Mortgage Rate Update

James Cosco, of Cosco Mortgage Corp., dropped off some rate sheets effective August 22. 

1 yr: 5.6%

2 yr: 5.65%

3 yr: 5.7%

4 yr: 5.95%

5 yr: 5.79%

7 yr: 6.05%

10 yr: 6.15%

If you’d like some help with a mortgage, please contact James at 604-291-1011.  He’s a very capable lender.   

Overall I think its fair to say money is still cheap.  Will rates go up?  Market volatility mitigates against that, I think, and besides, credit tightening has always been disagreeable medicine.  I find it amusing that BoC rate hikes look like they’re going to play out exactly as many of us imagined – tough talk about inflation, but rates aren’t going to go up (I think Fish called the BoC “all bluster” at one point).  I also find the increased use of the phrase “inflation has been tamed” funny, too.  I suspect, on a serious note, that inflation is preferrable to recession.

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31 Comments

Filed under Investment Approach, Mortgage Rates

31 responses to “Mortgage Rate Update

  1. jesse

    “I suspect, on a serious note, that inflation is preferrable to recession.”

    You can have both at the same time.

  2. robchipman

    Yes, indeed! Stagflation. Worry de jour last year. Not mentioned much now. Maybe it should be.

  3. Domus

    History shows that choosing inflation over recessions gives short term benefits and long term headaches.

    Many attribute the stability of the 1990s expansion to the taming of inflation.

    Be careful what you wish for: recession can be the least evil.

  4. helen

    Rob,

    you are a very shamless realtor,Rates are relative to the property price.

    You don’t have to rob people for ur own sake.

  5. fish

    Rob

    A little inflation is certainly preferable to deflation which can become very nasty.

    ‘Helen’-IMO your words are unnecessarily offensive.
    …………………………………………………….
    I gave examples of high end homes that didn’t make sense in previous posts, now lets have a look a at a low-end investment.

    Lets crunch the numbers on this apartment on craigslist listed below appraisal

    http://vancouver.craigslist.org/rfs/408545105.html

    $220,00 asking
    Assume $40,000 Down-payment
    $180,000 mortgage at 5 years at 5.7%
    is $1251
    Taxes assume $100
    Strata $100
    Wear and tear and vacancy $0!

    Total cost $1451/month
    Rental income $700
    =Net loss per month $750

    On $40,000 D/P – if you calculate the after tax interest lost on the $40K, that adds another 3% (One year paper 4.5%)
    =$850 loss per month.

    To be fair- you are paying down the principle every month, but even so the numbers don’t make sense IMVHO.

    If you pay cash for the above apartment you will net 2.7% again with no wear and tear, vacancy, special assessment, management fees, which could bring the return down closer to 0%.

    Something has to give- rents have to move up or prices down or both, but they are too far out of whack at present.

  6. Joshua

    James is also a really nice guy to deal with!

    I’m still unsure about this Rob character though… 🙂

  7. Skeptic

    $700 sounds pretty cheap for that apartment, try running the numbers at $1200 and see how they look

  8. Anonymous

    “$700 sounds pretty cheap for that apartment”

    http://vancouver.craigslist.org/apa/408694280.html

    (asking $625 for a studio 15 or so blocks away)

  9. Hot Ballz

    I thought $700 rent for a condo seemed very low to me too.

    That $650 one that Anonymous just linked was in a house… is a condo unit preferable to a ground floor unit in a house? Even that $650 seems low for that one too.

    My take is that I think rents will begin to rise.

  10. New Investor Rob

    I’m renting out the small basement suite of my house for 725 in the suburbs and hour away from Vancouver. In general thats a low rent.

  11. fish

    OK folks – even if the suite is under- priced and could be rented for $300/month more.

    You would still have to subsidise that rent $550/month.

    Throw in a flat market and people will get ready to sell pretty fast.

  12. Dyugle

    CMHC adds alot to that cost Rob
    Here is what it costs.
    http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm
    The site also says that you will not get the best rate without insurance.
    So basically tack on 2% with a 10% downpayment. More down payment less insurance less down payment more insurance.

  13. tqn

    “helen
    August 28th, 2007 at 9:29 pm
    Rob,
    you are a very shamless realtor,Rates are relative to the property price.
    You don’t have to rob people for ur own sake.”

    Sorry, but WTF???

  14. robchipman

    Fish has an excellent point. When I say that you have to be disciplined in your purchases and prepare for long term holds, that means doing numbers very similar to his. His example is clearly not a good buy, unless we’re missing an important piece of info, or unless we think that the property is going to continue to appreciate significantly.

    That said, some people prefer to buy and wait rather than wait and buy. That’s not all bad. Possibly not efficient, but not all bad.

  15. Tony Danza

    From The Housing Bubble Blog,
    regarding the RE market in Eastern US:

    “For the past 18 years, people looking for a new home simply called real estate agent Edgar McConnell for help. Nowadays, things are different. ‘I have not had a good year,’ said McConnell.”

    “It’s been a slow change. Calls have been reduced and fewer homes have been sold. ‘We have a lot of houses on the market,’ said McConnell.”

    “On one street in Albany, we found three For Sale signs within a few feet of the other. They’ve all been up for a while. ‘It’s been slow. You don’t get calls. It just seems like there isn’t any interest in houses like it used to be,’ said McConnell.”

    Looks like when things follow their natural course in Metro Vancouver we will take a large hit to our #1 “profession”.

  16. Tony Danza

    Looks like one of the principles of investing for retirement (don’t invest in the industry that employs you) was ignored by many in Florida:

    http://tinyurl.com/2pjhon

    Hopefully we don’t see this in BC.

    BTW this is a great piece of journalism. I am not trying to rattle Chipman’s cage with these posts I just find the stories edifying.

