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2012 Mortgage Market Performance

mortgage-interest-ratesMost Canadian interest rates ended 2012 not far from where they began. That’s due, in part, to no rate changes by the Bank of Canada.

Likewise, investors found little economic justification to move long-term bond yields in 2012. (Bond yields influence fixed mortgage rates.) The result was that prime rate and 5-year mortgage rates essentially stayed put.

Here’s a look at how various other rates and publicly traded mortgage companies fared in 2012:

The rate that underlies all others in Canada is the overnight target. It has now been stuck at 1.00% for a record 847 straight days.

Further up the yield curve we have the 5-year government bond. In 2012, it posted its smallest annual yield change in five years.

Indicator Year End 2012
BoC Overnight Rate 1.00% No Chg
Prime Rate 3.00% No Chg
Discount Variable Rates1 2.65% -15 bps
5yr Posted Rate 5.24% -5 bps
5yr Discounted Rate1 2.99% -20 bps
5yr Gov’t Bond Yield 1.38% +11 bps
5yr GIC2 2.05% +20 bps
30-day Banker’s Accept. 1.15% +3 bps
90-day Banker’s Accept. 1.19% +3 bps

Below are some common mortgage spreads. Additional discounting led to tighter margins in 2012 and we expect more of the same in 2013 (but possibly to a lesser degree).

Spread Y/E
5yr Posted – 5yr Bond 386 -16
5yr Discounted – 5yr Bond1 161 -31
5yr Discounted – 5yr GIC2 94 -40
Discount Variable – 3Mo BA 146 -18
Prime – 1 Month BA 185 -3
Prime – 3 Month BA 181 -3

And finally, here’s a look at the performance of companies that make the majority of their revenue in the mortgage business.

Company Share
Counsel Corp $0.96 +47%
Equitable Group $32.65 +30% $0.56
Firm Capital $13.61 +3% $0.94
First National $18.80 +7% $1.30
Genworth MI $22.59 +10% $1.28
Home Capital $59.07 +20% $1.04
MCAN Mtg Corp $14.01 +4% $1.12
Timbercreek MIC $10.16 -3% $0.76
Xceed Mortgage $1.55 +58%

As this table suggests, there weren’t many losers in the lending business this year. Let’s see what happens in 2013 with a possibly weaker housing market, escalating mortgage competition and the modest risk of a rate hike.

1 Discounted mortgage rates reflect estimates taken from lender rate sheets as of December 30, 2011 and December 31, 2012.

2 RBC’s 5-year non-redeemable GIC is used as a proxy for GIC rates. In reality, some lenders have to pay notably more on their GICs than RBC.

Rob McLister, CMT