that rates could go up at any time.

Today the Bank of Canada finally took action and cut rates by a quarter from 1% to 0.75%.

Speaking to reporters, Mr. Poloz said the oil price drop is “unambiguously bad” for the Canadian economy, prompting the bank to take out what he called an “insurance policy” against future risks, such as weak inflation and a household debt squeeze. But he denied the move was calculated to send the Canadian dollar lower.

“Market consequences will be what they are,” he said.

The rate cut sent the loonie plummeting below 81 cents (U.S.).

Mr. Poloz, who acknowledged that oil dominated the bank’s discussions leading up to Wednesday’s rate decision, said he’s ready to cut rates again if prices fall further.

“The world changes fast and if it changes again, we have room to take out more insurance,” he said.

The rate move, which few analysts anticipated, is an attempt by Mr. Poloz to shield highly indebted Canadian households from an oil-induced hit to their jobs and incomes – signs of which are already evident in Alberta.

In the comments section here, Dave asked the question: How much of the BC economy is tied to Oil and Alberta?

I would like to know how much of a hit the damage to Alberta will be to BC. It seems to me that everybody underestimates the economic impact. I think our statistics don’t capture the role of Alberta in our economy. I think I read that Westjet estimated 5,000 people in the Okanagan work in the oil patch. And that’s just them trying to estimate things for their benefit (i.e. people who buy plane tickets). How many work from home on their computers? Or only make a few trips per year and don’t get picked up the radar? How many work in the Okanagan but for companies that service the oil patch? Add it all up and there is a LOT of employment related to Alberta.

 

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