Lower Canadian Mortgage Rates – should have happened a month ago
Here is some bank-spin b.s. in full display. Bank mortgage rates should have come down 3 weeks or a month ago like the broker rates did. Banks intentionally left their rates higher to keep their profits up. So it is supposed to be a big deal now that the Big 5 banks have a 5 year at 4.09% when we have been at 3.89% for the last month?
Always use a mortgage broker to take care of your interests! And the banks pay us so there are normally no fees to you for our services!
Global instability leads to lower mortgage rates in Canada
Global instability, highlighted by turmoil in Libya and Japan, has caused Canadian banks to drop their mortgage rates.
Just as changes to mortgage rules coming into effect Friday were likely to make borrowing for a new home more difficult, the latest drop in interest rates has helped potential new borrowers in the short term find a more affordable price.
The Royal Bank of Canada (RBC), along with the Bank of Montreal, slashed its rates on various fixed rate mortgages. Other lenders are also expected to follow suit.
After heightened confidence led to mortgage rate increases last month, banks are now following the cue of declining bond rates, according to the Globe and Mail.
For the RBC, the country’s largest bank, its residential mortgage special fixed rate was unchanged at 3.2% for one-year closed mortgages, but its four-year special fixed rate for closed mortgages was reduced 0.15% to a rate of 4.19%.
The same rate, 4.19%, now applies to five-year special fixed rate closed mortgages, which are down 0.1%, while 5.1% applies to a seven-year closed special fixed rate, which is down 0.2%.
Prime to be at 4% by 2012
BoC rate to reach two per cent by year end: RBC
By | 11/03/2011 2:00:00 PM | 0 comments
As part of its economic outlook for 2011, RBC projects that the Bank of Canada overnight rate will rise from one per cent to two per cent by year-end.
The gradual pace of rate increases combined with anchored inflation expectations will result in less upward pressure on long-term interest rates, added the Economic Outlook released by RBC Economics.
On the back of solid net exports in the final quarter of 2010, Canada’s economy finished the year on a high note recording stronger than expected gains. The biggest support for the economy came from net exports, which added a full 4.5 percentage points to the quarterly growth rate. Continued consumer spending also played a vital role in driving overall GDP, marking the fastest increase in spending since late 2007.
RBC expects real GDP to increase at 3.2 per cent in 2011, as U.S. demand for Canadian exports increases. Growth in 2012 is forecast to rise by 3.1 per cent.
The report also stated labour market conditions will remain firm in 2011and disposable income is expected to post a 4.1 per cent gain that will provide continued support to consumer spending.
“Consumers’ earlier confidence in taking on increasing amounts of debt was based on a combination of lower interest rates, a strengthening labour market and a 4.6 per cent rise in disposable income,” explained Craig Wright, senior vice-president and chief economist, RBC Wright. “An expected slowing in the housing market, rising interest rates and tightening mortgage lending standards all add up to a levelling out in consumer debt relative to income.”
At the provincial level, RBC forecasts Saskatchewan will lead the country in growth this year. Alberta is expected to return to a top three placing, closely trailing growth in Newfoundland and Labrador. Ontario and Manitoba will hover close to the national average while both Quebec and British Columbia will fall slightly below. Nova Scotia, New Brunswick and Prince Edward Island are still projected to lag behind at the lower end of the scale for 2011.
ALBERTA HOUSING MARKET MOST AFFORDABLE IN CANADA: RBC ECONOMICS
TORONTO, Feb. 24 /CNW/ – Alberta’s housing market officially became the most affordable in Canada in the fourth quarter of 2010, according to the latest Housing Trends and Affordability report released today by RBC.
Thanks to lower mortgage rates and further softening in home prices, RBC’s Affordability Measures for Alberta fell yet again in the fourth quarter, by 1.0 to 2.4 percentage points, extending their long strings of declines since late 2007.
“Alberta saw a notable downswing in demand for housing last spring and early summer, giving buyers the upper hand and pushing prices down,” said Robert Hogue, senior economist, RBC. “Alberta’s reign as the most affordable housing market may be short lived, however. Demand has shown more vigour in recent months, alongside a provincial economy that is gaining more traction, and Alberta’s market has become better balanced. We expect that this will stem price declines this year and erase a potential offset to the negative effect of a projected rise in interest rates on affordability.”
