Wednesday, June 13, 2007

Mortgage rates rise again

Update: Renewal Gap Chart

Higher mortgage rates across the board means that anyone renewing a mortgage right now is looking at a potentially sizeable increase in their interest rate.
Canadian Press
June 13, 2007 at 2:08 PM EDT
TORONTO — Residential mortgage rates are moving upward again as bond-market yields bounce around five-year highs.

The Royal Bank of Canada said Wednesday it is raising posted rates by between 0.05 and 0.20 percentage point, depending on the term. Effective Thursday, the five-year closed rate goes up 0.15 point to 7.44 per cent.

It's the fourth rise in less a month during a series of increases taking the five-year rate up by 0.85 point, from 6.59 per cent on May 17. The other chartered banks have in recent weeks followed the lead of RBC.

The upward trend reflects a slump in prices and rise in yields in the international bond market where banks get their funds for mortgage lending, as central banks in most major economies have either raised interest rates or indicated they expect to, in order to contain inflation.


mohican said...

I will post an updated renewal gap chart later.

M- said...

Note that even places like United Mortgage are showing markedly-higher interest rates these days.

Just a month ago, I remember them showing 5-yr interest rates at about 5.10%, now they're showing 5.69% for their discounted rates. Quite a difference!

Here's some food for thought: realtors these days tell their clients that we'll "never" see interest rates in the high-teens again, like what happened almost 30 years ago. I believe that we wont' see such interest rates again-- but prices are far higher, and affordability is being stretched at current prices.

Back around the end of the 70's, or the early 80's when interest rates spiked up something fierce, my father=-in-law's floating rate mortgage went from 11% to 18%. A lot of people he knew lost their homes, and he barely made it through that period with his home.

With interest rates just recently being around 5.00%, if rates go to 8%, the impact of rising interest payments will be just as severe as going from 11% to 18%.

How likely is it that we'll see 8% interest rates? Somebody stretching themselves to the limit at current prices may be devastated when their mortgage comes due for renewal...

el bbub said...

Better sooner then later,

Thanks RBC
Thanks mohican.


Sam said...


very similar situation here in the UK. The 1991 crash involved rates in the teens, but if you adjust for affordability, we only need 7.5% or 8% rates to cause the same crisis. The UK markets have all but priced in 6% by the end of the year, and Mervyn King, the head of the MPC (our "Fed") has been making unprecedentedly hawkish comments about the housing market and consumer debt. So I am hoping (I am out of the market and have base-rate-linked savings) for 7% next year!!

casual observer said...

I have suggested in the past that inflation rates are higher than official numbers indicate. Might the bond market finally be taking notice?

mightymouse said...

Anyone know the stats on how many people go for a three year close as opposed to a five year?

Is there a way to see how many mortgages were taken out in a year?

mohican said...

check this page out mightymouse - all the details you need are in the April 2007 report -

Jim said...

sam: Well said. 8% on the heels of the last 5 years super low rates will feel like 18% felt in 1982. I was there.

Jim said...

one more thing. When I sold my house in Calgary in 1987 to buy some stuff in Kelowna-it commanded a slight premium becuase it had a portable locked in rate whcih was lower than prevailing rates. I saved the interest penalty and the buyer got a lower rate.
Word to the wise . If you are buying now lock in for at least 5 years or more. If you must sell, you can offer your portable mortgage to the buyer to make you house more attractive. Assuming rates are going up.

mightymouse said...

“Overall, about one-tenth of the consumers expect to choose a term of less than one
year. Long terms (5 or more years) are no more popular, as only 11% expect to choose
a term of 5 years or longer. Most consumers prefer mid-length terms ranging from 2
years to less than 5 years.
People who will renew during the next two years are much more likely to select a short
term for their next mortgages, including 9% who would select a term of less than 6
months and 12% who would select a term of 6 to 12 months. Long term mortgages are
even less popular with this group, as just 6% would choose a mortgage with a term of 5
years or longer.”

I was expecting to see that more Canadians would have chosen a five year term. I guess we will see the old ‘low rates’ bled out of the system in the next few years.

by the way you have to add .htm to the end of the link to view.

Jason said...

When people talk about the excessive rate increase of 81/82 they are talking about a 60% increase in rates. As of now I think we are in the 40% range. I have talked to seemingly intelligent people that have difficulty understanding that going from 5 to 8 is the same as going from 11 to 18 at renewal time.

jesse said...

"When people talk about the excessive rate increase of 81/82 they are talking about a 60% increase in rates. As of now I think we are in the 40% range."

Interesting. Rising rates affect affordability and some demand but lending standards should also play a part. I wonder how many borrowers will take out whatever the bank will lend them.

patriotz said...

Rising rates affect affordability and some demand but lending standards should also play a part.

Big, big difference between the two. Rates are fundamentals and do affect prices long term. Lending standards are not - they do not affect affordability and just shuffle demand around timewise. Loose lending standards cannot support higher prices long term, as we are finding out in spades south of the border. Nor do tighter lending standards result in lower prices long term, although they can certainly bring the market back to the long term trend more quickly.