Mortgage Rates

Are rates going lower? Tagging onto an earlier post about how the Fed can minimize falout from US housing and sub-prime woes by keeping rates down, a Financial Post article by Ray Turchansky last Tuesday points to lower rates in the future.

 Brad Willock, of RBC Asset management Ltd. is quoted as saying “The single most important thing…is the US short term interest rate, determined by the Federal Reserve”. Currently the overnight rates are 5.25% in the States and 4.25% here.  Low unemployment in the US mitigates against further rate cuts, but inflation seems to be disappearing as a threat.  While these two things seem to run counter to each other, Willock predicts a rate cut in May, June or July, with raes continuing to fall over the next 18 months.

Benjamin Tal, of CIBC World Markets, is quoted as predicting settledrates in general, and lower short term rates in particular, given the slowing economies in the States and Canada.

 Nick Majendie of Canaccord Capital is also quoted, and agrees that with slowing economies rates must fall. He’s a little more pessimistic, using the word “recession”.

In a separate article Keith Woolhouse points out that in today’s complex mortgage market the best rate isn’t necessarily the best price.  Service,  restrictions and pre-payment penalties all factor in to determining what exactly is the “best”rate.

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29 Comments

Filed under National Post

29 responses to “Mortgage Rates

  1. Noname

    “inflation seems to be disappearing as a threat”

    This is where renters are in a win-win situation.

    If inflation is a disappearing threat, that means rents are NOT increasing significantly.

    On the other hand, if rents are indeed increasing significantly, then the above statement is simply false and inflation is indeed a threat preventing rate cuts.

    Noname

  2. robchipman

    noname:

    We could have rents treble ere in Vancouver and not make a dent in the inflation that the US Federal Reserve looks at. There is no inconsistency. Local rents are a local issue. Inflation is economy wide, and the economy spans the globe.

    Renting is neither win-win nor lose-lose/win-lose, etc, as far as I can see. There are too many variables to allow the blanket statement. For example, it might make a lot of sense for one single person to rent downtown and make alternate investments. At the same time it might be smart for a family to purchase in the ‘burbs at the expense of alternate investments. Both those scenarios ignore the forced savings aspect for both types of buyers (buying is a better investment simply because they wouldn’t make alternate investments).

    Those outcomes depend on particualr markets, and we can go on for a long time debating them. Two things remain certain, however: local rents are an extremely minor input into capital ”I” inflation, and local rents are rising markedly.

  3. Barney

    How serendipitous – I actually got an email from my RBC Mortgage advisor telling me that they are putting the 5 year closed mortgage up 0.25%; this seems contrary to the belief that rates are going to be going down to me.

  4. joy

    Rob,

    What happened to the numbers ?

    I hope u are not pissed off with people…

  5. Ken G

    Rob, can you leave an email address please. I would like to contact you regarding Real Esate opportunities.

  6. first_time_buyer

    “but inflation seems to be disappearing as a threat”

    hmm, this guy called ben bernanke does not agree , then what does he know.

  7. e

    Canada Adds 54,900 Jobs; Five Times What Was Forecast (Update3)

    By Greg Quinn

    April 5 (Bloomberg) — Canadian employers added 54,900 jobs in March, five times what economists forecast, suggesting the Bank of Canada may raise interest rates to control inflation.

    The jobless rate stayed at a three-decade low of 6.1 percent as more people entered the workforce, Statistics Canada said today in Ottawa. Economists predicted 11,000 new jobs for March and a 6.1 percent jobless rate, based on the median of 24 estimates in Bloomberg News survey.

    Bank of Canada Governor David Dodge has kept the main lending rate at 4.25 percent since May, saying the risk of inflation veering from his 2 percent target is balanced between rising consumer spending and the prospect a slower U.S. economy will hamper exports. Previous job gains already led families with new paychecks to drive home prices to record highs.

    “With this kind of job growth it’s inevitable it will spill over into wage pressures,” said Mark Chandler, a fixed- income strategist at RBC Capital Markets in Toronto. The next interest rate move “will be up, but we think it’s more likely next year than this year,” he said.

    The Canadian dollar rose to 86.85 U.S. cents at 9:39 a.m. in Toronto, the most in more than two weeks, from 86.25 cents late yesterday. The yield on Canada’s benchmark 4 percent federal government bond due June 2016 rose 2 basis points to 4.13 percent. Rising currency and bond yields suggest there’s more speculation that rates will climb.