The RBC Housing Affordability Measures for Alberta, which capture the province’s proportion of pre-tax household income needed to service the costs of owning a home, eased across all housing categories in the fourth quarter. The measure for the benchmark detached bungalow moved down to 30.9 per cent (a drop of 2.4 percentage points from the previous quarter), the standard condominium to 20.3 per cent (down 1.0 percentage points) and the standard two-storey home to 34.4 per cent (down 2.2 percentage points).
The RBC report notes that gradual and steady improvements in Calgary’s housing demand have recently started to bolster market conditions as home resales increased appreciably since June which helped trim down the slack that kept buyers in the driver’s seat.
A return to more balanced market conditions in Calgary, however, did not succeed in reversing the tide in the fourth quarter of 2010 as home prices continued to weaken for the most part in the fourth quarter. Nonetheless, this contributed to further material improvement in affordability. The RBC Measures for Calgary again fell the most among Canada’s largest urban markets, declining by 0.9 to 3.1 percentage points.
“Affordability in the Calgary area is now the best in almost six years and this attractive level of affordability will support further increases in demand as the local economy picks up steam in the year ahead,” added Hogue.
Elsewhere in the country, a majority of provinces saw improvements in affordability in the fourth quarter. Only the standard two-storey benchmark became less affordable in Ontario and Quebec, as did the standard condominium apartment in Quebec and the Atlantic region.
The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. Alternative housing types are also presented including a standard two-storey home and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.
CANADIAN HOMEOWNERSHIP COSTS EASE FOR SECOND CONSECUTIVE QUARTER: RBC ECONOMICS
This is great news.
TORONTO, Feb. 24 /CNW/ – Canada’s housing affordability continued to improve in the fourth quarter of 2010, thanks in part to slight decreases in five-year fixed mortgage rates and minimal home price appreciation across the country, according to the latest Housing Trends and Affordability report released today by RBC Economics Research.
“Some of the stress that had been building in the housing market between 2009 and the first half of 2010 has been relieved, but tensions persist overall and the recent improvement in affordability is likely to be short-lived,” said Robert Hogue, senior economist, RBC. “We expect that the Bank of Canada will resume its rate hike campaign this spring and with borrowing costs set to climb further in the next two years, housing affordability will erode across the country. That said, we don’t expect this to derail the housing market because of rising household income and job creation from the sustained economic recovery.”
The RBC Housing Affordability Measure captures the proportion of pre-tax household income needed to service the costs of owning a specified category of home. During the fourth quarter of 2010, measures at the national level fell between 0.4 and 0.8 percentage points across the housing types tracked by RBC (a decrease represents an improvement in affordability).
The detached bungalow benchmark measure eased by 0.8 of a percentage point to 39.9 per cent, the standard condominium measure declined by 0.4 of a percentage point to 27.6 per cent and the standard two-storey home decreased 0.4 percentage points to 46.0 per cent.
“We expect affordability measures will rise gradually in the next three years or so while monetary policy is readjusted, but will land softly thereafter once interest rates stabilize at higher levels,” added Hogue. “This pattern would be consistent with moderate yet sustained stress on Canada’s housing market. Overall, the era of rapid home price appreciation of the past 10 years has likely run its course and we believe that Canada has entered a period of very modest increases.”
A majority of provinces saw improvements in affordability in the fourth quarter, most notably in Alberta where falling home prices once again contributed to lower the bar for affording a home. Only the standard two-storey benchmark became less affordable in Ontario and Quebec, as did the standard condominium apartment in Quebec and the Atlantic region.
RBC’s Housing Affordability Measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 68.7 per cent (down 0.4 percentage points from the last quarter), Toronto 46.8 per cent (down 0.5 percentage points), Montreal 41.3 per cent (down 0.4 percentage points), Ottawa 38.7 per cent (up 0.5 percentage points), Calgary 34.9 per cent (down 3.1 percentage points) and Edmonton 31.0 per cent (down 2.4 percentage points).
