Mortgage rates: Time to opt for fixed, not variable rate, BMO says
By Susan Pigg | Fri Mar 23 2012
Fixed-rated mortgages now make more sense than variable, both as a way to keep costs in check and reduce worries about consumer-debt levels, says a report by BMO Capital markets.
“There are mounting signs that the tide is indeed turning for rates, especially with the U.S. economy finally getting back on its feet,” says the report entitled Time to say Goodbye . . . to Variable.
Government of Canada bond yields have jumped more than 50 basis points in the last three months alone, signalling that low interest rates may soon be on the rise as the U.S., and even the global economy, start to turn around, BMO notes.
Rising inflation and solid demand for commodities from emerging markets, coupled with global government debt, increase the risk that the Bank of Canada could start raising interest rates aggressively, the report says.
Related: Toronto housing market: Bidding wars are back
“Considering the likely upward trend in interest rates as the global recovery picks up speed in 2012, this may be one of those rare periods when a fixed rate turns out to be the superior choice.”
BMO is now offering a five-year fixed rate mortgage, under certain conditions, as low as 2.99 per cent over five years or 3.99 over 10 years. That compares to a variable rate of 3.10 per cent.
Mortgage broker Steve Garganis said he’s getting lots of calls from clients wanting to know if they should lock in, but warns the answer isn’t simple.
If they’re fortunate to have rates that at one point hit 2.25 per cent or less, he’s telling them to stick with variable since most five-year fixed are 3.19 at best, a meaning the payment on a $200,000 mortgage with a 25-year amortization would be $967 rather than $872.
But something needs to happen to cool the overheated housing market, especially in Toronto, Garganis notes, echoing the words of federal finance minister Jim Flaherty, who has repeatedly warned Canadians about the need to cut record levels of household debt.
Related: Why we chose a new house over resale
“I’m a bit concerned about the market,” says Garganis. “Multiple offers means the market is too hot, prices are too high. It’s a bit too hot for me.”
Flaherty stressed Thursday that banks shouldn’t be relying on Ottawa to further tighten mortgage lending rules and are free to act on their own. He said he wants to see the market “correct itself, if it can.”
“I find it a bit odd that some of the bank executives are taking the position that the minister of finance or the government somehow should tell them how to run their business,” Flaherty said at an event near Ottawa Thursday, according to Bloomberg.
BMO has been criticized for deeply discounting rates to 2.99 per cent for a five-year mortgage, further encouraging people to borrow who may not be able to afford to pay $1,164 a month on that $200,000 mortgage if rates climb back up to, say, 5 per cent.
But BMO deputy chief economist Doug Porter stressed that if Ottawa has concerns, “they have the means at their disposal to change interest rates — they have control over the most important interest rate out there, the Bank of Canada overnight rate.”
Locking in to a fixed-rate mortgage would go a long way to reduce concerns that homebuyers could be at risk if interest rates start rising.
Related: Is home ownership really a smart investment
“I would make the argument that locking in a mortgage for five or 10 years, with a 25-year amortization, would alleviate concerns and strengthen consumer finances.”
Friday, March 23, 2012
Monday, March 12, 2012
If House Prices Fall, - What To Expect!
Excerpts from the Toronto Star
Olive: Canadian real estate prices are falling – not the sky Published On Mon Mar 12 2012
By David OliveBusiness Columnist
Everything in moderation.
Recent homebuyers can’t be cheered by forecasts of a looming slump in house prices so soon after paying record prices in what may be the tail end of a 13-year-long Canadian housing boom.
But hold the Prozac.
First, while house prices are widely forecast to soften this year, no one’s expecting a U.S.-style crash of the sort that had prices in overheated markets like Florida, California and Arizona plunging by 70 to 90 per cent between 2007 and 2009.
That cataclysm set off defaults, foreclosures, a Wall Street meltdown, and the global Great Recession. By contrast, expect prices in admittedly overheated Canadian markets – conspicuously the GTA and Vancouver – to ease by 5 per cent to 10 per cent this year. And then to recover and begin making gains over purchase prices in 2013.