    Seven Months

    Companies created 30,500 full-time positions and 24,500 part-time jobs in March. Employers have added workers for seven straight months, the longest since 2002-2003.

    Women 25 years and older got almost all the new jobs in March, with 38,600 new postings compared with 2,300 for men in the same age group.

    Statistics Canada said today that average hourly wages rose 2.2 percent from a year earlier, slower than February’s 2.8 percent pace.

    Wage growth slowed because companies hired mostly in provinces outside oil-rich Alberta, where an energy boom has led to labor shortages. Quebec, the central Canadian province where many of the country’s struggling manufacturers and lumber exporters are based, added 29,200 jobs, the most since May.

    `Rebalancing’

    “We are seeing a rebalancing of labor market activity across the country, where job growth in Alberta is slowing yet employment is picking up in central Canada, and that’s a good development,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto.

    Today’s report will increase central bankers’ worries that inflation may rise, Guatieri said. The job gain more than doubled the biggest forecast in the Bloomberg survey, which was for 24,000 new positions.

    Canada’s core inflation rate, which excludes eight volatile items and some taxes, accelerated to a four-year high of 2.4 percent in February from a year earlier as housing costs rose, Statistics Canada said March 20. The overall consumer price index rose to 2 percent from 1.2 percent, the biggest gain in 17 months.

    Canada has added about 1.9 million jobs since 2001, in a country of 32.8 million people, as companies earn record profits from exports of commodities such as energy and metals. The job growth has stoked record homebuilding and consumer spending.

    U.S. Jobs

    In the U.S., with a population nine times the size of Canada’s at 301 million, economists forecast the Labor Department will report 130,000 new jobs for March tomorrow.

    Canada’s March increase was led by 27,300 new jobs in retail and wholesaling, sectors that benefited from a rebound in factory shipments after a strike by Canadian National Railway Co. workers, the statistics agency said.

    Wal-Mart Stores Inc., the world’s biggest retailer, said March 20 it plans to open 21 more supercenters and eight conventional discount stores in Canada by January 2008.

    Rona Inc., Canada’s biggest home-improvement retailer by the number of stores, said March 14 it plans to hire about 3,500 people ahead of this year’s peak renovation and gardening season, increasing its workforce by 13 percent.

    Still, goods-producing industries lost 11,100 jobs overall in March, spread across forestry, mining, oil and gas and construction. Also, the labor force grew by 65,300 in March, faster than net employment.

    Canadian job growth has outstripped economists’ predictions by an average of 32,000 over the last seven months.

    “Once again the jobs report makes a mockery of the fine art that is forecasting,” Stewart Hall, an economist at HSBC Securities Canada in Toronto, wrote in a note to clients after today’s figures were released.

    To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net .
    Last Updated: April 5, 2007 09:41 EDT

  8. joy

    Did any one follow Jim Cramer’s article on stock manipulation ?

    He said that Hedge fund managers pay reporters to write articles in favour of the stocks they own and then they benefit significantly.

    Similary,Some people are misleading others saying inflation is under control and this and that?

    Cause they are stuck with expensive real estate and they want to dump it to someone else..

  9. Ken G

    Rob,

    Your comment regarding rents “rising markedly” in the local area in my opinion is an indication of an over valued real estate market. You have more pressure on rents because you have more renters and less buyers. New home buyers who cant afford to buy or who think the market will turn, and existing home owners who have sold at what they believe is the peak of the cycle and have decided to rent and wait for the correction.

    Very similar market to So. Cal. right now where I believe foreclosures are up 150% over last year and rentals are getting snapped up very quickly. In particular for single family residences.

  10. mk-kids

    numbers ? numbers?
    where for art thou?

  11. VHB

    Hey guys – there are no numbers because it was a holiday long weekend. Check the calendar. Patience.

  12. Warren

    Remember that rents are controlled in BC by the provincial government, at least when the same tenants live there year after year. Due to notice rules, they can only be effectively raised every 15 months, and at a rate typically less than inflation.

  13. Jim

    Ken G. You are right, and I am doing just that . Although I also own several properties, I am renting my principal residence (short term) and it actually is almost as pricey as owning-save the risk premium of owning right now. Rents for SFH on the Westside are huge.

  14. notroglodyte

    warren.. where do you get your info? Rates can be raised every 12 months.. and they set the rates at 2% above inflation.. so expect increases for the next while..

