Archive for the ‘rates’ Category

Why are mortgage rates rising?

Wednesday, November 25th, 2015

Southseacompany linked to this article: Why are Canadian mortgage rates rising?

Mortgage rates have inched up slightly lately for apparently no real reason, what’s with that?

Canadian mortgage rates moved higher again last week but it wasn’t because of new economic data or rising bond yields. Instead, one large lender raised rates and everyone followed, repeating a cycle that we have seen several times lately.

Read the full article here for the full analysis.

How big can debt loads get?

Tuesday, November 3rd, 2015

It seems like every few months there’s more news about Canadians taking on record levels of debt – a recent story linked to by southseacompany is on this topic:

Evidence Canadians are on a debt-fueled spending spree.

Canada may have spent the first half of the year stuck in an oil-driven recession, but you’d never know it looking at Canadians’ spending habits.

Consumer spending was 6.68 per cent higher in the third quarter of this year compared to a year earlier, payment solutions provider Moneris reported in its latest quarterly report.

British Columbia and Ontario led the way in spending growth, with B.C. up 10.2 per cent and Ontario up 9 per cent.

Even in recession-ravaged Alberta, which lost 2.6 per cent of all its jobs in the past year, consumer spending is up by 0.3 per cent compared to last year.

Any one else getting bored with the repetition? Is it really different here and can Canada pull off this trick indefinately?

Here’s the full article.

Can someone please explain this market?

Monday, October 19th, 2015

The following was posted by ‘Whistler or bust?‘ in the comments this weekend:

I will be the first to admit I have been very wrong about the direction of Van RE in the past 2-3 years. That disclaimer said, lets examine some facts to see if there is any upside left:

These are the incomes required to be in each % (Source CBC)

10% of income earners $80,400*
1% of income earners $191,100*
0.1% of income earners $685,000**
0.01% of income earners $2.57 million*

So with the average Vancouver detached home at $1,408,722 (Source Yatter Matters)

A DP of $281,744 is required to buy
PPT is $26,174
Misc Closing $2,000
Total $309,918

Mortgage $1,126,978 @ 2.59 for 5 yrs = $66,072 Annually ( I will note these are record low rates)
Assume 1% Annual Maintenance (This is a standard benchmark over many years) $14,080
Property Taxes – These can vary but lets assume $7,000?

So Annual carrying costs total $87,152 AFTER TAX – I am excluding heating and hydro which vary but in no cases less than $3,000 annually for a detached home

Back to our chart above – Lets assume a 30% avg tax rate for the 10%, 35% for the 1% and 45% for the 0.1 and 0.01%.
After Tax
10% of income earners $56,200* – This house would take up 155% of the after-tax income
1% of income earners $124,215* – This house would take up 70% of after-tax income
0.1% of income earners $376,750* – This house would take up 23% of after tax income
0.01% of income earners $1.413 mil – This house would take up 6% of after- tax income

This is assuming all of these people have $310K for closing. This is assuming they are buying the average house of $1.4 mil. I think we all know what kind of house $1.4 mil gets on the West Side and even on the East side nowadays.

So the conclusion – Even the 1%ers are realistically priced out of the average Van detached home. Only the 0.1% and and above can really afford to buy.

Put another way – 99% of people are priced out. As families combined lets assume 95% are priced out.

So to all you bulls out there, please answer the questions: Is this a healthy market? Is this a market with any upside left?

I think we all know the answer.

$500 would push 16% of homeowners into default

Tuesday, October 6th, 2015

A recent Bank of Montreal poll finds that approximately 1 in 6 Canadian homeowners would be pushed into default if payments rose $500.

According to the bank, 16 per cent of respondents said they would not be able to afford such an increase, while more than a quarter, or roughly 27 per cent, would need to review their budget.

Another 26 per cent said they would be concerned, but could probably handle it.

Such an increase would be generated in the case of a three percentage point hike in interest rates — from 2.75 per cent to 5.75 per cent — on a $300,000 mortgage with a 25-year amortization period.

Given that interest rates are likely to increase in the foreseeable future, the bank said there was no better time to put together a detailed debt management plan.

Read the full article here.

Why worry about home ownership rates?

Wednesday, August 19th, 2015

Some people have expressed concerns about Canadian home ownership rates hitting the highs that were last reached in the US before their market crashed, while others have said they’ll do what they can to increase home ownership rates in Canada.

So why would anyone worry about high ownership rates anyways?

ILoveCharts posted their take in the previous thread, and that comment is reproduced below:

Why do we need to worry about high home ownership rates?

1) Because when too many people own a home, it reduces the mobility of our workforce. Given the spotty/local nature of our economy, it’s important for our economy for people to be able to move within the country to follow the hot spots. When commodities are hot, people need to move to the west and our dollar is higher so manufacturing in the east suffers. When commodities are doing poorly the dollar drops and people need to move east to escape the barren mines, forests and oil fields of the west. Until we see major investment in diversification at the provincial level (likely will never happen,) this cycle will continue. With high home ownership rates, the teeter totter has tipped but people are nailed to the plank and they are stuck.

