Winning Variable Rate Strategy: end-2023
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Details of Canadian Economic & Housing Market Performance, as at Dec 7, 2022
Bank of Canada increased Consumer Prime to 6.45% – exactly as expected for the last 5 months. January 25th is the next BoC interest rate announcement & I hope it is a 0.25% increase and then holds there for all of 2023. We will see…
Mortgage Mark Herman, Best Calgary mortgage broker with a Master’s degree in Finance.
Today, the Bank of Canada increased its overnight benchmark interest rate 50 basis point to 4.25% from 3.75% in October. This is the 7th time this year that the Bank has addressed inflation and means the policy rate is now as high as it has been in 15 years.
We summarize the Bank’s observations below, including its forward-looking comments on the need/likelihood of future rate increases below:
Canadian inflation
- CPI inflation remained at 6.9% in October, with many of the goods and services Canadians regularly buy showing large price increases
- Measures of core inflation “remain around 5%”
- Three-month rates of change in core inflation have come down, “an early indicator that price pressures may be losing momentum”
Canadian Economic and housing market performance
- GDP growth in the third quarter was stronger than expected, and the economy continued to operate “in excess demand”
- The labor market remains “tight” with unemployment near historic lows
- While commodity exports have been strong, there is growing evidence that tighter monetary policy is restraining domestic demand: consumption moderated in the third quarter
- Housing market activity continues to decline
- Data since the October Monetary Policy Report supports the Bank’s outlook that growth will essentially stall” through the end of this year and the first half of 2023
Global inflation and economic performance
- Inflation around the world remains high and broadly based
- Global economic growth is slowing, although it is proving more resilient than was expected at the time of the Bank’s October Monetary Policy Report
- In the United States, the economy is weakening but consumption continues to be solid and the labor market remains “overheated”
- The gradual easing of global supply bottlenecks continues, although further progress could be disrupted by geopolitical events
Outlook
Although the Bank’s commentary noted that price pressures that are driving high inflation may be losing momentum, it went on to say that inflation is “still too high” and that short-term “inflation expectations remain elevated.” In the Bank’s view, the longer that Canadian consumers and businesses expect inflation to be above the Bank’s 2% target, “the greater the risk that elevated inflation becomes entrenched.”
Given these economic signals, the Bank’s Governing Council stated that it “will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target.”
It concluded its statement with a familiar refrain: “We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians.”
Analysts and commentators will seek to interpret those outlook comments for signs that the Bank has reached or believes it is close to reaching the terminal point in its current rate-hike cycle. For now, that remains a question of debate and speculation that will turn on future economic signals.
Next Touchpoint
January 25th is the next BoC interest rate announcement. I hope it is a 0.25% increase and then holds there for all of 2023. We will see…
Alberta homes lead Canada for 2013
Alberta resale housing market tops Canada in annual sales growth
Forecast to lead the country again in 2013
CALGARY — Alberta will lead the country this year and in 2013 in the pace of growth in the resale housing market, according to a new forecast by the Canadian Real Estate Association.
The national association of realtors said Monday that Alberta MLS sales this year will finish up 13.1 per cent from last year to 60,800 transactions and sales will lead the country next year as well with 1.3 per cent growth to 61,600.
Nationally, sales are forecast to decline by 0.5 per cent this year to 456,300 and fall by another 2.0 per cent in 2013 to 447,400 transactions.
The average sale price in Alberta is expected to rise by 2.7 per cent this year to $363,100 and by another 2.3 per cent in 2013 to $371,300.
Across Canada, the national average sale price is forecast to increase by 0.3 per cent this year and next year to $363,900 and $365,100, respectively.
In November, Calgary MLS sales of 1,831 were up 10.6 per cent compared with last year while on the national level sales dipped by 11.9 per cent to 30,573.
The average sale price in Calgary rose by 3.8 per cent to $413,921 but fell by 0.8 per cent across the country to $356,687.
In Alberta, sales increased by 3.2 per cent to 4,034 transactions and the average price was up 4.3 per cent to $365,999.
“National sales activity has remained fairly steady at lower levels since mortgage rules were changed earlier this year, but that stability masks some real differences in trends among local housing markets,” said Wayne Moen, CREA’s president.
CREA on Monday also released its MLS Home Price Index of seven major Canadian markets. Regina’s annual price growth of 11.58 per cent led the nation followed by Calgary at 7.13 per cent.
