Mortgage Rate Update January 13 2012

A key element to watch are mortgage rates to determine affordability, these days with inflation low it looks like mortgage rates are heading down again, perhaps with a slightly larger spread to risk-free than in the past. Here are the 1, 3, and 5 year conventional mortgage rates as reported by the Bank of Canada:

The 5 year rate, as reported by BMO today, is now below 3% for the first time. The issue facing the Bank of Canada and the Canadian economy is what happens if credit growth increases further. Canada's household debt-income ratio has been moderating of late but there are significant risks if credit begins to increase again with historically low mortgage rates.

As mentioned by the Bank of Canada in its most recent financial system review:

Despite the rebound in the growth rate of mortgage credit in October, the Bank expects a gradual moderation in the underlying trend in household debt accumulation over the medium term as activity in the housing market slows and as lower commodity prices and heightened volatility in financial markets weigh on the wealth and confidence of Canadian households. Since the growth of personal disposable income is also projected to be moderate, the gap between credit and income growth is expected to narrow but remain positive, implying that further increases in the aggregate household debt-to-income ratio are likely.

Ultimately a decision needs to be made: is it in any way acceptable that debt-income ratios continue to increase, or is it necessary for the government to step in and ensure this ratio does not grow, and even starts to reverse? These are difficult decisions, it could mean that Canada's growth rate would need to be reduced to deleverage debt to more sustainable levels in the interim and could temporarily tip the economy into recession. 

In order to facilitate deleveraging in a low interest rate environment there are several things the government can do, including reducing loan amortizations to 25 years from the current 30, and even as far as issuing quotas on available loans. No matter what methods that are announced to maintain or reduce household credit, if any, and there are signs that debt is increasing faster than incomes, I am speculating the government will employ mechanisms that ensure debt levels are contained. 

In the past when the government has announced tightening of credit conditions through its mortgage insurance arm (CMHC), it has done so within the first 5-6 weeks of the calendar year. Further curbs through mortgage insurance guidelines are not a guarantee that households will curtail their lending; more deterministic methods of capping loans may be required. We shall see!

Vancouver Housing-Related Statistics

This post is intended to summarise data sources that can be used to analyse the metropolitan Vancouver housing market. Many of these data sources can be used for other housing markets too. Unfortunately there is no one good source of data, however the Sauder School of Business has summarised much of the key historical data.

House Prices

Real Estate Board of Greater Vancouver House Price Index
jesse's REBGV tracking spreadsheet
Fraser Vally Real Estate Board House Price Index
Teranet National Bank House Price Index
Sauder data

Inventory and Sales

REBGV Press Releases
FVREB Press Releases and statistics
AgentWill's statistics (tracks a sub-area of the Vancouver CMA)
jesse's REBGV tracking spreadsheet

Rental

CMHC reports "Rental Market Reports — Major Centres"
Sauder data

Employment

Statscan labour force survey
BC Stats labour and income
Sauder data

Wages

GVRD city median incomes
City of Vancouver income map (2000)
City of Vancouver local area statistics
BC Stats taxfiler income tables
BC Stats labour and income

Population

BC Stats Migration

BC Stats Population Highlights
BC Stats Population Estimates
GVRD key facts
City of Vancouver statistics

Metro Vancouver housing data book

Housing and Construction

CMHC reports "Monthly Housing Statistics"
GVRD data
City of Vancouver statistics (from Census data)

Immigration

Citizenship and Immigration Canada statistics

Interest and Mortgage Rates

Sauder data
Bank of Canada data
Government of Canada 5 year bond quote

Economic Accounts
BC Stats


Economic Reports

BC Stats economic statistics
RBC Housing Trends and Affordability
TD economic reports

General

CMHC statistics
GVRD key facts
GVRD census bulletins
City of Vancouver statistics
Sauder Centre for Urban Economics and Real Estate data
BC Stats
Statistics Canada

RBC, Scotiabank lift benchmark mortgage rate to 6.1%

BY JOHN GREENWOOD AND ERIC LAM, CALGARY HERALD, APRIL 14, 2010, 8:04 AM

Many homeowners face increased costs as interest rates have begun what is expected to be a series of hikes.Photograph by: Archive, Calgary HeraldRoyal Bank of Canada and Bank of Nova Scotia have hiked residential mortgage rates for the second time in as many months, likely sparking another round of increases from other banks at the onset of what is expected to be one of the busiest homebuying seasons in recent years.

