Archive for the ‘rates’ Category

RBC warns of mortgage rate increases

Tuesday, February 25th, 2014

RBC sees mortgage rates going up instead of flat or down.

Their forecast is for housing to get less affordable due to rate increases.

The Royal Bank of Canada says the ability of Canadians to keep up with housing costs has been improving of late, but warns that’s about to change.

RBC’s latest housing affordability measure shows home servicing costs relative to incomes dipped slightly in the last three months of 2013 after having risen the previous two quarters.

But the relief will be temporary, the bank says in a new report, because mortgage rates are due to start rising this year.

“RBC anticipates that as longer-term interest rates begin to moderately rise, the costs of owning a home at market value will gradually outpace (growth) household incomes by late-2014, leading to strained affordability in several markets across Canada, much like the trend in Toronto,” RBC chief economist Craig Wright said in the report.

The finding bucks the recent trend, which has seen mortgage rates remain stable or even moving lower, with some brokers offering five-year fixed rates below three per cent.

Read the full article here.

Goodbye 2013! Hello 2014!

Monday, December 30th, 2013

Well here we are wrapping up 2013.

The Vancouver market continues to fluctuate in its flat range.

Owners are still paying more than renters, but can paint their walls whatever colour they want.

Renters are still more flexible when it comes to relocation and some of them have more diversified investments, but some of them just want to paint their walls whatever colour they want.

The Vancouver housing bubble is boring.

Not like some of the more exciting housing bubbles around the world.  Remember the Celtic Tiger?  Ireland had a giant boom, but now they’re tearing down brand new homes.

So what will 2014 hold in store for the Vancouver Real Estate Market?  A slump, a dump, a bump or a jump?

What do you think, are we in for an exciting year or another yawner?

The Central Bank That Cried Wolf.

Wednesday, October 23rd, 2013

There once was a central banker who was bored as he sat on the hillside watching the village sheep. To amuse himself he took a great breath and sang out that some property prices were “probably overvalued“.

The Canadians came running out of their homes to try to pay down their debt and get their finances in order. But when they arrived at the top of the hill, they found record low interest rates and rising property prices along with stagnating incomes. The central banker laughed at the sight of their angry faces.

“Don’t cry ‘high debt loads” said the Canadians, “when there’s no interest rate increases!” They went grumbling back down the hill and signed up for some more mortgages.

The banker was replaced with another, but he played the same naughty game, singing out “The elevated level of household debt and stretched valuations in some segments of the housing market remain an important downside risk to the Canadian economy”

By this time though the Canadians were wise to these pranks and they wisely held their place in the line up for the latest greatest condo pre-sales opportunity.  The banker retired with a gigantic pension and everyone lived happily ever after.

MORAL: Load up on more consumer debt, invest in hot real estate. What could possibly go wrong?

 

Canadian economy at risk from mounting mortgage debt

Wednesday, October 9th, 2013

Is anyone else getting tired of all the warnings?

Be careful how much debt you take on, be careful how much house you buy, make sure to save for retirement.

Well here’s another one: Stephen Harper has been told the entire countries economy is at risk due to record debt levels and the high cost of housing.

Municipalities are asking for the government to address high housing costs, but not everyone agrees.

… Finn Poschmann, vice-president of research at the think-tank C.D. Howe Institute, said Ottawa has “little jurisdiction and almost no practical capacity to deliver housing.”

“Past attempts to do so, through CMHC for example, have produced financial disasters for the people who participated and put CMHC in grave financial situation.” he said.

“We wouldn’t want to see that again, nor the federal mortgage agency deeply underwater and as similar U.S. agencies have been, through the course of much more recent financial disasters.”

Of course our current situation is that the CMHC has been pouring money into Mortgage Backed Securities to encourage buying, they recently had to cap this program because they couldn’t keep up with the growth.

It is likely that the government could reduce the cost of housing by simply pouring even less money into MBS.

Borrowing demand from the future

Wednesday, September 18th, 2013

House sales have gone up recently even if prices haven’t.

After last years rock bottom sales numbers this year saw a big jump in summer sales.

If demand is increasing more price increases can’t be far behind right?

RBC economist Craig Wright says nope, expect further softening.

Interestingly enough they don’t mention interest rate increases, simply ‘strained affordability, slowing population growth and empty condos’:

Craig Wright of the Royal Bank says “activity now is borrowing from the future… that, alongside of a still-strained affordability environment suggest, to us as least, that the housing sector will continue to soften rather than accelerate from this point forward.”

Wright also sees new home construction being limited in the short term by slowing population growth and unoccupied condos in Vancouver.

They predict small growth in the province over the next couple of year and note that BC created no new jobs over the last year so retail sales are not moving much.

Read the full article here.

 

A Mortgage Brokers view on rates and prices

Thursday, September 12th, 2013

Rob McLister is a mortgage broker and the editor of the informative Canadian Mortgage Trends blog.

He’s doing a livechat at the Globe and Mail answering questions about mortgages right now.

Yesterday they published his rather bearish opinion on the future of home prices in Canada, which may suprise you coming from a mortgage broker.

“Buying the same house will be more expensive this fall than this spring,” National Bank Financial’s Peter Routledge told the Globe and Mail last month. But analysts point to a range of factors that could moderate home prices in the next six months, including higher interest rates, growing supply, modest income growth and stricter mortgage regulations. Canada’s banking regulator is weighing new mortgage rules as we speak.