The national aggregate price rose 3.5 per cent year-over-year, the seventh time in as many months that the year-over-year gain shrank and it marks the slowest rate of increase since May 2011.
Twitter:@MTone123
© Copyright (c) The Calgary Herald
Residential Market Update – Mortgage Rates to stay low for a while.
A great summary of where we are today in relation to the economy and the housing market.
There have been a couple of highlights for the Canadian housing market in the past week:
- the U.S. Federal Reserve announcement that it is committed to low interest rates until 2015 and
- the latest global housing outlook that puts this country in better shape than most.
Anyone looking for a new mortgage or a mortgage renewal will likely be heartened by the American central bank’s interest rate pledge. The commitment to low rates makes it harder, but not impossible, for the Bank of Canada to move on its desire to increase rates.
However, that desire got a boost from Canada’s economic think-tank, the C.D. Howe Institute. It says the central bank needs to change the way it calculates inflation to take into account rising house prices. The institute says the current calculation keeps inflation lower than it really is and puts the Bank of Canada at risk of keeping rates too low for too long.
As for the global housing outlook, it shows Canadian prices continue to rise, albeit more slowly than a year ago. But around the world, countries showing price declines outnumbered gainers by more than two to one.
Has the US housing market hit bottom?
This is a copy of the blog from Boris – the president of MERIX bank – a broker bank we love and deal with often. It is worth pasting all of it here AND it is good news!
Article written by Boris Bozic on the 17 Jul 2012 in Current Events
I’m referring to the real estate market in the U.S. There have been some signs that real estate market may have reached the point where you can actually see the bottom. Interesting to note that new home construction is up in many regions of the U.S. Drive through parts of Florida and you’ll be surprised by the number of new homes being built. Another sign is the number of pending sales just recently reported. On a year over year basis, pending sales were up 14.5% in the West, 22.1% in the Midwest, 19.8% in the Northeast and 11.9% in the south. Another sign that real estate market is getting better is due to increased foreclosures.
As odd as that made sound, a real recovery of the real estate market in the U.S. will only happen when financial institutions finally deal with the backlog of foreclosures. Recent reports indicate the U.S. financial institutions are taking action against more delinquent home owners. Statistics indicated that foreclosure proceedings increased by 6% in the second quarter as compared to the precious year. That’s the first increase since 2009. How is that possible? Simple, banks chose to do nothing. If the borrower didn’t approach the bank and request a loan modification or approval of a short sale, the banks were free to act at their own pace. I suspect their motivation to deal with these issues had nothing to do with any kind of empathy for the home owner. It was more to do with flooding the market with more distressed properties which ultimately would drive the prices down even further. The shadow inventory is a subject that all stakeholders wanted to set aside and deal with it in a mushroom growing fashion. Clearly something has changed, and the banks now feel that the market can absorb the additional foreclosures. This could have further impact on home prices in the short term but many analysts are predicting the drop could be as little as 1%. Here’s another stat I found to be both encouraging and staggering. At of the end of the 2012 first quarter, approximately 11.4 million homes or 23.7% of all homes with a mortgage in the U.S. were under water, negative equity. On a quarter over quarter comparison it was 12.1 million homes or 25.2%.
There’s no doubt that U.S. real estate market has a long way to go before anyone would suggest that it’s a “normal” market. Until they (the politicians, Federal Reserve, regulators etc.,) deal with the real estate issue there will be no full economic recovery. Put aside the markets and consumer spending because the real estate market is the 800 pound gorilla. The real unemployment rate in the U.S is just over 14%, the 8.2% reported unemployment rate is manipulated data and reported by Obama sycophants, and will not come down until there’s marked improvement in the real estate market. As soon as that has happened, the better it is for us. We love it when Americans are working because they love to spend, and we have stuff we would love to sell them. Recently, given the value of the Canadian dollar, we been purchasing more in the U.S., like their homes. If you’re thinking of buying a second home in the U.S., this might be the bottom.
Until next time,
Cheers.
Burgeoning Calgary population to fuel demand in housing market & the West is now bigger than the East!
The migration West continues! Just yesterday Canada Census noted that for the first time in history the West has more people than the East – sure it is only by 0.1% but hey … it’s official.
The migration continues mostly for jobs in energy and all those people need homes to live in. This supports prices and continued demand – but unfortunately fills up the roads and parking lots too.
New home construction and MLS sales on upswing
CALGARY — A burgeoning population will spark another real estate cycle in Calgary with increased demand fuelling more MLS sales and more new home construction.