  15. domus aurea

    Hi Rob,

    it is ironic you just posted this info.
    I have evidence pointing in the opposite direction for mortgage rates, like this article on the cbc website:
    http://tinyurl.com/2xfksj

    All in all, I think it will be hard for mortgage rates to be lower in the next 6 to 12 months, given upward pressure on prices due to energy costs.

  16. mk-kids

    sorry there vhb… i’m blaming my temporary (we hope) lapse there on all that damn easter chocolate!

  17. Warren

    notroglodyte,

    Its a whopping 4% for 2007, which is higher than recent years. Technically it is 2% above inflation. Government notoriously underestimates inflation, but that’s another argument.

    The written notice of rent increase requires 3 months written notice prior to the increase. You can’t issue the notice less than 12 months after the last increase – hence you are limited to once every 15 months.

    Realistically though, it happens less than that. I’ve lived in my current place for 3 years, no increases. I have also not increased the rent on my own tenant for 2 years. I may do so next year, but of course I’m limited to that year’s published rate.

    So really I don’t “expect increases”. Despite low published vacancy rates, it doesn’t seem like rents are anywhere near ownership costs today in Vancouver. More like 50% of comparable mortgage/taxes/maintenance costs for owners.

  18. robchipman

    Warren:

    The government sets the amount allowed for rent increases every year. So, if inflation takes off this year the allowable rate stays at 4%.

    You serve the notice 3 months prior to it taking effect. 12 months after service you serve a new notice that takes effect 3 months after the second notice(which is 12 months after the 1st increase). 12 months between notices, 12 months between increases.

    I think you can assume that most tenants who have been in possession for at least 3 years is paying less than market rent. When we re-rent we’ve consistently bumped our rents much more than 4%.

    Personally, I’m like you: I haven’t raised rents on my own tenants for a few years. However I do send out increases for all of my clients every month, and they’re generally (99% of the time) at the maximum. That’s a 70 increase to 1 no increase ratio!

  19. dignanmaplethorpe

    ” That’s a 70 increase to 1 no increase ratio!”

    Do you own just 1 rental unit or do you manage more than 70?

  20. robchipman

    I manage more than 70.

  21. domus aurea

    I should also add that real lending rates depend on inflation, which is apparently perking up. So the real cost of lending should not be too bad right now.

    If you get a 6% nominal rate, with inflation running at 2.5%, it means that you are just paying 3.5% real. Historically a pretty average number, not too high and not too low.

    Small changes one way or the other should not have dramatic effects (apart from those careless people who borrowed to the brim and have no buffer savings).

    I personally think that lending rates are important in a highly leveraged market like real estate.

    However in the Vancouver case I think the bubbliness is due in many cases to what Shiller calls irrational exhuberance: here more than in many other places it seems that herd behavior is dominant and people act on impulse.

    Shiller said not long ago that vancouver was, in his opinion, the most overpriced market in North-America. An overstatement? Who knows…..personally I don’t think he has anything to gain from making this statement, so I trust his judgement.

  22. dignanmaplethorpe

    Rob

    Have you noticed we kind of look alike? How many properties do you manage?

  23. Moneyfromasia

    VHB do you know where Freako went?

    Lets ask Freako which way he thinks rates will go……

    I bet he’s got a girlfriend now and has no time for blogs!

  24. blueskies

    However in the Vancouver case I think the bubbliness is due in many cases to what Shiller calls irrational exhuberance: here more than in many other places it seems that herd behavior is dominant and people act on impulse.

    exactly! the only thing I see holding up prices is psychology, no fundamentals to be seen.

    …and i know this can change very rapidly, now what will be the tipping point….. a 20 basis point rate hike?

  25. Snick

    Blueskies,

    The tipping point is already here. There will be no “Spring bounce”, IMO. Things are going to be worse from now on than many people expect.

  26. Moneyfromasia

    Where does a 20 bases point hike take the rates to?

  27. Jim

    Given that rates went up .25 today whilst banks are scrambling for business, I would say mortgage rate risk is all to the up side. I would therefore conclude in the face of rising inventory, and falling sales, real estate prices are heading down. Forget about the lack of economic analysis which prevails in the RE sales force, and amongst buyers, a .25 rate increase on a 4.99% 5 year mortgage will be noticed. As real estate sales enter their cooling season in July and August, and rates climb with inventory-good night.

  28. uncertain_buyer

    I just got notice today that Mortgage rates are going up at BMO.

  29. Paulb

    Rates are up across the board. From 5.09 to 5.29. thats a big jump…

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