Archive for the ‘rates’ Category

Subprime lending in Canada ‘rockets’ to record high

Tuesday, December 16th, 2014

It’s a been a while since CMHC mortgage lending rules have been ramped back to more historical levels.

After dabbling in American style 40 year zero down mortgages we decided that might not be the best idea. Unfortunately we never did get the American style locked in interest rate for the full duration of the loan.

So now we’re back to 25 year terms and it’s more difficult to get a loan if you’re self employed.  A lot of loan applications that would have been approved a year or two ago are now being rejected.

So what affect has this had on the market so far?

Well apparently the sub-prime lending market in Canada has rocketed to a record level for one.

Capital Corp is a non-bank lender that has been operating since 1988. Their chief executive Eli Dadouch says there’s a lot of money out there for non-bank loans to higher risk borrowers.

He said there is no question it’s the top of the real estate cycle, so anybody lending out money has to be more careful today.

“People always want to deal with a bank, it’s the cheapest form of money,” he said. “When they come to us and people like us, it is because there is some type of story [behind why they can’t get credit]. It’s easy  to lend money, the talent in this business is getting it back.”

Read the full article in the Financial Post.

 

Poloz: higher rates for housing a bad idea

Thursday, November 6th, 2014

Bank of Canada Governor Stephen Poloz says it’s a ‘bad idea‘ to raise interest rates to combat imbalances in housing and consumer debt as that would only hurt manufacturers and the general economy.

“Housing activity is showing renewed momentum and consumer debt levels are high, so household imbalances appear to be edging higher,” he said. “But it is our judgment that our policy of aiming to close the output gap and ensuring inflation remains on target will be consistent with an eventual easing in those household imbalances.”

Changes in Canada’s population justify growth in the housing market, and Toronto, Vancouver and Calgary are the only three cities showing signs of overbuilding, Poloz said at a press conference.

Canada’s dollar extended declines after the speech and as crude oil, one of the nation’s main exports, fell below $80 a barrel. The currency fell 0.9 percent to C$1.1357 against the U.S. dollar at 3:15 p.m. in Toronto.

It may be just a crazy idea, but if the government actually wanted to do something about house prices and consumer debt, wouldn’t eliminating mortgage insurance do that without any change in rates?

Household debt near record high

Monday, September 15th, 2014

Southseacompany pointed out this article in the Chicago Tribune:

Canadian household-debt ratio nears record as mortgages grow

“Home sales and prices have shown unexpected strength as the lowest mortgage rates in decades spur demand. ”

“With mortgage debt rising, the economy will be exposed when interest rates rise, said Andy Nasr, senior portfolio manager at Calgary-based Middlefield Capital Corp. which manages about C$4 billion ($3.6 billion), including real estate stocks.

“The misconception is that ‘Well it’s OK because people can somehow afford it,’” he said in an interview at Bloomberg’s Toronto office Friday. “They can’t.””

Global RE frothy again

Monday, September 8th, 2014

After housing markets slumped around the globe governments and central banks did what they could to reinflate them, driving down the cost of debt.

Well it worked.

The US market is down a bit from their precrash highs, but Canada is sailing high.  What’s the endgame?

With global monetary conditions so loose, governments are using regulatory tools to cool overheated housing markets. In Canada, for example, the maximum term of the riskiest mortgages has been lowered from 40 to 25 years. Regulators in both Hong Kong and Singapore have repeatedly raised stamp duties and tightened lending restrictions. The measures seem finally to be working, especially in Singapore, where prices are now falling.

So as potential home buyer on planet earth, what’s your next move? Do you go with low interest rates forever as a way to keep prices up, or do you stand back and wait for a price correction?

As an aside its interesting to note one nation whose market isn’t doing so well is Japan, where they’ve had rock bottom interest rates for a really long time.

Bank ratings go negative

Tuesday, August 12th, 2014

At the end of last week S&P cut the rating for Canadian banks to negative.

Royal Bank of Canada, Toronto- Dominion Bank and four other Canadian lenders’ rating outlooks were cut to negative by Standard & Poor’s, which cited regulations that seek to limit government support in a crisis.

Canadian officials issued regulatory proposals Aug. 1 aimed at relieving taxpayers from the burden of potential bailouts if key banks fail. The new rules mandate any new senior unsecured debt issued by a so-called systemically important bank must be convertible to equity if the firm faces insolvency. The proposals are open to public consultations until Sept. 12.

Read the full article here.

Dirt cheap rates, limited time offer

Wednesday, May 14th, 2014

The Investors Group is making waves with a 1.99% 3 year variable mortgage.

Here’s a story about it over at the CBC.

The offer comes with strings attached — namely that you can’t break the mortgage for any fee during the three-year term, unless you sell your home. But the offer does come with the ability to double up monthly payments, or pay a 15 per cent lump sum once a year.

In real dollar terms, it could knock a lot of money off a mortgage payment, at least over the short term. A standard 25-year $500,000 mortgage at a five-year rate of 2.99 per cent works out to $2,364 a month. That mortgage under IG’s new terms would be $2,115 a month — savings of $249 monthly, at least for the first three years, and as long as the variable rate doesn’t increase.

This is from ‘the first one’s free’ school of marketing.  It looks like Investors Group is willing to lose money on mortgages in order to make it up with more business in the future.

It will be interesting to see if offers like this give a bump to the market and to see where we are with rates in 3 years.

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.

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