There’s an unduly alarmist tone to the latest forecasts of declining Canadian house prices. The headlines give one the impression of an imminent sharp fall.
A recent Maclean’s article linking patterns in Canadian residential real estate activity with record household indebtedness is headlined, “Time to panic about the housing market.”
Even a house fire isn’t something to panic over. You’ll just get in the way of the firefighters.
What we’re actually witnessing is a competent effort by the powers that be to prevent a torrid escalation in property sales and prices. Ottawa has been working on this for two years now, with frequent warnings to Canadians by the Bank of Canada and the federal finance minister to ease up on debt-financed consumer spending, including house purchases.
Mark Carney, the Bank governor, must have conspicuously warned at least half a dozen times over the past 18 months that today’s low interest rates “won’t last forever.” He should know, since he and his Bank colleagues set them. And the Bank has been keeping rates very low – a temptation to over-indulge in credit – in order to spur growth in Ontario’s ailing manufacturing sector.
Commercial banks have joined this coordinated effort to tamp down prices, tightening their lending standards to keep folks who can’t afford to carry a mortgage from attempting to do so. Meanwhile, since January they’ve also been engaged in a price war on mortgage rates that has made house ownership more affordable for existing mortgagees and prospective creditworthy buyers.
That’s the opposite of what U.S., U.K. and Spanish banks did in force-feeding mortgages in the 2000s to millions of buyers with no down payment, no collateral, no or little income, and a poor credit history.
The collateral damage from easing the pain with low interest rates for a Canadian manufacturing heartland that has received repeated blows to the gut since the early 2000s, long before the Great Recession accelerated the layoffs, is that money has arguably been too “cheap” for too long elsewhere in the economy.
That was the mistake, one of the biggest in central banking history, that Alan Greenspan, then chairman of the U.S. Federal Reserve Board, made in keeping rates near zero for years after the 9/11 attacks and the mild recession that followed. Which in turn spurred an unprecedented U.S. housing boom that ended in tragedy, with more than eight million Americans abruptly losing their jobs in 2008-10.
It may seem counterintuitive to wish for a slowdown in housing or any other (legal) market.
Yet when you consider that Toronto has in recent years been tied with Atlanta as the fastest-growing city in North America, adding the equivalent of a Calgary to its population every decade, you get a perspective on rising municipal costs that most city councillors and certainly the mayor don’t appreciate.
At 158 structures, Toronto has more skyscrapers and condo towers under construction than any North American city. The three runners-up combined – New York, Chicago and Miami – have 94. Time to apply the brakes.
It isn’t a legacy of wasteful spending that has the GTA in a financial bind. It’s building out municipal services to accommodate so many newcomers.
Cooling-off periods in Toronto property prices have characterized the GTA since the end of the Second World War, making it one of the most stable and lucrative housing markets in the world. What’s happening with prices today is no different. And this has kept Toronto relatively affordable for house buyers even as prices have steadily risen with only brief interruptions over the decades.
All movements go too far. Speaking of which, houses in downtown Detroit have hit rock bottom at $14,000 for a detached three-bedroom. So if the impulse in you to roll the dice on house purchases cannot be denied, think about picking up a six-pack of Motown properties whose price has nowhere to go but up.
Olive: Canadian real estate prices are falling – not the sky Published On Mon Mar 12 2012
By David OliveBusiness Columnist
Everything in moderation.
Recent homebuyers can’t be cheered by forecasts of a looming slump in house prices so soon after paying record prices in what may be the tail end of a 13-year-long Canadian housing boom.
But hold the Prozac.
First, while house prices are widely forecast to soften this year, no one’s expecting a U.S.-style crash of the sort that had prices in overheated markets like Florida, California and Arizona plunging by 70 to 90 per cent between 2007 and 2009.
That cataclysm set off defaults, foreclosures, a Wall Street meltdown, and the global Great Recession. By contrast, expect prices in admittedly overheated Canadian markets – conspicuously the GTA and Vancouver – to ease by 5 per cent to 10 per cent this year. And then to recover and begin making gains over purchase prices in 2013.
