29 May

Mortgage Rates are on the way up!


Posted by: K.C. Scherpenberg

Yields Spike. Fixed Rates May Follow

Give K.C. a call at 705 646 2777 or 705 333 2222 or email kscherpenberg@dominionlending.ca

From Canadian Mortgage Trends May 29, 2013.

If you’re house hunting or thinking of refinancing, and you don’t have a mortgage rate hold, consider getting one.

Canada’s 5-year bond yield just pierced a 3-month high. That means—barring a big reversal—there’s a good likelihood that fixed rates will ratchet higher. (Bond yields steer fixed mortgage pricing, most of the time.)

A few lenders have already announced higher rates earlier today—with increases of 5-10 basis points on longer fixed terms.

In less than a month the mortgage industry’s pricing benchmark (the 5-year GoC) has surged 33 basis points from its recent lows. That’s thanks in part to:

  • a brightening picture south of the border, including:
    • A 10.9% y/y jump in home prices—the most in 7 years
    • Consumer confidence at a 5-year high
    • U.S. stocks at record highs
  • lower perceived global risk (which reduces demand for “safe” government bonds)
  • technical-related bond selling.

Everyone’s got their own theory on how many legs this yield rally may have. Some are proclaiming the end of the great bond bull market. But that has been said countless times before. And bull markets don’t have to all-of-a-sudden reverse direction. Yields can just as easily move sideways…for years. (Note: Bond yields move inversely to bond prices.)

Either way, inflation ultimately drives yields and mortgage rates. Notwithstanding the bond-unfriendly U.S. news, Canada has core inflation of just 1.1% (2.0% is the BoC’s target), tepid GDP growth and questionable employment gains. There is little domestic news (yet) which suggests that Canadian yields will keep soaring. But at some point, that may no longer be true.

Sidebar: For the little that it’s worth, major economists have again moved back their forecasts for the next Bank of Canada rate change. Now they’re calling for a hike in late 2014 (Source: Reuters). But that says nothing about fixed rates today. And it’s always worth repeating: Fixed rates routinely increase well before the Bank of Canada tightens monetary policy.

21 May

Mortgage Rules Help Fuel Rent Hikes.


Posted by: K.C. Scherpenberg

From Canadian Mortgage Trends.

Mortgage Rules Help Fuel Rent Hikes

house planYoung adults have to live somewhere. And when they outgrow their parents’ house and join the workforce, the choices are typically to rent or buy.

But for many first-time buyers, the choices narrowed last July. That’s when Ottawa reduced the maximum allowable amortization and gross debt service ratio on insured mortgages. This immediately made it harder for younger buyers to qualify.

Because 80% of first-timers need mortgage insurance (and therefore have to play by insurer’s rules), that put many home ownership dreams on the back burner. In fact, the Canadian Association of Mortgage Professionals (CAAMP) estimated last fall that almost 17% of high-ratio borrowers would no longer qualify due to the last few rounds of rule changes.

As a result, tens of thousands of would-be purchasers have been (or will be) forced to rent, or stay renting. And with that jump in rental demand has come an expected byproduct: higher rents.

Nowhere has this been more evident than in Canada’s biggest rental market, Toronto. Condo vacancies there have now dropped to a skimpy 1%, according to CIBC.

rising-rentsDemand from shut-out buyers has, in part, rocketed Toronto condo rents 10% higher in just 24 months. That’s according to data from Urbanation, which pegs Toronto’s average rent at a record $1,856, or $170 per month higher than at this time in 2011.

“Demand for renting condos has heated up with less first-time buyers,” said Urbanation SVP Shaun Hildebrand in a news release. “Rental transactions have exceeded resale volumes in the condo market since mid-2012, when the latest round of mortgage rule changes came into effect.”

“For the first time in a while, rents are rising faster than prices,” he added.

Regardless of one’s position on the Finance Department’s policy-induced housing slowdown, the rental market side effects are clear. Until the market rebalances (i.e., rental supply increases, home prices drop, and/or incomes rise, etc.), renters in big markets will feel some pain. That pain will come from rules intended for home buyers.