With Canadian and American mortgage rates being closely linked, there is little surprise to be seen on the faces of Royal Bank of Canada and Scotiabank officials as the remarks of U.S. Federal Reserve Chairman Ben Bernanke spurred rates for a five-year closed mortgage to a level of 4.26 percent as detailed in the Epoch Times.
The Times' contributor Richard Kensington divulged "the Federal Open Markets Committee laid clear a path for higher interest rates in the U.S., which caused the 10-year treasury bond yield to hit 2.54 percent," causing a similar reaction in Canadian bond markets.
Special discounted rates to rise
The Southern Daily Press recently reported that "the Royal Bank of Canada and Scotiabank both announced increases to several mortgage packages, particularly those considered as 'special discounted rates.' Scotiabank's special discounted rates on two-year, four-year, seven-year and 10-year fixed-rate mortgages for residential properties all increased by 0.10 percent effective Sunday, June 22." Continue reading
The Canada Mortgage and Housing Corporation (CMHC) said that the housing market will pick up momentum in the later part of this year and into 2014.
David George-Cosh said in a blog for The Wall Street Journal that if this prediction sounds familiar, it's because it's similar to the outlook of an agency report in February, but with revisions downward for 2013 and 2014.
What are the current predictions?
The CMHC now forecasts starts of 182,900 units this year, down from the first quarter unit estimate of 190,300. In 2014, housing starts are expected to be at 188,900 units. The CMHC predicts resales will be at 443,400 in 2013 and 468,600 in 2014. Continue reading
Rates for five-year fixed-mortgages are climbing, effectively ending the trend of 3 percent five-year fixed-mortgage rates.
According to Move Smartly, last week five-year fixed-mortgage rates rose and then rose again. The increase is a lender reaction to the Government of Canada's (GoC) bond market. The GoC's five-year bond yields have, in the past seven weeks, increased by 66 basis points.
CBC News said that bank's are seeing their borrower's rates go higher and are therefore increasing lending rates to offset the costs.
The increase in bond yields is due to three key points, according to Move Smartly. First, the willingness to pay for safety of GoC bonds was reduced and the bond yield rose from 1.15 percent to 1.44 percent from May 1, 2013 to June 6, 2013. Second, the Canadian job market spiked with almost 100,000 new jobs in May, causing bonds to surge 19 basis points. Lastly, the U.S. Federal Reserve announced it would begin to taper off its $85 billion per month program to purchase U.S. treasuries and mortgage backed securities.The U.S. Treasury yields will rise, so higher fixed-mortgage rates in Canada are inevitable because for the past five years GoC bond yields have had a 98 percent correlation with the U.S. Treasury. Continue reading
Are homes in Canada too expensive?
According to a recent article from The Globe and Mail, the answer is: sometimes.
"…[T]here is clearly some stress on affordability, which is reported on in depth by Royal Bank of Canada's economists every three months," the article stated. "As RBC points out in each report, lenders typically qualify borrowers by checking whether mortgage payments, property taxes and heating costs account for no more than 32 per cent of gross household income. In the first quarter of 2013, this package of housing costs consumed a low of 30.4 percent of average household income in Edmonton for a detached bungalow and a high of 82.3 percent in Vancouver." Continue reading
While much has been made of forecasts and feelings regarding Canada's mortgage market in the last few months, nothing compares to cold, hard facts. Fortunately, Canadian Mortgage Trends has compiled a list of various figures from Canada's six largest banks to give a glimpse into the current state of the market. Citing quarterly earnings reports, presentations and conference calls, the data gives Canadian consumers a peek behind the window dressing at Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC), National Bank of Canada (NBC), Royal Bank of Canada (RBC), Scotiabank and TD Bank.
Mortgage activity rises for most
Outside of CIBC, which saw mortgage activity decline by $1.3 billion during the second quarter of 2013, all other banks tracked saw year-over-year increases. BMO experienced a 13.7 percent rise in mortgage balances compared to the same time last year, as well as 1.9 percent on a quarter-over-quarter basis. NBC saw residential mortgage activity rise 13 percent year-over-year, as well as 4 percent quarterly. RBC had its residential mortgage volume rise 5 percent year-over-year during the second quarter, reaching $177 billion. Scotiabank's residential mortgage portfolio reached $188 billion during the second quarter, marking a 27 percent increase on a year-over-year basis. Finally, TD Bank also experienced an increase in residential mortgages, it's portfolio reaching $156 billion during the second quarter. This is up from $155 billion during the last quarter, as well as $145 billion during the same time last year. Continue reading
News of Canadian banks increasing their mortgage rates has some mortgage brokers on edge, according to an article from Mortgage Broker News. The main area of concern? That monolines will follow suit.