But industry experts don’t expect the next cycle to mirror the boom of a couple of years ago which experienced a frenzy of activity and fast-rising house prices due to a lack of supply.
Instead, a stable, steady growth is expected in Calgary’s real estate market.
On Wednesday, Statistics Canada reported the Calgary census metropolitan area had the highest rate of population growth in the country at 12.6 per cent between 2006 and 2011 and is now more than 1.2 million for the region.
Tim Logel, president and partner of home builder Cardel Lifestyles in Calgary, said the population data supports what the industry believes is happening in the market.
“What’s positive about it is that as more people move to Calgary then more of the inventory or the supply that we’ve been working on reducing gets absorbed,” said Logel. “And it gets absorbed quicker and gets us closer to being in a higher demand environment where we’re being asked to produce more new housing products of all types for the market … Over the next year with this in-migration, the extra supply will be absorbed.”
Logel said a new real estate cycle has been started in the city. The last one finished in the spring of 2007 in the Calgary market.
Ann-Marie Lurie, chief economist for the Calgary Real Estate Board, said the growing population will help support increased demand for housing in the resale market as well.
“In the resale market, especially moving forward, we think this will also help really take up some of that inventory that is in the market because we had some out-migration in the past few years. 2010 in particular, in-migration levels were extremely slow and so that impacted our housing market as well,” said Lurie.
CREB is forecasting single-family MLS sales activity to increase by 12.2 per cent this year from 2011 levels and condo transactions to jump by 5.9 per cent. Its forecast is also for average sale prices of single-family homes to rise by 2.1 per cent and by 1.7 per cent for condos.
“It’s much more of a stable growth than it was during the last boom. I just don’t see us moving there,” said Lurie. “We’re not moving into that scenario. It’s a much more stable growth and we have a good supply of inventory right now in the resale market and frankly on the new home market they do have some room to improve in some of their construction.
“They’ve got some room to grow and build more to help meet with those household formation numbers.”
Already in January some real estate data, released Wednesday, is indicating support for increased activity in the market as housing starts and residential building permits showed impressive increases compared with a year ago.
According to Canada Mortgage and Housing Corp., housing starts in the Calgary census metropolitan area totalled 786 units in January, up 52 per cent from 518 units a year ago.
In the region, 336 single-detached units broke ground in January, up 14.7 per cent from the 293 units started in January 2011.
“This represents the sixth consecutive month where starts have increased on a year-over-year basis,” said Richard Cho, senior market analyst in Calgary for the CMHC.
Multi-family starts, which include semi-detached units, rows and apartments, increased to 450 units in January, up from 225 units a year earlier.
“As was the case in the last several months, apartment construction continues to be elevated, averaging more than 340 starts per month since August 2011,” said Cho.
Also, the estimated construction value of building permit applications for the residential sector in Calgary rose by 42 per cent in January compared with a year ago.
In releasing its latest data on Wednesday, the City said residential values increased to $153 million compared with $108 million in January 2011. This represents 651 new residential units, a 73 per cent increase compared with the January 2011 total of 376.
“The overall gain in residential value and number of new residential units can be attributed to increases in the apartment and townhouse sectors,” said Kevin Griffiths, chief building official with the city’s department of development and building approvals.
“For the month of January we accepted six apartment applications for 193 new units compared to zero last year, and 20 townhouse applications for 122 new units, compared to only seven townhouse applications totalling 44 units for the same period last year.”
© Copyright (c) The Calgary Herald
New Canadian Mortgage Rules are Possible
Below is a commentary on the possible new rules for Canadian mortgages. Anyone looking at buying with 5% down (which is about 80% of our clients) or using a 30 year amortization (75% of our clients) should look at buying sooner than later.
Comparing New Amortization & Down Payment Rules
Government mortgage restrictions instituted from 2008-2011 have not achieved their goal, suggests Desjardins’ Senior Economist Benoit Durocher.
He wrote this on Thursday: “…The third series of [government mortgage rules] was announced nearly a year ago now, and we must conclude that the tightening introduced to date has not
slowed the market enough.
Under these conditions, it is likely, and perhaps even desirable, that the federal government will shortly announce a fourth series of measures to further limit mortgage credit.”
It almost sounds like Durocher has some inside info.
He adds: “Among other things, the government could be tempted to once again raise the minimum down payment on new loans (it went from 0% to 5% in October 2008).”
Many believe a down payment increase would have a more chilling effect on home prices than the other option being talked about: a reduction in the maximum amortization from 30 to 25 years.