There’s an unduly alarmist tone to the latest forecasts of declining Canadian house prices. The headlines give one the impression of an imminent sharp fall.
A recent Maclean’s article linking patterns in Canadian residential real estate activity with record household indebtedness is headlined, “Time to panic about the housing market.”
Even a house fire isn’t something to panic over. You’ll just get in the way of the firefighters.
What we’re actually witnessing is a competent effort by the powers that be to prevent a torrid escalation in property sales and prices. Ottawa has been working on this for two years now, with frequent warnings to Canadians by the Bank of Canada and the federal finance minister to ease up on debt-financed consumer spending, including house purchases.
Mark Carney, the Bank governor, must have conspicuously warned at least half a dozen times over the past 18 months that today’s low interest rates “won’t last forever.” He should know, since he and his Bank colleagues set them. And the Bank has been keeping rates very low – a temptation to over-indulge in credit – in order to spur growth in Ontario’s ailing manufacturing sector.
Commercial banks have joined this coordinated effort to tamp down prices, tightening their lending standards to keep folks who can’t afford to carry a mortgage from attempting to do so. Meanwhile, since January they’ve also been engaged in a price war on mortgage rates that has made house ownership more affordable for existing mortgagees and prospective creditworthy buyers.
That’s the opposite of what U.S., U.K. and Spanish banks did in force-feeding mortgages in the 2000s to millions of buyers with no down payment, no collateral, no or little income, and a poor credit history.
The collateral damage from easing the pain with low interest rates for a Canadian manufacturing heartland that has received repeated blows to the gut since the early 2000s, long before the Great Recession accelerated the layoffs, is that money has arguably been too “cheap” for too long elsewhere in the economy.
That was the mistake, one of the biggest in central banking history, that Alan Greenspan, then chairman of the U.S. Federal Reserve Board, made in keeping rates near zero for years after the 9/11 attacks and the mild recession that followed. Which in turn spurred an unprecedented U.S. housing boom that ended in tragedy, with more than eight million Americans abruptly losing their jobs in 2008-10.
It may seem counterintuitive to wish for a slowdown in housing or any other (legal) market.
Yet when you consider that Toronto has in recent years been tied with Atlanta as the fastest-growing city in North America, adding the equivalent of a Calgary to its population every decade, you get a perspective on rising municipal costs that most city councillors and certainly the mayor don’t appreciate.
At 158 structures, Toronto has more skyscrapers and condo towers under construction than any North American city. The three runners-up combined – New York, Chicago and Miami – have 94. Time to apply the brakes.
It isn’t a legacy of wasteful spending that has the GTA in a financial bind. It’s building out municipal services to accommodate so many newcomers.
Cooling-off periods in Toronto property prices have characterized the GTA since the end of the Second World War, making it one of the most stable and lucrative housing markets in the world. What’s happening with prices today is no different. And this has kept Toronto relatively affordable for house buyers even as prices have steadily risen with only brief interruptions over the decades.
All movements go too far. Speaking of which, houses in downtown Detroit have hit rock bottom at $14,000 for a detached three-bedroom. So if the impulse in you to roll the dice on house purchases cannot be denied, think about picking up a six-pack of Motown properties whose price has nowhere to go but up.
Friday, March 9, 2012
2.99% Interest Rate Mortgage Is Back!
Excerpts from Globe and Mail
Banks’ mortgage war may lure new homeowners
richard blackwell AND grant robertson
From Friday's Globe and Mail
Published Thursday, Mar. 08, 2012 7:09PM EST
Last updated Friday, Mar. 09, 2012 10:38AM EST
Canadians are getting another chance to sign a mortgage at historically low rates, and for some it may be enough to push them to take a leap in the overheated real estate market.
On Thursday, Toronto-Dominion Bank, (TD-T82.170.470.58%) Royal Bank of Canada (RY-T56.980.050.09%) and Canadian Imperial Bank of Commerce (CM-T75.10-1.01-1.33%) trimmed the rate on four-year mortgages to 2.99 per cent – following Bank of Montreal’s (BMO-T57.780.270.47%) move on Wednesday to cut its five-year mortgage rate to the same level. BMO also chopped its 10-year rate to 3.99 per cent.