The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. Alternative housing types are also presented including a standard two-storey home and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Buying a home in B.C. became slightly more affordable in the fourth quarter of 2010, due primarily to a small drop in mortgage rates. After experiencing some declines in the previous quarter, home prices rose modestly for most housing categories; condominium apartments bucked the trend, however, and depreciated slightly. Prices were supported by a tightening in market conditions with home resales picking up smartly following substantial cooling in the spring and summer that saw sellers lose their edge in setting property values. Demand and supply in the province are judged to be quite balanced at this point. RBC’s Affordability Measures fell between 0.8 and 1.0 percentage points in the fourth quarter which came on the heels of much more substantial drops (1.7 to 4.8 percentage points) in the third quarter. Notwithstanding these declines, affordability remains poor and will weigh on housing demand going forward.
- Alberta: Alberta officially became the most affordable provincial market in the country in the fourth quarter, according to the RBC Measures which fell once again by 1.0 to 2.4 percentage points, extending their declines since late-2007. In addition to the lower mortgage rates, the further depreciation of home prices contributed to lowering homeownership costs. Property values were negatively affected by a substantial downswing in demand in the spring and early summer, which put buyers in the drivers’ seat. The significant improvement in affordability is near the end of its line, however, as demand has shown more vigour in recent months – alongside a provincial economy that is gaining more traction – and the market has become better balanced. RBC expects that this will stem price declines this year, thereby removing a potential offset to the negative effect of projected rise in interest rates on affordability.
ORES Real Estate Index For January 2011
COMMENT: This is a very cool index I found that compares most investments to real estate. It is interesting right now as gold is at an all time high, oil is back up and Canadian real estate has held most of its value and is coming back.
- Wednesday, 16 February 2011 10:09
- Brian Madigan LL.B.
Here is the “ORES REAL ESTATE INDEX” which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). It also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index.
In addition, the stock market indices for Toronto, and the three largest US markets are also compared.
For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the five year average used as a standard benchmark comparison in the mutual fund industry.
As of 31 January 2011, here is the Index representing average prices:
Real Estate
132.15…..GTA single family homes
130.87…..All condos in GTA
139.34…..Downtown Central Condos
122.53…..East condos
131.35…..West condos
124.97…..North condos
Other market comparisons
310.23…..gold (price per ounce)
206.98…..oil (price per barrel)
147.24…..TSX index
132.15…..ORES Index single family homes
111.59 …..CPI index
130.92…..NASDAQ index
113.37……Dow Jones index
108.88……S&P Index
Using the Index
Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of January, the index stood at 132.15. That’s a 32.15% increase in 73 months. That means the increase is 0.404% monthly, or it could also be expressed as 5.28% annually. The performance here is shown without annual compounding for the sake of simplicity.
The other statistics are reported in a similar fashion for the ease of comparison.
Observations (on the Index)
As we use index, there are several notable comments:
• Commodity prices are just commodity prices
• There is no other “extra return” for commodities
• The same is true for the CPI
• The CPI is a benchmark to see whether you are keeping pace with inflation, that number is 111.59 (It has been modest and appears under control)
• For a realistic performance goal, you should aim for CPI plus 3.5% annually
• Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices
• The stock market Indexes only measure the survivors. So, in 2009, both GM and Chrysler would have been dropped due to the bankruptcies
• If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes
• Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself
• Actually, I should have mentioned that if you held gold bullion, you could sit in a room, count it, and enjoy that experience too. I’m not quite sure how to measure that. You’ll have to ask King Midas or Goldfinger!
Comparative Observations Using the New Index
• Gold was the best performer, but reached its peak of 324.61 earlier In January
• Oil was the most volatile, (yes it dropped in half over our measurement period)
• Real estate was the most stable, with solid predictable returns at about 5.28% annually
• single family homes continue to show a better overall return than condos
• Our own stock market posted reasonable gains, and is now ahead of single family homes over the measurement period, however, don’t forget that the TSX is still well off its highs
• All three US stock market indicators now show positive numbers.
Conclusion
For steady, predictable, measured gains pick real estate. It’s a solid performer with lower risk (less volatility) and generally moving in a positive direction.
