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Bond market drops… expect fixed rates to follow.

It’s the morning after the US govt agreed on a new Debt Ceiling…… and like a scene from ‘The Hangover’, many of us are waking up to unfamiliar surroundings with a big headache and an uncertain feeling in our stomach…. let’s call it a ‘financial hangover’.   The global stock markets are down…..giving back all gains made this year…  The Chinese credit agency has downgraded the US credit rating...

The 5 year Canada govt bond yields has dropped to 1.84%...  A level only seen twice before…  first, just after the October 2008 US mortgage crisis and again late last year.

So what’s the good news??   This should mean lower fixed mortgage rates are coming… let’s hope the Banks move as fast to cut the rate as they do when they raise them.   This also means less chance of any rate hikes….

Enjoy the low rates.

Posted 1 Comment on Banks quick to raise but slow to lower rates Interest rates

Banks quick to raise but slow to lower rates

Nothing new about this story…. Since April 11-2011, the 5 year bond yields went from 2.87%,  down to 2.10% on June 24th, and have gone up slightly to 2.34% on July 1st….  Remember, fixed rates are closely tied to the govt of Canada bond yields…So that means the Banks would have lowered their fixed rates accordingly and then raise them slightly, right?

Well, not really…  On April 11th, the Big Six Banks posted rates were 5.69%.. they went down slightly to 5.39% recently but are back up to 5.54%…   What’s wrong with math…?  Why didn’t the Banks reduce their rates accordingly?    It’s called MAXIMIZING your PROFIT…  The banks want to earn a little more at the borrowers expense.

I find it kinda funny but also frustrating when I see articles reporting that Bank profit margins on mortgages is shrinking…  The spread between the 5 year bond yield and the posted 5 year fixed rate is around 3.20%…  and historically, it’s been around 2.50% and sometimes even as low as 2.00%….  Where’s the fierce competition, I wonder?

Banks are a business that want to maximize their profits… Let’s not forget this.

Posted 1 Comment on Bank of Canada leaves Key Rate unchanged Interest rates

Bank of Canada leaves Key Rate unchanged

This morning marked the fourth of eight scheduled meetings for 2011 by the Bank of Canada.  No surprises, the BOC left the rate unchanged. This keeps the Bank Prime rate at 3.00% and keeps those Variable rate mortgages well under 3.00%.  Great news for borrowers.

In their press release, the BOC noted concerns about the high Canadian $dollar… increasing the BOC rate would probably mean an even higher $CAD, putting more pressure on Canada’s exports.   The  $CAD is currently $1.02US.  Still, the BOC is concerned about inflation and keeping inflation within the Target Zone of between 1.00% and 3.00% has always been one of the biggest factors that drive BOC policies.   “…inflation expectations remain well-anchored.”

The next BOC meeting is July 19… right now, it does not appear as though we will see any hikes until September or later…

Posted 3 Comments on Economic and Real Estate Outlook from Annual Mortgage Broker’s conference. Interest rates

Economic and Real Estate Outlook from Annual Mortgage Broker’s conference.

On April 14, I attended the annual Independent Mortgage Brokers Association (IMBA) annual conference.   We were fortunate to have Canada Mortgage and Housing Corporation’s (CMHC) Regional Economist, Ted Tsiakopoulos, share his outlook on the economy, real estate and interest rates.

Click here for the entire presentation.    This is a summary of CMHC’s outlook:

  • No evidence of housing bubble.
  • housing market is stabilizing in Ontario.
  • we won’t see the growth in prices as in years past.
  • this outlook is still uncertain given all the global events, both political and economic.
  • credit growth is slowing.
  • Interest rates will rise as economy improves.

The good news is that there doesn’t seem to be a housing bubble.  Interest rates will gradually return to normal.  And we don’t seem to be taking on as much personal debt as the government and media has led up to believe in the recent months.

Posted Interest rates

The effect of an NDP win or coming in 2nd place and mortgage rates.

We don’t normally get involved in politics on this site… not unless it can affect mortgage rates, the housing market or the economy…One of the more infamous examples was in 1995 during the Quebec Referendum.   Does anyone remember that?

Just before the referendum, a new poll had suggested that Quebecers’ could win a majority vote to separate.  This sent the Canadian stock market and the Canadian dollar plunging.   You might also remember that the Bank of Canada rate jumped 1.00% over night along with mortgage rates.  It’s the single biggest increase that we have ever seen.  It forced many of us to lock into a 5 year fixed rate… (something the Banks loved as the 5 year fixed rate product is the most profitable).

I’m not saying this will happen again but there was a report in The National Post that says BMO put out a warning to investors that things could be shaky if Jack Layton and the NDP  continue to gain ground in the polls.

Another recent development this week is that a few major Lenders have increased their rates on new Variable rate mortgages.  We have seen them go from Prime less 0.75% to Prime less 0.50%.   They say it’s due to profitability pressures…. but I wonder if has more to do with the election next week?