Category Archives: rates

A Mortgage Brokers view on rates and prices

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)

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

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

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

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.