If you forgot that interest rates are unpredictable, last week’s bond action was a fresh reminder.
The mid-March spike in bond yields has turned into another head fake. (Government bond yields generally lead fixed mortgage rates in the short term.)
On Thursday, the 5-year government yield sank to 1.388%, a fresh 3-month low. (Source: Bloomberg)
It is the third time in as many Marchs that the 5-year yield has made a new multi-month high, only to completely reverse less than 60 day later.
(Click chart to enlarge)
Yields are now back below levels that preceded the last round of 5-year 2.99% mortgage specials.
Despite banks’ drop in funding costs, however, many question whether they’ll price as aggressively this time around. Finance Minister Flaherty has strongly “discouraged” them from combative rate “sales.” (See: Flaherty on Rates)
So far, only a few lenders have lowered rates more than five basis points in the last week or so, despite yields diving 30 bps from April highs.
There are, mind you, some unpublished 5-year deals in the low 3.00% range through brokers. But they are available only on insured mortgages and/or those having restrictive terms.
If you need a pre-approval, a conventional mortgage, or a long-term (i.e., 90-120 day) rate hold, you’re generally looking at 3.29% +/- on a 5-year fixed.
If yields break below 1.30%, all bets are off. We’ll see competition heat up, if not from banks, then from non-bank lenders who don’t rely on bank funding and aren’t under federal regulation (like credit unions).
Rob McLister, CMT
Last modified: April 29, 2014
Flaherty should be ashamed of himself. Now the banks will have an excuse (hand being forced) to collude and continue to earn unreasonable spreads vs. the bond yields instead of competitively pricing the product and making it available to credit-worthy underwritten risks.
Flaherty “Discourages” rate sales?? WTF!
Does Flaherty also “discourage” discount real estate commissions?
I have never missed a payment in my life. Why should my family pay a higher mortgage rate for nothing???
It is unbelievable that politicians out there are working against us like this. I work #%*$&@ hard for my money. This truly sickens me.
If you were on a “Prime minus .9) your song would have been different I guess :)
Yeah, you work hard for your money and without someone rational at the helm trying to temper your ability to blow your brains out on leverage and end up like our American cousins, you’ll probably be in deep doo doo in a couple of years (after the Canadian RE market has taken its dive and left millions under water.
It sometimes seems that our mortgage system is set up more to restrain “bad” borrowers than it is to reward “good” borrowers.
Certainly – the ‘bad’ borrowers are the ones that can cause the most damage. Not the ‘good’ ones.
As I see around, most people when their mortgage mature, they usually change lender. They paid about 50% interest during that period and that lender was making on the borrower about 10% on the lended money – making highest possible profit by doing nothing. People change lender and they pay again the same interest to him or to other one. And all they are so poor and greedy -crying that interest dropping one or two points?! They are crying they put in their pockets not 100 millions, but only 99 !? Poor lenders!
Everyone (including Mr Flaherty) needs to read this book dealing with government meddling in the housing market:
http://www.amazon.com/Housing-Boom-Bust-Thomas-Sowell/dp/B003NHR6WC/ref=sr_1_8?s=books&ie=UTF8&qid=1337699631&sr=1-8
Sorry. Do you know me?
I don’t believe you do, so don’t judge my ability to live within my means.
Like most people, I don’t need some politician or anonymous know-it-all to tell me how to spend my money. So step off, Jake.
Good read.
Politicians act 49% in the public interest and 51% to get reelected. Adjust the percentages as you see fit but remember that politics are always at play.
Banks are the ultimate reason Bad borrowers to take money in the first place.
So think twice who’s guilty. :)
Your argument is same as that was thrown in US where Alt-A buyers got into teaser-rate mortgages and said,”the banks gave this loan to me”. As if, they had no part in signing those loan agreements and buying multiple properties to speculate.
such a valid point !!!
also pissed in surrey,
By your analogy, it’s the beer stores and bars fault that people drink and drive or Mcdonalds fault that people are obese. Grow up!
REALLY pissed in Calgary