Rates are the biggest wild card and the No. 1 factor that could put the brakes on home prices. Higher mortgage rates immediately make it harder for budget-strapped buyers to qualify for a mortgage. That’s why – other things being equal – as rates increase, prices usually decrease.

So if home prices potentially face headwinds, does it really make sense to run out, compete with a stampede of other buyers and purchase a home?

Read the full article here and find the live chat session here.

CMHC tightens mortgage rules (again)

Tuesday, August 6th, 2013

Ottawa must really want to see more of a downturn in the Canadian housing market.

This week saw a new limit to CMHC largesse. The latest change limits guarantees on Mortgage Backed Securities which will slightly increase lending costs.

In the financial post Mortgage Brokers and Bankers differ on their opinion of the latest move, some think it’s too much too soon, others think it’s a minor tweak that will have no real effect.

Doug Porter, chief economist with Bank of Montreal, wonders if housing statistics over the last couple of months showing sales and prices rebounding might have spooked the CMHC.

“I think this step is being taken because we have seen some signs in recent weeks that the market is not cooling as much as had been expected,” said Mr. Porter. “All the debate has been whether we will have a soft or hard landing and I would question whether the market had any landing whatsoever.”

Read the full article in the Financial Post.

New mortgage rules affect first time buyers

Tuesday, July 9th, 2013

Remember when we saw all the fun the US was having with crazy long amortization terms and teaser cash-back zero down mortgages?

Oh yeah, we couldn’t be left out of that action!

That’s why in 2006 we cranked CMHC max amortization terms from 25 to 35 to 40 years. We got rid of any upper limit to insured mortgages and allowed zero down deals with interest only payments for the first 10 years.

It was the only way to compete with the Americans!

And now we hear that we’re supposed to be ‘responsible’ with our debts and ready for interest rate increases.

The government has been ramping back the gravy train over the last couple of years though, trying to engineer a ‘soft landing’ for the housing market.

And they’re succeeding, it keeps getting softer and softer.

So now we’re back to the 25 year cap. Everything old is new again.

And apparently reducing amortizations is starting to have an effect on first time buyers causing some to wait:

First-time homebuyers were expected to be the most affected by the new rules, which included reducing the maximum amortization period for a government-insured mortgage from 30 to 25 years, and also dropping the upper limit that Canadians could borrow against their home equity from 85 per cent to 80 per cent.

A year later, about 66 per cent of buyers said the changes had not affected their timeline on buying a first home, according to a survey by BMO Bank of Montreal.

But first-time buyers in B.C., where Vancouver prices were considered particularly overheated, were most likely (33 per cent) to say they would wait longer to buy their first home. That compares to 11 per cent of Ontario buyers, 25 per cent in the Prairies and 28 per cent in Atlantic Canada.

read the full article over at the CBC.

Slumping into the Future

Wednesday, May 22nd, 2013

The economist Dave Madani is at it again.

He’s got nothing good to say about the Canadian real estate market.

According to Dave it’s a bit early to claim there will be a ‘soft landing‘.

Finance Minister Jim Flaherty has acted four times in the past five years to make mortgage-lending rules more restrictive amid concern that the Vancouver and Toronto markets were overheating. Flaherty has said he welcomes a slowdown of condominium construction in the two cities and has warned consumers, who have a record debt-to-disposable-income ratio of 165 percent, not to become overextended.

Madani, a former senior economist at the Bank of Canada, was the only person surveyed by Bloomberg News during the past two years who consistently predicted the central bank wouldn’t raise borrowing costs. Madani previously forecast home prices in the country would fall by 25 percent in the next few years.

Read the full article over at Bloomberg.

Learning from the neighbors

Monday, May 6th, 2013

There’s another one of those semantics question articles in the Financial Post:

Canadian Housing: Bursting bubble or gentle landing?

Here’s one chunk of that article with a few asides that always seem to be missed:

Lewandowski believes Canada will not suffer a U.S.-style housing crash simply because policymakers had the benefit of watching it happen next door.

“What we experienced here in the U.S. with housing markets and regulators goes directly to the attitude and changes the minister of finance has made in Canada. A regulator who is being proactive is taking Step One in making sure the housing market doesn’t find itself in a bubble,” Lewandowski said.

So often it seems that ‘bubble’ is used as if it refers to the collapse in prices. It doesn’t. The ‘bubble’ is the inflation of prices beyond reason. By the time the collapse comes the damage is already baked in, falling prices are a correction of the problem, not the problem itself.

Both Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty have been on the march against a housing bubble for years, aware how low rates and loose lending standards in the United States ignited a boom and bust there.

Well, Carney and Flaherty have definitely been ‘warning’ of consumer debt levels for a while, but government policies like following the US into 40 year zero down mortgages didn’t help to prevent a housing bubble.

The central bank has held rates low since the global financial crisis because growth remains tepid and global woes weigh on Canada’s export market, and Canadians can find a five-year mortgage rate below 3%.

Meanwhile in the states you can lock in to a 30 year mortgage for 3.35%. In fact, while house prices in the US were correcting, interest rates were falling as well.

But the government’s gradual tightening of rules for borrowers — a firm admission that the market was hotter than anyone was comfortable with — has taken some steam out of the market, and economists, like Carney, seem to believe a soft landing may be at hand.

“We’re encouraged by the fact the level of housing starts has come down to slightly below demographic demand, as we see right now, there’s still more adjustments to go,” he said in testimony to Parliament last week. “We’re encouraged by the evolution of house prices in a number of markets. We’re on the path to a balanced evolution of the household sector and we all have to continue to be vigilant.”

Ok, we’ll continue to be vigilant then.

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