As of today, RBC and Scotiabank's five-year closed fixed-rate home loans will carry an interest rate of 6.1 per cent, the highest since November. Those same mortgage products carried a rate of 5.25 per cent a little more than two weeks ago.The 25-basis-point hike, announced by RBC and Scotiabank on Tuesday, comes fast on the heels of a 65-basis-point hike by the big banks late last month. It also comes as expectations rise the Bank of Canada will raise its key interest rate earlier than previously thought.Eric Lascelles, chief economics and rates strategist at Toronto-Dominion Bank's TD Securities unit, said investors are now factoring in a 50 per cent probability that central bank governor Mark Carney will raise interest rates on June 1. Carney has pledged to keep the central bank's benchmark rate unchanged through June, "conditional" on the outlook for inflation.The first round of mortgage rate hikes kicked off on March 29, as RBC, TD and Laurentian Bank announced the cost of their mortgage offerings would rise between 40 and 60 basis points.

RBC was the first to announce on that day as well.A day later, Scotiabank, Canadian Imperial Bank of Commerce and National Bank of Canada did the same.The banks say they are raising their rates because their own cost of funding is going up as investors demand higher yields.Canada's real estate market has been booming since the economy emerged from recession last year as consumers take advantage of some of the most favourable mortgage rates in decades.

Homebuyers are facing hurdles on other fronts as well, with more stringent mortgage lending rules set to take effect on April 19 and the looming introduction of the harmonized sales tax in Ontario and British Columbia.Many homebuyers are expected to try to rush to make their purchases ahead of the changes to keep their costs down.

"Mortgages are tied to the bank's funding costs, which change from day to day," said Gillian McArdle, a spokeswoman for RBC."Our long-term funding costs have gone up considerably since mid-December and it is now necessary for us to increase . . . fixed-rate mortgages."

© Copyright (c) The Calgary Herald

CMHC to buy mortgages from banks.

From the Department of Finance.

The Honourable Jim Flaherty, Minister of Finance, today announced the Government will take steps to maintain the availability of longer-term credit in Canada by purchasing up to $25 billion in insured mortgage pools through the Canada Mortgage and Housing Corporation (CMHC). This action will help Canadian financial institutions raise longer-term funds and make them available to consumers, homebuyers and businesses in Canada.

This relief to Canadian homebuyers and consumers comes at no fiscal cost to the taxpayer. Indeed, these securities will earn a rate of return for the Government that is well above the Government’s own cost of borrowing. Moreover, as insured mortgage pools in Canada already carry Government backing, there is no additional risk to the taxpayer.

"It is important to underline that Canada’s banks and other financial institutions are sound, well capitalized and less leveraged than their international peers," said Minister Flaherty. "Our mortgage system is sound. Canadian households have smaller mortgages relative both to the value of their homes and to their disposable incomes than in the U.S."

"However, it is becoming increasingly clear that the continuing disruption of global credit markets, which has been severe and protracted, is making it difficult for our financial institutions to raise long-term funding. This is beginning to affect the availability of mortgage loans and other types of credit in Canada.

"The Government has therefore decided to act to address the current scarcity of private sector lending to Canadian mortgage markets and lending markets overall. This is going to make loans and mortgages more available and more affordable for ordinary Canadians and businesses."

This action builds on recent steps taken by the Bank of Canada to provide increased volumes of term liquidity across a broader range of collateral. The Bank increased to $20 billion the volume of liquidity that it will provide banks and has widened the range of collateral it will accept, using the expanded statutory authorities provided in the 2008 budget legislation. The Bank also cut its overnight target rate by ½ percentage point to 2½ per cent in a coordinated reduction with five other major central banks.

The actions announced today will also supplement CMHC’s regular Canada Mortgage Bond (CMB) Program, which supports mortgage lending at affordable rates by Canadian banks and other lenders. The CMB Program has recently been expanded, including a record issue in June of this year.

"The mortgages involved in today’s initiative are already guaranteed through government-backed mortgage insurance and are high-quality assets," said Minister Flaherty. "This initiative is an efficient, cost-effective and safe way to support lending in Canada by providing secure, reliable funding at an unprecedented time of global market turmoil."

The first operation is planned for October 16, with a purchase amount of up to $5 billion. The Government will announce a schedule of future purchase dates to take place over the coming weeks. CMHC will shortly announce further details of the competitive auction process that will be used to purchase the insured mortgage pools.

US Financials Falling Like Dominoes

Sept. 14 (Bloomberg) -- Lehman Brothers Holdings Inc. prepared to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm and Wall Street prepared for its possible liquidation.