More related to this story
•Toronto-Dominion slashes mortgage rate
•Rob Carrick's Reader: Mortgages: Go long or w-a-a-ay long
•Fat consumer debt biggest risk in Canada, Mark Carney says
Banks’ mortgage war may lure new homeowners
richard blackwell AND grant robertson
From Friday's Globe and Mail
Published Thursday, Mar. 08, 2012 7:09PM EST
Last updated Friday, Mar. 09, 2012 10:38AM EST
Canadians are getting another chance to sign a mortgage at historically low rates, and for some it may be enough to push them to take a leap in the overheated real estate market.
On Thursday, Toronto-Dominion Bank, (TD-T82.170.470.58%) Royal Bank of Canada (RY-T56.980.050.09%) and Canadian Imperial Bank of Commerce (CM-T75.10-1.01-1.33%) trimmed the rate on four-year mortgages to 2.99 per cent – following Bank of Montreal’s (BMO-T57.780.270.47%) move on Wednesday to cut its five-year mortgage rate to the same level. BMO also chopped its 10-year rate to 3.99 per cent.
More related to this story
•Toronto-Dominion slashes mortgage rate
•Rob Carrick's Reader: Mortgages: Go long or w-a-a-ay long
•Fat consumer debt biggest risk in Canada, Mark Carney says
Wednesday, March 7, 2012
Home Ownership Becoming More Affordable Despite Rising Debt
Excerpts
Home ownership becoming more affordable despite rising debt
By Julian Beltrame | Wed Mar 7 2012
Comment (3)
Recommend (0)
OTTAWA—Despite ongoing concerns about household debt, home ownership is becoming more affordable in Canada, not less, says new research by the Royal Bank.
RBC’s latest report says home affordability actually improved in the final months of 2011 for the second consecutive quarter, thanks to softening house prices and income gains.
Owning a home in Canada now takes up as much of pre-tax income as it did a year ago, even though household indebtedness has continued to rise and is now at a record high 153 per cent of disposable income.
Ownership even became more affordable in the ultra-expensive Vancouver market, although it remains the dearest place in Canada to own a home.
“The improvement in affordability was modest for the most part, but still significant enough to dial back the deterioration that impacted the market in spring last year,” said RBC chief economist Craig Wright in a release issued Wednesday morning.
“At this point, housing in Canada is essentially as affordable as it was a year ago, and only slightly less affordable on average than it has been over the long term.”
The study shows affordability rates vary widely depending on the market. Vancouver’s rate is down by 4.6 points to 86 per cent, by far the least affordable market in Canada. Next highest is Toronto at 52.2 per cent.
Other ratings were Ottawa (40.9), Montreal (40.1) Calgary (36.7) and Edmonton (32.8).
RBC defines affordability as the proportion of pre-tax household income needed to service the costs of owning as specific type of home. A ranking of 50 per cent means that a household was spending half its pre-tax income on mortgage, utilities and property taxes.
Earlier this week, Finance Minister Jim Flaherty warned Canadians again about taking on too much debt and said he was particularly concerned about the condo market, which has been particularly robust in Vancouver and Toronto.
Acknowledging that there had been recent moderation in housing, Flaherty nonetheless said high debt was a worry.
“I again encourage Canadians to be careful in the amount of debt they take on in terms of residential mortgages because (interest) rates will go up some day,” he said.
Bank of Canada governor Mark Carney has issued similar cautions, while such global institutions as the International Monetary Fund have estimated Canada’s market to be 10 per cent overvalued.
TD Bank economist Derek Burleton said it was time for Flaherty to rein in borrowers by reducing the maximum amortization period to 25 years from 30, which he said would tamper housing but not enough to cause damage. Flaherty, who has tightened rules on three occasions since 2006, gave no hints he was preparing to move a fourth time.
