Category Archives: rates

BIS warns on interest rates

From southseacompany: another warning about rates knocking back growth.

“The world has become so used to cheap credit that higher interest rates could derail the global economic recovery, the Bank for International Settlements has warned.”

“After cutting interest rates to all-time lows and pumping trillions of dollars into markets to boost growth in the aftermath of the global financial crisis, central banks are now preparing to tighten their monetary policies.”

“All this underlines how much asset prices appear to depend on the very low bond yields that have prevailed for so long.”

Read the full article here.

New regulation lead to 44% drop in CMHC mortgages

If you’re buying with less than 20% down, you’re a ‘high-risk’ borrower and you’re probably using CMHC insurance on your mortgage. New regulations are having a big impact on buyers in this zone with new CMHC mortgages dropping by 44%. Bullwhip29 pointed out this article in BIV:

Through the first half of 2017, CMHC-insured mortgages had dropped to 95,000, down from 118,000 in the first half of 2016.

In October 2016, the federal government began a stress test for approving all high-ratio insured mortgages with terms of five years or more. It required such borrowers to prove they can handle payments at the Bank of Canada’s posted five-year rate, which is about twice as high as the lowest lending rates available.

Read the full article here.

Bank of Canada attacks housing market

The most recent interest rate hike from the Bank of Canada is seen as an attack on the Canadian housing market in this article. Provincial governments are trying to walk a fine line of supporting housing markets in their current state without prices shooting up or collapsing over the next year.

Given the enormous price gains in recent years, the market remains hyper-inflated, and the four-month downturn into a bear market hasn’t even brought prices back to the year-ago level, with the average price for all types of housing up 3%, and the condo price up 21.4% year-over-year.

To cool a similarly nutty housing bubble in Vancouver, the government of British Columbia had passed a year ago similar legislation with a 15% nonresident foreign speculator tax. But worried about an outright implosion of the bubble, it has since been subsidizing with taxpayer money down-payments aimed at first-time buyers and condos, which has inflated the condo bubble and condo speculation to new heights.

Politicians – they’re desperately dependent on extracting property taxes from homeowners – don’t want the world’s most majestic housing bubble to implode. They just want it to remain stable so that taxes can be extracted from willing homeowners that have gotten rich off years of house-price inflation. But for now, the Ontario government is letting the market ride.

Read the full article over at Business Insider.

The Triple Rate Hike Year

It’s been so long since rates were rising we’ve forgotten what it’s like, and yet it seems the tide is turning. Southseacompany points out this article over at the Financial Post: Three rate hikes this year?

The Bank of Canada raised interest rates on Wednesday, surprising many, and left the door open to more rate hikes in 2017 even as it pledged to pay attention to how higher borrowing costs would hit Canada’s indebted households.

To find out what a bunch of economists think, read the full article here.

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.