Category Archives: rates

How sharp a correction?

Most economist are predicting a slower housing market in Canada, but how slow is too slow?

Southseacompany points to this article wondering how ‘sharp’ any correction would be:

Last week, the Bank of Canada hiked the overnight rate to 1.25 per cent, causing the credit union to note that Canadians have some of the highest levels of household debt in the world.

The interest rate hike — when combined with a new mortgage stress test for uninsured borrowers that came into effect on January 1 — could severely limit the purchasing power of many would-be home buyers, cooling the market dramatically.

But while most economists agree that these factors will dampen the market in the first few months of 2018, many believe it will eventually adjust to the changes. What’s more, some argue that Canadians debt levels aren’t as worrying as they might first appear.

“Household debt in Canada is seen by some as unsustainably high and a source of vulnerability for the financial system,” write National Bank chief economist Stéfane Marion and senior economist Matthieu Arseneau in a recent report. “But the international evidence suggests that Canadian household leverage and home prices are not abnormal.”

Read the full article here.

Mortgages getting more expensive

Southseacompany shared this article, looks like everyone’s mortgage is going to get more expensive:

The Bank of Canada raised its benchmark interest rate to 1.25 per cent Wednesday and signalled that, barring certain risks, more hikes are likely in the rest of the year. That’s creating an unusual situation for Canadians: for the first time in years, those renewing mortgages will be faced with higher rates and an increase in payments.

Even before Wednesday’s decision, five of the country’s largest banks hiked five-year fixed rates 15 basis points to 5.14 per cent last week. (CIBC is still offering 4.99 per cent.) In a country where consumers have grown accustomed to low rates, and where households are burdened with record levels of debt relative to income, this kind of change is worth noting. A recent survey published by insolvency trustee MNP Ltd.found 48 per cent of Canadian respondents were $200 or less away from being unable to fulfill their monthly financial obligations, an eight point increase since September.

Read the full article over at Macleans.

Interest rates shoot higher

Southseacompany pointed out this article about rising interest rates around the world:

The bond market is getting a wake-up call from global central banks that the post-financial crisis era of easy money and super low interest rates is coming to an end.

In what was a sizzling move for the Treasury market, the 10-year yield zipped higher Tuesday amid talk that the Bank of Japan could finally be ready to wind down its easy policies. The 10-year yield broke above the key 2.50 percent level and was trading as high as 2.55 percent, the highest since March.

The 10-year is key since it is a benchmark that mortgages and many other consumer and business loans are based on.

Read the full article here.

Tougher to get a mortgage in 2018

In the new year we’ll see a ‘stress test‘ added to all new uninsured mortgages, are you ready for that?

The Office of the Superintendent of Financial Institutions (OSFI), Canada’s banking regulator, confirmed earlier today that there will now be a qualifying “stress test” for all uninsured mortgages, affecting consumers with downpayments of 20 percent or more.

Under current housing rules, only borrowers with a downpayment of less than 20 percent require mortgage insurance. This category of borrowers are already subject to a mortgage “stress test” that was introduced back in July 2016, amidst concerns about rising household indebtedness.

Right now, if you’re applying for a mortgage with a downpayment of 20 percent or more, the lender will assess if your financial situation is robust enough to afford a five-year mortgage qualifying rate, which currently sits in the range of 4.64 to 4.89 percent.

Under the new rules, OSFI will require that lenders use that same five-year mortgage rate plus two percent — essentially you’ll need to have income that qualifies you to afford an interest rate on a home loan of roughly seven percent.

Dave Madani says this is equivalent to a 17% reduction in the maximum mortgage people will be able to qualify for. Read the full article over at Vice.

Rate hikes in 2018

Southseacompany points out this article in the Financial Post warning of ‘three or more‘ rate hikes next year.

Investors are assigning a 20 per cent chance of an increase at the decision Wednesday, with a statement to be released at 10 a.m. Ottawa time. Only four of 26 economists surveyed by Bloomberg News expect Poloz to increase his 1 per cent benchmark rate, with all major Canadian banks expecting a pause.

Central bank policy makers — who raised borrowing costs for the first time in seven years in July and September — are handling the normalization of policy very carefully. By their own measure, interest rates are still a full 2 percentage points below what they would consider “neutral” but the Bank of Canada is wary of raising borrowing costs too quickly for fear of inadvertently triggering another downturn.

Read the full article here.