In a forecast issued Monday, the Canadian Real Estate Association said it expects the average price of a home will decline by 1.1 per cent this year to $359,100, while resales rises a tiny 0.3 per cent.
The RBC report shows that affordability has improved in almost all provinces and cities in the last quarter of 2011.
Manitoba was the only province to experience a slight deterioration in affordability, while Quebec’s index remained unchanged.
A very important point about the RBC report...
The RBC Affordability Index is based on current home prices and interest rates, but it also assumes a 20% down-payment. The vast majority of first-time home buyers put down much less than 20% (5% is most common), which means their mortgages -- and thus the fraction of their income going to housing costs -- is MUCH larger than the RBC Affordability Index assumes.
Mar 7, 2012 10:17 AM
Home ownership becoming more affordable despite rising debt
By Julian Beltrame | Wed Mar 7 2012
Comment (3)
Recommend (0)
OTTAWA—Despite ongoing concerns about household debt, home ownership is becoming more affordable in Canada, not less, says new research by the Royal Bank.
RBC’s latest report says home affordability actually improved in the final months of 2011 for the second consecutive quarter, thanks to softening house prices and income gains.
Owning a home in Canada now takes up as much of pre-tax income as it did a year ago, even though household indebtedness has continued to rise and is now at a record high 153 per cent of disposable income.
Ownership even became more affordable in the ultra-expensive Vancouver market, although it remains the dearest place in Canada to own a home.
“The improvement in affordability was modest for the most part, but still significant enough to dial back the deterioration that impacted the market in spring last year,” said RBC chief economist Craig Wright in a release issued Wednesday morning.
“At this point, housing in Canada is essentially as affordable as it was a year ago, and only slightly less affordable on average than it has been over the long term.”
The study shows affordability rates vary widely depending on the market. Vancouver’s rate is down by 4.6 points to 86 per cent, by far the least affordable market in Canada. Next highest is Toronto at 52.2 per cent.
Other ratings were Ottawa (40.9), Montreal (40.1) Calgary (36.7) and Edmonton (32.8).
RBC defines affordability as the proportion of pre-tax household income needed to service the costs of owning as specific type of home. A ranking of 50 per cent means that a household was spending half its pre-tax income on mortgage, utilities and property taxes.
Earlier this week, Finance Minister Jim Flaherty warned Canadians again about taking on too much debt and said he was particularly concerned about the condo market, which has been particularly robust in Vancouver and Toronto.
Acknowledging that there had been recent moderation in housing, Flaherty nonetheless said high debt was a worry.
“I again encourage Canadians to be careful in the amount of debt they take on in terms of residential mortgages because (interest) rates will go up some day,” he said.
Bank of Canada governor Mark Carney has issued similar cautions, while such global institutions as the International Monetary Fund have estimated Canada’s market to be 10 per cent overvalued.
TD Bank economist Derek Burleton said it was time for Flaherty to rein in borrowers by reducing the maximum amortization period to 25 years from 30, which he said would tamper housing but not enough to cause damage. Flaherty, who has tightened rules on three occasions since 2006, gave no hints he was preparing to move a fourth time.
In a forecast issued Monday, the Canadian Real Estate Association said it expects the average price of a home will decline by 1.1 per cent this year to $359,100, while resales rises a tiny 0.3 per cent.
The RBC report shows that affordability has improved in almost all provinces and cities in the last quarter of 2011.
Manitoba was the only province to experience a slight deterioration in affordability, while Quebec’s index remained unchanged.
A very important point about the RBC report...
The RBC Affordability Index is based on current home prices and interest rates, but it also assumes a 20% down-payment. The vast majority of first-time home buyers put down much less than 20% (5% is most common), which means their mortgages -- and thus the fraction of their income going to housing costs -- is MUCH larger than the RBC Affordability Index assumes.
Mar 7, 2012 10:17 AM
Will An Open House Sell Your Home?
Excerpts from Moneyville
Will an open house help sell your home?