And remember, when it comes to real estate, it’s never “wiped out” completely, like GM or Chrysler stock. So, unless you’re sitting on the edge of a tsunami, you’ll still own something when the storm is over.
For a benchmark of success, there’s 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt, including CanWest Global, and many US Banks) that would have been happy with that return.
‘Window closing’ on ultra-low mortgage rates
Tim Shufelt, Financial Post · Monday, Feb. 7, 2011
Amid the noise of volatile-but-improving economic indicators, mortgage rate hikes are likely to repeat like a chorus in the coming months.
Canadian banks are raising interest rates on mortgages, marking the beginning of a trend as they correlate with rising bond yields and expected monetary tightening.
That’s making a strong case for borrowers to lock into fixed rates before it’s too late, said Benjamin Tal, deputy chief economist with CIBC World Markets. “The window is closing.”
TD Canada Trust and CIBC both announced Monday hikes to their residential mortgage rates, the first increases since changes to the rules of borrowing were announced by the federal government last month. The other big banks where expected to follow the moves shortly.
Effective Feb. 8, the interest rate on the banks’ benchmark five-year closed fixed rate mortgage will increase 25 basis points to 5.44%. The country’s other major lenders are expected to soon follow suit.
Toronto mortgage broker Paula Roberts said rising borrowing costs will compel more of her clients to abandon ultra-low variable rates in favour of higher, fixed-rate mortgages.
That can be a tough decision for borrowers to accept higher payments, but not one that should strain a mortgagee’s finances, she said.
“If you can’t afford [your payments] … that’s a problem,” Ms. Roberts said. “That’s why the government has changed the rules.”
In two stages over the past year the federal government announced changes to the conditions of mortgage lending — shortening the maximum amortization from 35 years to 30 years and requiring borrowers to qualify for a fixed-rate plan, even if they are opting for a variable rate.
Many who only qualify under the old rules, however, will try to secure mortgages before the shorter maximum amortization periods come into effect next month, Ms. Roberts said.
“There are going to be a lot of people that will enter into their agreements by March 18.”
Much of the momentum in mortgage rates can be attributed to a bond selloff and rising yields across the board. That effect is partly a reflection of building global inflationary pressures as well as a global economy that is proving more robust than expected.
“In my opinion, the bond market will not be the place to be over the next six months, and if that’s the case, you will see mortgage rates continue to rise,” Mr. Tal said.
In addition, anticipation of increases to the Bank of Canada’s benchmark lending rates is building, also contributing to rising yields, which puts pressure on fixed-income mortgages.
If there was any lingering doubt that the Bank will soon raise rates, last week’s jobs report erased them. The report showed Canada added four times more jobs than expected in January.
“[It] creates a fairly powerful story for the Bank of Canada, which is clearly concerned on the domestic front,” said Camilla Sutton, chief currency strategist at the Bank of Nova Scotia. “I think there’s a material change.”
So do investors. The probability that the central bank will boost its key policy rate by May, as measured by overnight index swaps, jumped to almost 75% after the jobs data. http://www.financialpost.com/news/Window+closing+ultra+mortgage+rates/4239243/story.html#ixzz1DMwQzyWP
Intra-provincial migration at 20-year high
Comment: This is exactly what started the boom in Calgary in 2006 when 25,000 people moved into town from all over Canada. This should drive the rental market vacancy rate down and increase rental prices. Then it will be more affordable to buy and the slack in the market will slowly get taken up; supporting home prices.
Good news for everyone in the housing industry and for home owners.
—- Nicolas Van Praet, Financial Post · Thursday, Jan. 27, 2011
MONTREAL — The number of Canadians moving to another province has punched to a high not seen in 20 years as people pack up in search of better jobs and salaries elsewhere.
Roughly 337,000 Canadians were on the move in 2010, says a report on interprovincial migration published Thursday by TD Economics. That’s 45,000 more than the year before and the most since the late 1980s. It also represents the largest share of the overall population since 1998.
“It’s a good sign in the sense that whenever you see that kind of movement, it’s an expression of a labour market that’s healing after a pretty severe recession,” said TD senior economist Pascal Gauthier, who wrote the study. “People are either returning home or moving to areas that didn’t have employment before. For those that are already employed, they’re finding potentially better prospects.”
