Mortgage Bytes

General Mortgage News

  • mortgage-renewal ING says only 15% of Canadians surveyed in 2008 seriously considered switching their mortgage at renewal time.  If this is anywhere near accurate, how sad is that?  Most of the remaining 85% are likely paying way too much interest by sticking with their current lender.
  • RBC is the last of Canada’s big 6 banks to offer a 40-year amortization on high-ratio mortgages.  There are still several non-bank lenders offering 40-year ams, however.
  • 40-year amortizations will be history for most borrowers with less than 20% down.  But some people are unaware that they’ll still be available on conventional mortgages (mortgages with 80% loan-to-value or less).
  • What will borrowers do without 100% financing?  CAAMP president Jim Murphy says, “I think we will see banks, non-banks and credit unions come up with different products to try to meet that 5% [down payment].”  Cash bank mortgages will likely be one option banks will push.  We’ll do a story on these soon.
  • Insured home equity lines of credit (HELOCS) will require 20% down come October 15.  That’s too bad.  These products have been really popular and it’ll be a shame to shut out folks with only 10-15% down.
  • Merix Financial, a popular non-bank lender, says, “the vast majority of people who take 40 year amortizations actually qualify for 25 year amortizations but choose the former and accelerate their payments, which reduce their amortization to 32 years. Registering their mortgage with a 40-year amortization helps protect them in the future should they need to decrease their payment.”  Merix feels the impact of the new insurability rules will be limited to those who needed 40-year ams and $0-down terms to qualify.
  • Going from a $0-down 40-year mortgage to a 5% down 35-year mortgage saves you 0.55% in default insurance premiums.  That’s about $1727 on the average ($314,000) Canadian house–not including the interest savings on financed premiums.
  • The Canadian government is introducing new disclosure rules for mortgage default insurance, and measures to ensure borrowers don’t get charged more than necessary for it.
  • An Export Development Canada report suggests a glut of home building could lead to a Canadian mortgage crisis.  (The Province story)

Commentary

  • qualifying-for-a-mortgage “Qualifying for a mortgage and being able to afford the cost of home ownership are two different animals.” — Money Matters Henry Chong
  • Are other brokers noticing that appraisals have been coming in lower than expected more often?  Is this becoming a self-fulfilling prophesy with the headlines of declining home prices?  Will the insurers stop relying on automated valuation systems and start sending out live appraisers?  If so, how bad would this hurt mortgage volumes?
  • “Lowering your amortization from 40 years will save you a serious amount on interest over the years. Just going from 40 years down to 35 on a $250,000 mortgage could save you close to $50,000, assuming a 5-per-cent interest rate…” — Rob Carrick
  • “…the value of our houses will rise maybe 1% to 2% per year after inflation. Forget the double-digit price increases we have had over the past decade.” — National Post

Economy and Bond Markets

  • Bond yields had their biggest weekly drop since February thanks to surprisingly weak GDP data.
  • The Bank of Canada’s Mark Carney says Canada’s credit markets are back to a “new normal.” (CEP)
  • Jobs drive the housing market so Canada’s rising unemployment may be something to watch. (Chart by CIBC World Markets)

Unemployment

  • Last month’s jump in inflation, the biggest since Sept. 2005, may be short-lived if oil prices keep falling. However, CIBC’s Avery Shenfeld warns: “It’s much too early to cheer a decline in oil prices that’s only lasted a week or two.” (Montreal Gazette)
  • The Bank of Canada predicts our economy will expand 1%this year, the slowest pace since 1992.

Interest Rates and Forecasts

  • mortgage-rates Boy how things change.  In June the market was worried about rate hikes.  Now, interest rate futures suggest a 58-70% chance the Bank of Canada may actually lower rates–as early as September. (CEP story)
  • “The bond market can smell a potential rate cut.” — BMO economist Michael Gregory (Bloomberg)
  • Not everyone is convinced.  Desjardins economist Mathieu D’Anjou says, “We would need some major bad economic news for the Bank of Canada to cut in September.”
  • Yields on bankers’ acceptance futures have fallen in the past few days. Since BAs are linked to variable mortgage rates, perhaps this is a precursor to bigger variable-rate discounts.
  • CIBC expects a 2% rate hike by th
    e U.S. Fed next year and the potential for 6% inflation!  Ouch.

