Five-year rates of 2.99% or less were the talk of the market in 2013. That is, until the U.S. economy accelerated, taper threats spooked the bond market and yields soared one point in four months.
And climbing fixed rates weren’t the only thing making mortgages less accessible in 2013. The Finance Department decided to tighten its collar around housing even further. The goal: to brake housing’s momentum and reduce Ottawa’s exposure to mortgage risk.
Those and other headwinds marked an eventful 2013. Here’s a rundown of the year’s top stories, rate movements and mortgage-related stocks.
TOP STORIES OF 2013
- Flaherty Talks Banks into Higher Rates
- Ottawa to Limit Bulk Insurance to CMHC-sponsored Securitization
- More Constraints on Securitization & Bulk Insurance
- CMHC Rations MBS Issuance
- The BoC Abandons its Rate Hike Bias
- CMHC Announces New Risk Fee
THE YEAR’S TOP DEALS & LENDER MOVES
- MCAN Buys Xceed
- CMLS Enters the Residential Mortgage Market
- DLC Buys Mortgage Centre
- ING Direct Exits Broker Channel
- Canadian First Financial Buys MonCana Bank
- Paradigm Quest Gets New Owners
- Mortgage Architects Buys Argentum
- Kanetix Acquires RateSupermarket.ca
RATE MOVEMENT
The foundation for most Canadian rates is the overnight target rate. It ended the year where it began, at 1.00%. The Bank of Canada hasn’t changed it for 1,213 straight days.
The most important benchmark for fixed-rate pricing is the 5-year government bond, and in 2013 we were reminded of how fast 5-year yields can climb. Its one-point move from May to August was enough to motivate thousands of Canadians to rush into the housing market, to avoid potentially higher rates later.
| Indicator | Year End | 2013 Chg |
| BoC Overnight Rate | 1.00% | No Chg |
| Prime Rate | 3.00% | No Chg |
| Discount Variable Rates1 | 2.50% | -15 bps |
| 5yr Posted Rate | 5.34% | +10 bps |
| 5yr Discounted Rate1 | 3.39% | +40 bps |
| 5yr Gov’t Bond Yield | 1.96% | +58 bps |
| 5yr GIC2 | 2.08% | +3 bps |
| 30-day Bankers’ Acceptances | 1.23% | +8 bps |
| 90-day Bankers’ Acceptances | 1.27% | +8 bps |
MORTGAGE SPREADS
Below are some notable mortgage spreads. The one to watch in 2013 was the fixed-variable spread. It widened more than half a point as fixed rates climbed and variable-rate discounts improved.
| Spreads (Year-end) | 2013 (bps) |
2012 (bps) |
2013 Chg |
| 5yr Posted – 5yr Bond | 338 | 386 | -48 |
| 5yr Discounted – 5yr Bond1 | 153 | 161 | -8 |
| 5yr Discounted – 5yr GIC2 | 142 | 94 | +48 |
| Discount Variable – 3Mo BA | 122 | 146 | -24 |
| Prime – 1 Month BA | 177 | 185 | -8 |
| Prime – 3 Month BA | 181 | 181 | 0 |
| Fixed – Variable | 89 | 34 | +54 |
STOCK MOVES
And finally, here’s a look at the performance of public companies that make the majority of their revenue in the mortgage business.
| Company | Share Price |
2013 %Chg |
Annual Dividend |
| Atrium MIC | $10.84 | -1% | $0.80 |
| Counsel Corp | $2.40 | +150% | — |
| Eclipse Resi. MIC | $7.81 | -19% | $0.60 |
| Equitable Group | $50.76 | +55% | $0.64 |
| Firm Capital | $12.20 | -10% | $0.94 |
| First National | $22.60 | +20% | $1.40 |
| First National MIF | $9.20 | -8% | $0.60 |
| Genworth MI | $36.63 | +62% | $1.40 |
| Home Capital | $80.93 | +37% | $1.12 |
| MCAN Mtg Corp | $13.00 | -7% | $1.12 |
| ROI Cdn High Inc. | $8.15 | -14% | $0.60 |
| ROI Cdn Mtg Inc. | $7.90 | -17% | $0.50 |
| Timbercreek MIC | $9.17 | -10% | $0.80 |
| Trez Capital MIC | $8.74 | -10% | $0.70 |
| Trez Capital Sen MIC | $8.78 | -11% | $0.50 |
Publicly traded mortgage investment corporations (MICs) took it on the chin this year. Their prices often move inversely to bond yields, and last year was no exception.
The all-star stocks included Counsel Corp. Genworth Canada, Equitable Group and Home Capital—all of which crushed the TSX’s 9.55% gain in 2013.
1 Discounted mortgage rates reflect estimates taken from the most competitive lenders’ rate sheets, as of December 31.
2 RBC’s 5-year non-redeemable GIC with monthly interest 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
