Category Archives: rates

Days of ultra-cheap money coming to an end

..At least that’s what Mark Carney and other Bank of Canada officials have said according to this article, yet they’re refraining from being more specific.

Meanwhile the Organization for Economic and Co-operative Development (OECD) is urging Canada to start raising interest rates in the fall and keep on raising them to stop an inflating housing bubble and reign in inflation.

The OECD, a high-powered economic research group backed by contributions from its 34 rich country members, offers a scenario: An increase in the benchmark rate of a quarter of a percentage point in the autumn, and similar increases each quarter through to the end of next year, leaving the benchmark overnight target at 2.25 per cent.

That still would be low by historical standards, yet, according to the OECD, likely a big enough increase to cause prospective homeowners to think twice before buying at current inflated prices. However, the OECD’s recommendation comes with a risk.

The Federal Reserve Board has made a conditional pledge to leave U.S. rates extremely low until the end of 2014. Following the OECD’s path could create an unprecedented spread between Canadian and U.S. interest rates, which would put upward pressure on a Canadian dollar that many say already is too strong.

Oh, and the OECD made this same recommendation a year ago and was ignored. So I wonder how Carney intends to bring the days of ultra-cheap money to an end?

BMO CEO: House prices bound to come down

Bank of Montreal Chief Executive Officer Bill Downe is saying there are ‘legitimate’ concerns about house prices being over inflated and coming down, particularly in Toronto and Vancouver.  He is now calling for the fabled ‘soft landing’ to swoop in and fix the problem:

“We took a long, hard look at the Canadian housing market and concluded … there was a legitimate concern that house prices – particularly in the largest cities – had been rising at a rate that was simply unsustainable,” Mr. Downe said.

“With growing concerns over household debt, a soft landing in housing is in the best interests of our customers and the national economy.”

For those that are curious, yes this is the same BMO that kicked off a rate war with competitors over a special 2.99% mortgage deal. If you’re wondering why a bank would offer credit crack and then tell the addict they should cut back I think Patriotz puts it very clearly:

Because he runs a business and it’s his responsibility to the shareholders to make money. It’s either lend at 2.9% or give the mortgage business to someone else.

Banks like every other business have a responsibility to obey the law and that’s what they are doing. If you don’t like the parameters that the government has established, blame them not the banks.

This is why you’ve been hearing more call from the banks for the government to tighten lending standards.  No single bank can cut out a huge percentage of the market just because they’re concerned about over-debt households.  The banks can’t even get together and agree that they’ll adjust their lending standards themselves, because that would be collusion and illegal.

It’s all up to Flaherty now.

Scotiabank ends 2.99 mortgage deal early, more tightening on the way?

Wow, it seems like it was just a few days ago we were talking about newly introduced teaser-level mortgage rates offered by Canadian banks.

… oh, it was just a few days ago.

BMO kicked off the competition and TD, Scotia and CIBC jumped in with competing lowball offers.

Well it looks like Scotiabank blinked first.  Their special offer didn’t even last a week.  Canadian Mortgage Trends is reporting that Scotiabank has pulled their special offer for a 2.99% rate.  Guess we’ll have to wait to see if the other banks will follow.

And speaking of mortgages, Canadian Mortgage Trends also has some interesting analysis of the OSFI recommendations for underwriting practices and how it’s about to lead to mortgages that are a bit tougher to get.

After reading through 18 pages of changes in detail, our immediate reaction was frankly, concern.

That’s not because the guidelines are greatly imprudent. Some are unnecessarily rigid, but most are sound policy.

It’s because OSFI risks tightening too much, too fast.