The difference in impact would depend, however, on the degree of rule changes.
For example, raising the minimum down payment from 5.0% to 7.5% (a possibility that’s been discussed) would require that entry-level homebuyers come up with $8,700 more on a typical Canadian home purchase. For most, that’s not totally out of reach.
A five percentage point increase to the minimum down payment is a somewhat different story. Requiring 10% down equates to $34,780 on an average home. That’s beyond the means of a sizable minority of first-time buyers.
First-time buyers are essential to home price stability. They account for 1/2 of unit demand according to Altus Group research. While the latest data suggests that average down payments are somewhere around 30% (an estimated $104,000), first-time buyers put down far less.
That means stricter down payment rules could potentially hurt home values at the margin, if other things are held equal.
In terms of amortization, a government-imposed reduction—from 30 to 25 years—would lower a typical family’s maximum purchase price by roughly 9%. (That’s based on today’s 5-year fixed rates, normal qualification guidelines, median incomes, and average consumer debt.)
To put this in perspective, a reduction in amortization from 30 to 25 years would cut a typical buyer’s maximum possible purchase price by ~$31,000 (again, based on an average income, average debt, a 5% down payment, etc.).
Fortunately, most people don’t need a 30-year amortization to buy a home. Despite 41% of homebuyers choosing extended amortizations, the majority could have qualified with a standard 25-year mortgage. (That said, this doesn’t mean that cutting amortizations across the board is justified. Well-qualified borrowers deserve a carve-out in the rules because they utilize extended amortizations for legitimate cash-flow management purposes. But that’s a topic for another day.)
Rates, spreads and all the rest
This is an article that was sent to me. It is totally technical and I love it. This is the real reason behind what are the lowest rates we have ever seen.
It also explains why the days of Prime -.95% are GONE for what looks like a long time.
In between the lines is says rates are going to go up quickly as soon as there is a sniff of recovery.
—
In the last few days, RBC and Scotiabank have eliminated their advertised variable-rate discounts.
They’re now promoting variable mortgages at prime + 0.10%, twenty basis points more than their previous “special offers.”
Prime + 0.10% (i.e., 3.10%) is an interesting number. A few months ago consumers thought that fat variable-rate discounts were here to stay. Variables above prime will now come as a shock to some people.
The banks are well aware of that. They know that pricing above prime impacts consumer psychology.
They could have priced at prime. Spreads are not that horrendous. But pricing above prime makes more of an impact. It makes higher-profit fixed rates more appealing and it mentally prepares consumers for potentially higher VRM premiums down the road.
That said, banks are not just arbitrarily sticking it to borrowers. Far and away, the main reason variable rates are worsening is that banks’ costs are rising.
At the moment, there are multiple factors at play:
• Higher risk premiums are compressing margins.
O We have Europe to thank for the that.
O The TED spread, a measure of interbank credit risk, just made a new 2½ year high. As volatility increases, banks have to factor that into their funding models.
O Another reflection of risk is the most recent floating rate Canada Mortgage Bond (which some lenders use to fund variable-rate mortgages). It was issued at a 15 basis point premium over the prior issue in August.
• Margin balancing is an underlying bank motive.
O Banks have publicly stated their desire to even out margins between profitable fixed rates and low-margin variables, and they’re slowly doing just that.
O Back in September, RBC Bank exec David McKay put it this way: “…Given the dislocation between fixed and variable, the very, very thin margins (of variables), we felt we needed to move prices up in our variable rate book.”
• New regulations (e.g., IFRS) have boosted the amount of capital required for mortgage lending.
O That has lowered the return on capital for mortgages, and thus influenced rates higher.
• Status Quo for prime rate doesn’t help margins.
O Lenders partly rely on deposits (that money rotting in your chequing and savings accounts) to fund VRMs.
O Demand deposit rates rise slower than prime rate. So, when prime goes up, some lenders get wider margins temporarily.
O When expectations changed three months ago to suggest that prime rate will fall or stay flat (instead of rise like expected), it was bad news for some deposit-taking lenders. That’s because they now have no spread improvement to look forward to in the near-to-medium term.
O MBABC President Geoff Parkin says that until recently, “lenders have been prepared to accept low (VRM) profit margins with the knowledge that, as the prime rate inevitably rises, so too will their profit on variable mortgages.” As it turns out, the inevitable is taking longer than the market expected.