Lehman and its lawyers are getting ready to file the documents for bankruptcy protection tonight, said a person with direct knowledge of the firm's plans. A final decision hasn't been made, though none of the other options being considered appeared likely, the person said, declining to be identified because the discussions haven't been made public.

Sept. 14 (Bloomberg) -- Bank of America Corp. agreed to buy Merrill Lynch & Co. for about $44 billion, a person with knowledge of the deal said, after shares of the third-biggest U.S. securities firm fell by more than 35 percent last week and smaller rival Lehman Brothers Holdings Inc. neared bankruptcy.

Bank of America and Merrill reached a deal in principle, according to the person, who declined to be identified because the deliberations were private. A final merger agreement hasn't been signed yet, the person said. The boards of Merrill and Bank of America approved the transaction this evening, the Wall Street Journal reported, citing unidentified people familiar with the matter.

Sept. 14 (Bloomberg) -- American International Group Inc., the insurer struggling to avoid credit downgrades, is seeking a $40 billion bridge loan from the Federal Reserve as it tries to sell assets, the New York Times reported.

The insurer has turned down a private-equity investment because it would have meant handing over control of the company, the Wall Street Journal said on its Web site, citing unnamed people. AIG may get access to the Fed's borrowing window in an ``extreme liquidity scare,'' Citigroup Inc. analyst Joshua Shanker said in a Sept. 12 research note.

The System is Down

Volcker Says Finance System `Broken,' Losses May Rise (Update2)
By Steve Matthews and Doug Alexander

Sept. 5 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker said the U.S. financial system, dependent upon securitization rather than traditional bank loans, is broken, and may contribute to the weakest expansion since the 1930s.

``This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down,'' Volcker said today at a banking conference in Calgary. ``Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation.''

The former Fed chief projected ``a lot'' more losses from the collapse in the mortgage-backed debt market, after the more than $500 billion tallied so far, should the U.S., European and Japanese economies fail to pick up. He urged changes in financial regulations, echoing calls among sitting officials and legislators.

``It is the most complicated financial crisis I have ever experienced, and I have experienced a few,'' said Volcker, who has endorsed Democratic presidential candidate Barack Obama. Volcker ran the Fed from 1979 to 1987, and engineered an increase in interest rates to 20 percent to quell inflation that exceeded 10 percent.

U.S. growth has averaged 2.3 percent so far this decade, down from 3.4 percent in the 1990s. The current growth rate is the weakest since at least the 1940s, when the government began compiling figures on quarterly gross domestic product.

Volcker's comments came after a government report today showed the U.S. unemployment rate rose to a five-year high as the economy lost more jobs than forecast in August. The report underscored concerns that U.S. consumer spending will weaken and push the American economy into a recession.

Economists expect annualized rates of growth of 1 percent in the third quarter and 0.4 percent in the fourth quarter, according to the median estimate in a Bloomberg Survey in early August.
Fed Chairman Ben S. Bernanke said on Aug. 22 that financial turmoil has ``not yet subsided,'' and is contributing to weaker growth and higher unemployment. Policy makers will ``continue to review'' the Fed's measures to ensure liquidity to determine ``if they are having their intended effects,'' Bernanke said.

``Changes are going to have to be made'' to the global financial system, Volcker said. Banks three decades ago accounted for about 60 percent of U.S. credit; that later declined to about 30 percent as securitization -- where financial firms package assets into bonds and other instruments and sell them on to investors and other companies -- spread.

Volcker said he agreed with descriptions of the current financial system as ``dysfunctional. That is a polite way of saying it failed.'' The U.S. government, not the Fed, should take the lead in rescuing any financial institutions when ``push comes to shove,'' he said, echoing comments by former Fed Chairman Alan Greenspan.

The Fed rescued Bear Stearns Cos. from bankruptcy in March, facilitating the firm's merger with JPMorgan Chase & Co. by loaning against $29 billion of Bear securities. Bernanke has also made central bank loans available to nonbanks for the first time since the 1930s and lowered the rates at which banks can borrow from the Fed.

Subprime Primer

Credit Crunch

By credit crunch I don't mean some new breakfast cereal or chocolate bar, I mean the sudden unwillingness of people to buy junky mortgage debt thus causing a 'liquidity problem.'

It sure looks like I have missed an interesting week in the markets. My vacation will be nice for a couple more days though so I'll provide more next week. Thanks for that interesting post on construction quality M-, very insightful.

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.