By Mark Weisleder | Fri Sep 2 2011
Comment (4)
Recommend (8)
I am often asked whether a seller should agree to open houses when they put their home up for sale. Some say it helps the agent find new clients and does nothing to sell the home. Others say it is necessary to find the largest number of potential buyers. Which is correct?
In practice, there are two kinds of open houses. One is limited to real estate agents, so they can conduct research in the area and be able to recommend the right homes to their buyer clients. The second is open to the general public. This can include nosy neighbours who just want to see your home, buyers who don’t have nearly enough money to consider putting in an offer and even criminals who are there to either steal something from the home during the open house or check out the security system so they can come back later.
Open houses will lead to more exposure for your home and more feedback from potential buyers. On the other hand, since we have so much information available to buyers on the Internet, such as video tours of the entire home, wouldn’t it make more sense to wait for a truly interested buyer to schedule a private appointment to see your home? That shows more commitment.
Still, in a seller’s market, where there are more buyers than available properties, open houses are a good idea so the maximum number of buyers can see the property in a very short time period.
If you do agree to conduct an open house, here are some tips:
• Make sure proper home staging is done in advance so your home appeals to the maximum number of potential buyers.
• Do not stay in the house during the open house. You are more than likely to volunteer too much information, including why you are selling. This will hurt your negotiating position later.
• Make sure your agent will be there the entire time.
• It is not against the law to ask for identification in order to allow someone to enter your home. If they refuse to provide it, tell your agent to refuse them entry.
• Sometimes criminals will come in pairs; while one distracts the salesperson, the other is going through drawers. If a lot of people are expected make sure your agent brings an assistant.
• Ask your agent to check all windows and doors before they leave your home to make sure everything is properly secured.
• Remove all valuables or store them in a safe, if you have one in the home. This includes your laptop and any discs that may have your personal information on them.
• Keep all of your bank and credit card statements out of view, as this could lead to identity theft if someone takes them.
• Take pictures of each room so you can check later if something is missing or damaged during the open house.
Whatever you decide regarding an open house, make sure you are properly prepared in advance.
Will an open house help sell your home?
By Mark Weisleder | Fri Sep 2 2011
Comment (4)
Recommend (8)
I am often asked whether a seller should agree to open houses when they put their home up for sale. Some say it helps the agent find new clients and does nothing to sell the home. Others say it is necessary to find the largest number of potential buyers. Which is correct?
In practice, there are two kinds of open houses. One is limited to real estate agents, so they can conduct research in the area and be able to recommend the right homes to their buyer clients. The second is open to the general public. This can include nosy neighbours who just want to see your home, buyers who don’t have nearly enough money to consider putting in an offer and even criminals who are there to either steal something from the home during the open house or check out the security system so they can come back later.
Open houses will lead to more exposure for your home and more feedback from potential buyers. On the other hand, since we have so much information available to buyers on the Internet, such as video tours of the entire home, wouldn’t it make more sense to wait for a truly interested buyer to schedule a private appointment to see your home? That shows more commitment.
Still, in a seller’s market, where there are more buyers than available properties, open houses are a good idea so the maximum number of buyers can see the property in a very short time period.
If you do agree to conduct an open house, here are some tips:
• Make sure proper home staging is done in advance so your home appeals to the maximum number of potential buyers.
• Do not stay in the house during the open house. You are more than likely to volunteer too much information, including why you are selling. This will hurt your negotiating position later.
• Make sure your agent will be there the entire time.
• It is not against the law to ask for identification in order to allow someone to enter your home. If they refuse to provide it, tell your agent to refuse them entry.
• Sometimes criminals will come in pairs; while one distracts the salesperson, the other is going through drawers. If a lot of people are expected make sure your agent brings an assistant.
• Ask your agent to check all windows and doors before they leave your home to make sure everything is properly secured.
• Remove all valuables or store them in a safe, if you have one in the home. This includes your laptop and any discs that may have your personal information on them.
• Keep all of your bank and credit card statements out of view, as this could lead to identity theft if someone takes them.
• Take pictures of each room so you can check later if something is missing or damaged during the open house.
Whatever you decide regarding an open house, make sure you are properly prepared in advance.
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