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Alberta leads North America in economic freedom: Fraser Institute report
This is great news for those of us in Alberta – we already knew we are booming. The rest of Canada is finding out as there were 26,000 new people added to Calgary this year. Almost the same as the boom in 2006. That means more people looking for homes or to rent and that demand will take up the housing slack.
Alberta leads North America in economic freedom: report
FILE – An oilsands mine facility seen from the air near Fort McMurray, Alta., Monday, Sept. 19, 2011. THE CANADIAN PRESS/Jeff McIntosh
CTVNews.ca Staff
Date: Tuesday Nov. 22, 2011 2:02 PM ET
Quebec and Ontario lag far behind their Western cousin Alberta and many U.S. states when it comes to economic freedom in North America, according to a new report.
While Alberta finished first of all Canadian provinces and U.S. states, Ontario finished fifth among the provinces and a dismal 49th when U.S. states were factored in.
Quebec finished eighth among the provinces — ahead of only Nova Scotia and P.E.I. — and a sluggish 58th overall in the analysis by the Fraser Institute titled Economic Freedom of North America 2011.
The report measures the economic freedom of 50 states and 10 provinces based on indicators such as size of government, taxation levels, and labour market freedom.
It found a direct connection between the states and provinces with the most economic freedom, and those where residents earned the most.
“The 12 Canadian and American jurisdictions with the highest levels of economic freedom had an average per-capita GDP of $54,435 in 2009, compared to the 12 lowest-ranked jurisdictions in North America, where average per-capita GDP in 2009 was $40,229,” the report stated.
Following are the top five finishers:
- 1. Alberta
- 2. Delaware
- 3. Texas
- 4. Nevada
- 5. Colorado
After Alberta, Saskatchewan was the second-highest Canadian finisher, but came in at only 32nd overall. Newfoundland and Labrador followed as the third-place overall Canadian finisher at 37th place.
B.C. came in 43rd overall, Ontario finished in 49th, and the bottom five spots on the entire list were dominated by the following Canadian provinces:
- 56. Manitoba
- 57. New Brunswick
- 58. Quebec
- 59. Nova Scotia
- 60. P.E.I.
Improvements in Canada
But the news wasn’t all bad for Canada. On average, the report found that levels of economic freedom increased in Canada between 2000 and 2009.
And in Newfoundland and Labrador and Saskatchewan, levels of economic freedom rose significantly in that same period.
Though less dramatic, B.C. and Alberta have also shown signs of improvement, which has allowed them to surpass several U.S. states in the rankings.
“It’s no coincidence that the provinces showing increased levels of economic freedom are also the provinces whose economies have been the most vibrant and shown the most growth in recent years,” said Fred McMahon, Fraser Institute vice-president of international research and the co-author of the report, in a statement.
“A common theme among provinces with high levels of economic freedom is a commitment to low taxes, small government, and flexible labour markets. These conditions foster job creation and greater opportunities for economic growth.”
Conversely, he said, provinces with low levels of economic freedom result in lower standards of living and reduced opportunities for families.
The report states that Quebec, Ontario, Manitoba, Nova Scotia and New Brunswick have all shown declines in economic freedom between 2000 and 2009.
Particularly troubling, McMahon said, is the fact Canada’s two most populous provinces, Ontario and Quebec, have fared so poorly.
“If governments in these two provinces want to boost prosperity and improve the standard of living for their residents, they should look to the successful policies of provinces where economic freedom has increased,” McMahon said.
Calgary housing market poised to show strong price growth
More good news on the market outlook.
November 6, 2011. 8:33 pm
Pay attention. Something’s happening here,” says Don Campbell, president of the Real Estate Investment Network in Canada.
Campbell is paying attention to the all the reports coming out these days showing some positive economic news for Alberta and Calgary. Good economic growth. In-migration levels rising. And employment growth leading the way in Canada.
The real estate market lags the economy by about 18 months, he says.And the economy is in recovery. We’ve now seen the job growth and the population growth starting to affect the rental vacancy rates which have gone down, resulting in rents rising.
Campbell says that by the spring of 2013, and perhaps by the fall of 2012, there will be a real strong upward pressure on demand for resale homes in Calgary and surrounding areas.
He predicts there will also be a jump in listings at that time which will keep a little bit of a cap on the price increases. So will continued world economic turmoil.
But even with that Calgary should expect strong price growth in the value of resale properties.
“I think you’re going to see a nice steady eight to 10 per cent increase in 2013 in average sale price for Calgary (year-over-year),” says Campbell, one of the authors of the book Secrets of the Canadian Real Estate Cycle.