Monolines are mortgage lenders that focus solely on mortgages. Whereas banks and credit unions have other loan types and products to sell, monolines are focused on home loans. Mortgage brokers are often able to obtain mortgages with ultra-low rates from these lenders, helping them get business from homebuyers looking for rates lower than the big banks can offer. However, if monolines begin raising their mortgage rates along with banks and credit unions, that competitive edge may disappear for brokers.
It's been widely reported that the Royal Bank of Canada increased its rates. The rate on four-year closed mortgages is set to increased 10 basis points, reaching 3.09 percent, while the rate on five-years will rise 20 basis points, reaching 3.29 percent. Meanwhile, the posted rate on a one-year mortgage is set to increase 14 basis points, reaching 3.14 percent, while two- and three-year mortgage rates are rising 10 basis points, reaching 3.14 and 3.65 percent, respectively. Continue reading
Rays of sunlight are peeking through the clouds that have been hanging over the Canadian real estate market as of late.
According to the Canada Mortgage and Housing Corporation, the seasonally adjusted annual rate for housing starts during May was 200,178 units. This marks a significant increase from 175,922 units during April. As far as urban housing starts go, the seasonally adjusted annual rate increased 14.6 percent during May, reaching 177,234 units. This can be attributed to a 22.2 percent increase in multiple urban starts, reaching 114,346 units. Meanwhile, single urban starts rose 3 percent during this time period, reaching 62,888 units.
According to The Globe and Mail, these figures, along with positive data regarding the addition of new Canadian jobs, has led to the Canadian dollar gaining in value.
"May's increase in home building suggests overall housing construction continues to garner support from condominium-related building, although the overall levels are still off from the highs seen in mid-2012 when the market was more frothy," said Emanuella Enenajor, economist at CIBC World Markets. "Today's data could mean that homebuilding activity in Q2 could be less of a drag than seen in the prior quarter, although we continue to see this sector struggling on weak secondary market activity, the fading impact of low rates and buyer fatigue." Continue reading
While rising home prices are good news for sellers and buyers seeking a sound investment, they can also make it that much harder for some Canadians to enter into homeownership.
As a recent article from The Globe and Mail points out, even with mortgage tightening and a dip in sales, home prices continue to remain high throughout the country. As home sales decreased, so did the number of homeowners putting their properties up for sale, keeping the inventory of available properties fairly low, and, by extension, prices high.
"The latest data suggest that the softening in prices is likely to be milder than expected," the article stated. "In Vancouver, the city that was the frothiest in 2011 and the hardest hit by last year's correction, prices did decline. But they're already on the mend." Continue reading
Who says Canadians can't save?
According to an article from The Globe and Mail, the Canadian personal savings rate is twice that of our neighbors to the south, and nearly six times higher than it was 10 years ago.
"All the talk about the Canadian household being tapped out or out of shape is a bit overdone," Doug Porter, chief economist at BMO Nesbitt Burns, told the news source.
Data from Statistics Canada shows that the savings rate during the first quarter of 2013 was 5.5 percent, up from 5.4 percent during the final three months of 2012. That may not seem like a large improvement, but it's important to keep in mind that the original forecast for the savings rate during the fourth quarter of last year was 3.8 percent, according to Statscan. Continue reading
Among all the ups and downs in Canada's housing market over the last few months, one thing has remained certain: Mortgage rates are low. This has spurred homebuyers and homeowners alike to obtain new mortgages or refinance their current ones, offsetting the cooldown in sales due to Finance Minister Jim Flaherty's restrictions on government-backed mortgages.
However, some industry observers are exploring the possibility that rates may be rising sooner rather than later.
"If you're house hunting or thinking of refinancing, and you don't have a mortgage rate hold, consider getting one," writes Rob McLister for Canadian Mortgage Trends. "Canada's 5-year bond yield just pierced a three-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.)"