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Mortgage Rates Falling as Economic Turmoil Persists

Lenders are continuing to slash mortgage rates by the day following a massive bond rally on Monday that drove Canadian yields to record lows.

Bond yields, which lead fixed mortgage rates, hit a low of 0.27% for the 5-year note and 0.23% for the 10-year. By comparison, they started the month at 1.07% and 1.12%, respectively.

As a result, the lowest 5-year fixed rate for an insured mortgage is now 2.03%, while uninsured mortgage rates (those with more than 20% down payment) are as low as 2.39% nationally, according to rate comparison site

The big banks have been dropping their special rates as well. On Tuesday, RBC slashed six of its fixed rates by an average of 35 bps.

Variable rate mortgages also took a dive last week following the Bank of Canada’s 50-bps rate cut. RBC again led the way the following day by dropping its prime rate by the full 50 bps, and was soon followed by the other Big 5 banks. That caused Canada’s prime rate to drop from 3.95% to 3.45%, instantly dropping variable rates and Home Equity Lines of Credit by 0.50 percentage points.

“Variable-rate mortgage borrowers saw their first rate drop in almost five years, and at 0.50%, it was a big one,” noted Dave Larock of Integrated Mortgage Planners. “Variable mortgage rates have been priced at a premium for some time now, but the BoC’s big cut actually leaves them a little lower than their fixed-rate equivalents. If fixed rates hold relatively steady and the BoC cuts again at its next meeting, variable rates will once again become an increasing viable option.”

And if BMO’s latest forecast is correct, variable rates could soon take another large step down. Economists at the bank expect the BoC to deliver a 75-bps cut at its next meeting on April 15, and another 25 basis points in June. That would bring the Bank of Canada’s overnight rate to just 0.25%, its record low last reached during the financial crisis in 2009.

“Given the expectations for weaker growth, we anticipate that the Bank of Canada will be cutting rates 100 basis points over the next two meetings,” BMO’s economics department wrote in a research note.

Toronto Home Sales Up 46%: TRREB

toronto house prices risingThe latest monthly housing report from the Toronto Regional Real Estate Board confirms expectations that this year’s spring homebuying season would shape up to be a “frothy” one.

Sales in the city were up sharply by 45.6% compared to February 2019, when home sales reached a 10-year low. They’re still shy of 2017’s record sales level, however.

The average selling price for all home types in the Greater Toronto Area was up 16.7% year-over-year to $910,290.

“Sales growth well in excess of listings growth is once again the norm,” said TRREB CEO John DiMichele. “This is because the temporary effects of the 2017 Ontario Fair Housing Plan and the OSFI mortgage stress test have largely worn off. However, while these policies were running their course, the well-publicized housing supply problem in the GTA continued unabated.”

Consumer Insolvencies Up 8.7% in January

The rate of Canadians filing for insolvency in January 2020 rose 8.7% compared to the previous month, according to recent data from the Office of the Superintendent of Bankruptcy.

That figure includes both bankruptcies and consumer proposals. Broken down, bankruptcies were down 1.7% while proposals jumped 15.5%.

can you purchase a house after a consumer proposalThis follows a record year for insolvencies in 2019, which saw a total of 137,178–the second highest number of annual filings in Canada ever, and a 9.5% increase from the previous year.

The problem may not necessarily be Canadians taking on more debt, but rather using the credit facilities they already have access to, according to some.

“What I see is a significant number of people who incorporate tapping into available credit as a means to supplement income,” Ross Taylor, a mortgage agent with Concierge Mortgage Group and a licensed insolvency counsellor, told CMT. “Unfortunately, this beast needs to be fed, as even minimum monthly payments barely make a dent in the balance owing. As time goes by the amount owed becomes overwhelming and there is no logic to continuing.”

Ross adds that the data will only become more bleak in the coming months.

“Remember that the stats cited in this report are from a period of economic goodness,” he said. “We seem on a collision course with a recession, and when that comes, we will see a further spike in personal insolvencies.”