2) Because there is a practical maximum and a natural median. There will always be people who can’t practically buy (they are students, in poverty, etc.) When you go through a period of above-average buying, you expand the size of the housing industry (construction, realtors, etc.) in a way that is not sustainable in the long run. Once you hit the maximum, it only has one way to go to get back to the median. In the process, a lot of people lose their jobs. Seeing as 70% of people own homes, they start to run into problems with their mortgage. You can try to move the maximum point a little bit with new lending rules.. but you can only play that game for so long. Are we going to bring back the 40 year mortgage? Shocking to hear that we are going to allow $70k tax free out of the RRSP…

3) Because home ownership provides little to no value to society when it’s more expensive than renting. We want Canadians to be saving their money and investing in Canadian companies through Canadian stocks. We want those vast sums of money to deployed in our markets – creating and growing enterprises. Ownership of dirt doesn’t move our country forward.

The price of land is arbitrary. We have the second lowest population density in the world. It’s an incredible sign of weakness that we have allowed ourselves to get into a situation where we each pay so much for little pieces of it. We need to blame ourselves and our governments. We need to blame ourselves for feeling entitled to increases in the value of our property. Businesses with growing cashflows deserve to increase in value. Dirt does not – at least not at this rate. We need to blame the governments for being so willing to satisfy our demand for their short-term gain.

Now we’re hooped. The NDP wants to bring in massive social housing projects, the Conservatives want to use what is basically a nationalized bank (CMHC) to backstop ever-increasing mortgages for an ever increasing portion of the population and the Liberals just want to legalize weed.

I honestly can’t think of a way out of it.

The problem with low debt levels

Tuesday, July 28th, 2015

We’ve seen lots of warnings about dangerously high consumer debt levels in Canada for years now, but here’s something new: Millennials lack of debt may be a sign of trouble.

Insolvency filings by consumers have started to edge higher after a long decline that began after the last recession. As has already been widely noted, the share of insolvencies accounted for by seniors is growing faster than any age group. What has not had much attention is the fact that the young-adult share is falling. Could this be a rare bit of good news for a cohort of the population that has been struggling financially?

Falling insolvencies among young adults definitely sounds good, but every silver lining must have a cloud right?  What’s the chicken-little take on this situation?

Hoyes Michalos recently produced an analysis called Joe Debtor that looked at people who make insolvency filings. The firm says 86 per cent of debtors ages 18 to 29 are working, but their average income is the lowest of all groups at $1,996 on a net basis per month. The average unsecured debt for the group is $32,229, also lowest of all age groups.

Personal loans are the biggest debt component at $11,841 for young adults making insolvency filings, followed by credit cards at $9,858. Almost 30 per cent have student debt, with the average amount owed averaging $3,716.

Their problems in today’s economy may have kept millennials from worse debt problems, Mr. Hoyes suggests. “If you haven’t been able to get a decent job, then it’s a lot more difficult to get into a huge pile of debt.”

In today’s debt-hungry world a lack of bankruptcies is indicative of a low income, how’s that for a bummer?

It’s a bad time to have Canadian dollars

Wednesday, July 15th, 2015

The Bank of Canada took another strike at driving down the Canadian dollar and cut the key interest rate by .25% to a slender .50%.

Canada’s central banker isn’t using the R-word – recession — but Stephen Poloz is cutting the Bank of Canada’s key interest rate by 25 basis points to 0.5 percent as he forecasts two back-to-back quarters of economic decline amid the crash in crude prices.

With Canadians carrying record-high debt loads and cheap money fuelling hot housing markets in Toronto and Vancouver, the 25 basis point rate cut will be seen as a risky play in some quarters, adding more fuel to the debt fire.

Read the full article over at BNN.

Realtors hungry no more!

Monday, July 6th, 2015

Home buyers may be eating a lot of Kraft Dinner but Realtors are doing fine.  From RFM over at Vancouver Peak:

The VANCOUVER REALTOR HUNGER INDEX is the percent of realtors who earned no commission income for the stated month. For June 2015 the VRHI was 34%. How does this compare? The 18-year average for June is 39%. At 34%, the 2015 June VRHI was higher than 8 years and lower than 9 years since 1998.

The lowest June inventory in nine (9) years and strong demand forced already high prices higher, especially in single family homes, where the HPI reached a stratospheric $1,123,900. Fueled by continuing historically low interest rates, a flood of foreign investment money and panic buying by uninformed and delusional buyers, the June sales rate is extraordinary! And unsustainable. And prices are unsupportable. For a complete analysis of the market dynamics of this firestorm, consult the DSM-5! (The Diagnostic and Statistical Manual of Mental Disorders (DSM-5), published by the American Psychiatric Association, offers a common language and standard criteria for the classification of mental disorders.)

Details and comparison data for 18 years at:

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.

VCI Network

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