Interprovincial migration matters because when there is a net movement of people to higher-employment and higher-productivity areas, that generates net economic output gains on a national basis. It’s also crucial for businesses because people often make big-ticket purchases when they move, which can have a significant impact on local housing and retail markets.
Canada’s situation lies in stark contrast with the United States, where census data show long-distance moves across states fell last year to the lowest level since the government began tracking them in 1948. Americans used to be a nation of big movers, with as many as one in five relocating for work every year in the 1950s. Now, experts are debating why they’ve become a nation of “hunkered-down homebodies,” as the New York Times put it.
Richard Florida, director of the Martin Prosperity Institute at the University of Toronto, says the United States is experiencing a new kind of class divide now between “mobile” people who have the resources and flexibility to pursue economic opportunity, and “stuck” citizens who are tied to places with weaker economies.
He argues the U.S. housing crisis is a big factor slowing mobility down. When the housing bubble popped, it left millions of Americans unable to sell their homes. “It’s bitterly ironic that housing, for so many Americans, has gone from being a cornerstone of their American dream to being a burden,” he wrote in a recent opinion piece.
Mr. Gauthier agrees that the housing crash is partly to blame for keeping Americans put. “There’s such a glut of supply that it’s just difficult to sell your house. In Canada, that’s not been an issue.”
In Canada, the biggest impediment to the free flow of labour between provinces and territories remains regulation as occupational requirements fall under provincial jurisdiction.
Workers in regulated professions and skilled trades, such as teachers and engineers, still face major barriers trying to work in provinces other than their own. Solving that problem will be key ahead of the looming labour force crunch, Mr. Gauthier argues.
Alberta, B.C. and Saskatchewan have seen the strongest net inflow of people of all provinces for the past three years and that will not change in the short term, the TD report forecasts. The three jurisdictions are working to implement a newly signed trade and labour mobility agreement between them that could eventually see seamless movement of workers between their borders.
TD says Ontario and Quebec will continue to lose residents to other provinces on a net basis, but the bleeding will be at a slower pace than in previous years. It says Manitoba and Prince Edward Island will be the only provinces still shedding a significant share of residents through the end of 2012.
In Manitoba’s case, it’s not that there aren’t any jobs. The province’s unemployment rate has been consistently lower than that of the rest of Canada since the 1990s. It’s that people are being lured by the prospect of higher-paying jobs in neighbouring provinces.
Top 10 Effects Of The New Mortgage Rules
We may not go 10 for 10, but crystal ball-gazing is fun nonetheless.
In this humble of spirits, we present ten trends to watch out for in 2011, courtesy of Flaherty & Co.’s new mortgage regime:
- Lower purchase and refinance demand will depress mortgage volumes, sparking greater rate competition as lenders battle for less business
- A small portion of home buyers will sprint to buy homes with a 35-year amortization before March 18, followed by downward pressure on home prices after March 18 as the amortization reduction removes market liquidity
- Negative personal consumption and wealth will result thanks to equity take-out restrictions, rising rates and softening home prices
- Unsecured debt usage will increase as homeowners are restricted from accessing as much of their equity, leading to even greater bank profits in unsecured lending
- Default rates will see no material improvement
- No significant improvement will occur in the number of risky borrowers, due to no change in TDS limits or Beacon score requirements
- HELOC rate discounts will be less frequent as some non-bank offerings disappear and HELOC funding costs inch higher
- Banks will pick up mortgage market share
- More private lenders will offer high-interest uninsured 2nd mortgages to 90% LTV
- If amortization restrictions accelerate falling home prices, we’ll see somewhat greater default risk and more negative equity situations among low-equity homeowners
Canada Prime Stays at
Consumer Prime is at 3%. At it will stay the same as well. Nice break for us after the gov’t changes the mortgage rules the day before.
As most predicted it would, the Bank of Canada announced today it is maintaining its target for the overnight rate at one per cent.
Housing crash is not likely to happen in Canada.
Ben is one of the best economists around and is usually correct….
However, Tal said that if rates rise, mortgage defaults will actually drop. He explained that is because rising rates imply rising employment, which influences defaults more than anything.