  • “At some point—and it’s getting closer—we’ll see a
    situation in which going variable may no longer be the
    best approach. By the end of the year, it’s possible that we’ll see a significant correction in the bond market as the economy improves and inflation rises. If this happens, spreads will go back to normal and the 5 year rate will actually rise.  It’s very difficult to predict.
    But clients need to understand this risk.” — CIBC economist, Benjamin Tal

Housing markets

  • rising-home-sales Ed Jensen, of Calgary’s Real Estate Board, suggests tighter mortgage rules will boost summer real estate sales in the city.
  • Move Smartly says Canada’s housing prices may be undervalued based on IMF figures.  Just as interesting is this IMF comparison that shows how Canada’s mortgage market compares to other countries. Move Smartly explains the table on its blog.
  • “We’re seeing as many as five, six, and even eight offers on a house the day it comes out on the market. It’s amazing. We’ve never seen that before.” — Realtor Ron Young on the housing market in St. John, NB

(Incidentally, we’ve been seeing more clients buy rental properties in St. Johns.  Clients we talk to say they’ve been cash flowing pretty well there.  Who knows how long that will last.)

  • Toronto home prices are expected to rise 3% this year says Royal LePage.
  • Calgary home prices are down almost 10% versus last year thanks to excess supply.  There are 50% more homes on the market today versus last year, and 77% more condos.  Month-over-month, however, inventory levels are falling.  Realtors hope that will support prices, but it’s tough to predict when supply will improve.  (Calgary Sun)
  • Vancouver home prices look a lot different on a chart!
  • “There is no bubble in the Canadian housing sector.” — Finance Minister Jim Flaherty

Miscellaneous

  • home-mortgage-rates 68% of Canadians live in homes they own.  42% of them don’t have a mortgage, according to Statistics Canada.  CP
  • Here’s an interview with CAAMP’s Jim Murphy comparing the Canadian and U.S. mortgage markets.
  • Abode Mortgage’s CEO, Mike Linehan, is biking from Calgary to Victoria (1538 kilometers) in August to raise $50,000.00 for the Canadian Cancer Society.  Mortgage Alliance just completed their own cross-country motorcycle trek for breast cancer. Both causes are still accepting donations.
  • In the first quarter, 1.6% of mortgages issued by Canada’s top 3 sub-prime lenders were in arrears by 90 days or more.  In fall 2006 it was 1%.  In the U.S. subprime arrears are about 16% cent.  (Xceed has stats that show the numbers to be 2.22% and 16.42% for Canadian and U.S. arrears respectively.  See pages 11 and 12 for graphs that show how different Canada and the U.S. have been.)
  • Without the U.S bailout of Fannie Mae and Freddie Mac, Canada might have suffered.
  1. Wait, why would the BoC cut rates with inflation above their target band? Isn’t their sole responsibility to control inflation?
    Also, Hooray for Saint John (NB) and St. Johns (NL). Both have had a pretty rough go of it for the last while and are now catching up to the rest of Canada.
    Hopefully all the call center jobs in Saint John can keep people buying houses while the construction workers all come in for 5-8 years. For some reason I see the market falling apart in about 6 years when they all leave for their next projects . . . hopefully I’ll have some cash ready for some bargains.

  2. Also, I don’t understand the “Jobs drive the housing market so Canada’s rising unemployment may be something to watch.”
    If you look at the chart we’ve been adding jobs and more people are participating because other than manufacturing in Ontario we’re doing pretty well. Also, I really hate when they describe the unemployed people as the ‘jobless rate’ . . . since Unemployed are people who are looking for work but can’t find any and ‘Jobless’ is someone without a job.
    That makes the numbers:
    Percent employed: 63.7%
       – People who are working
    Percent Jobless: 36.3%
       – People not working
    Percent Unemployed: 6.2%
       – Workers not working

  3. Hi Traciatim,
    Thanks as always for the comments.
    I think the implication is the inflation will come down with the weak economic growth and fall in commodity prices. But as you know, these factors can change on a dime. And other economists are predicting the exact opposite.
    Regarding employment, Canada lost 51,000 full-time jobs in the second quarter. So far, construction and energy employment have been making up the slack, but who knows how long those will keep up their pace.

  4. The 15% number scared me, only 15% “seriously considered”, not even actually switched? wow… imagine the savings if one just spends couple hours shopping around. No wonder Canadian banks/lenders are enjoying the closed markets :)
    I always do my due diligence, I want the best deal for me, and if a lender cannot or not willing to, too bad. Loyalty is sometimes overrated. But gotta say I’m 100% happy with our TD loyalty thus far

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