  17. robchipman

    Tony:

    The cage isn’t rattled. My rules for buying real estate are buy what makes sense and prepare to hold long term. Take care of the downsides and the upsides will take care of themselves.

    Flipping is timing the market. Timing the market is tough, whether you’re picking a peak or a trough. I don’t advise doing it, even though many have been very successful at it. It is very risky. We haven’t seen a lot of people get urned by it here, but there is no doubt that at some point we will probably see it (who knows, maybe the market will flatline and nobody will lose more than opportunity cost, but…)

    There’s an interesting quote at the end of the article:

    “She survives by managing rentals, 150 properties at last count. Rentals: It’s a growth market”.

    Rentals aren’t a growth market without owners. Owners don’t own unless they can hold. Most of the holders make a profit (see my rules for buying). In other words, the market changes, but never stops, and there is always opportunity, even in a market like Florida’s.

  18. coco

    Inflation is not preferred over recession.

    It is very difficult to defeat rising inflation, the 70’s were a prime example, that is why central banks changed their monetary policies to fight inflation after that.

    If a government has to impose a recession, it will be done as early as possible before inflationary problems become so large that a very long recession is needed to reduce inflation.

  19. Domus

    Agree with Coco. Recession is bad, inflation is worse.

  20. Anonymous

    interesting article regarding the (unpopular) benefits of recession:

    http://www.economist.com/finance/displaystory.cfm?story_id=9687245

  21. Domus

    Thanks. Read the article 2 days ago. Very smart commentary.

    Unfortunately it is a hard sell for all those people who got into debt: their vote is valuable to politicians just as much as the vote of people who were more prudent.

  22. News Flash

    “Looks like one of the principles of investing for retirement (don’t invest in the industry that employs you)”

    Like Warren Buffet and Bill Gates have. Those idiots.

    I would bet 90% of those who have built significant wealth did so in businesses or industries they worked in.

  23. Anonymous

    “Like Warren Buffet and Bill Gates”

    Kenneth Lay too.

  24. robchipman

    Domus/coco:

    Don’t get me wrong. I’m not arguing that taking unpleasant medicine is wrong, stupid or otherwise not the course to go.

    I am saying that I think central bankers will choose inflation over recession (largely because I think that they think that they can control inflation more easily and with fewer negative effects than they can recession). Its a guess, but based on what they’ve been doing, am I far off? If liquidity got us through the dot.bomb, as many argue, could it not be a saviour, if applied judiciously, for this unfolding credit crunch?

    The alternative is to say “Take your medicine, let the blood flow on bad investments (be they housing or bad debt), and get ready for a constricted money supply and high interest rates”.

    Again, I’m just guessing, but I’m thinking that faced with the latter scenario the central bankers will prefer the juggling on roller skates that an expanded money supply has become.

    (Full disclosure: I’m far from an expert on money supply).

  25. Anonymous

    Rob: “Its a guess, but based on what they’ve been doing, am I far off? If liquidity got us through the dot.bomb, as many argue, could it not be a saviour, if applied judiciously, for this unfolding credit crunch?”

    WSJ.com “Bernanke Breaks Greenspan Mold”
    http://online.wsj.com/article/SB118841384006012433.html?mod=hps_us_whats_news
    subscription might be required (yeah, not the more insightful Vancouver Sun)

  26. coco

    Rob,

    Perhaps, this will help you understand inflation better and at what rates the central banks start to fight it. Inflation is extremely hard to control and that is why a mild recession is preferred to control inflation, rather than risking monetary collapse if inflation is allowed to run wild.

    Here are the four types of inflation. Canada currently has walking inflation and the BOC is watching it and trying to bring it down to the creeping level by raising interest rates. All central banks strive to keep inflation at the creeping level.

    Creeping Inflation: less than 3% (safe and essential for economic growth)

    Walking Inflation: 3% to 9.9% (warning signal for the government to start to control inflation before it turns into running inflation)

    Running Inflation: 10% to 20% (tremendous adverse effects on the poor and middle class, needs strong monetary and fiscal measures to control)

    Hyperinflation: 20% and above. (brings a total collapse of the monetary system due to a fall in the purchasing power of money)

  27. robchipman

    Anonymous:

    Good article, and I think it speaks directly to the subject. Still, he’s saying if Bernanke doesn’t cut rates he’ll break the pattern followed by Greenspan. In other words, he hasn’t broken the mold yet, correct?

    Again, I’m not saying he should or shouldn’t. I’m just speculating on what they seem to be doing.

  28. coco

    If Bernanke cuts rates aggressively the subprime problem is actually bigger and more dangerous to the economy then we think it is.

  29. coco

    “Canada currently has walking inflation and the BOC is watching it and trying to bring it down to the creeping level by raising interest rates.”

    I should of added this to my statement:

    *BOC targets inflation to be under 2.0% a comfortable level for Canada’s economy and considers above 2.0% walking or starting to walk.

  30. robchipman

    Coco:

    I think I understand inflation. And I think that I understand that if the choice is between a mild recession and hyper-inflation most people would choose a mild recession.

    However, recessions are like inflation in one respect: hard to control. I’m not sure the central banks can restrict a recession to a mild level. I’m not sure that they even think they can. You’ll notice fish has described the actions of central banks as “panic”. They’re scared of recession.

    Again, I’m not picking favourites. Inflation means we need higher returns to break even. Recession means its tough to get returns, period. Both have negative and positive aspects. I’m simply saying I think central banks will choose a little inflation instead of recession, becaseu they’ll be more scared of recession. We’re going to see.

  31. My loan officer says that rates will be going down. Maybe this will add some positivity to the market, and offset the doomsday real estate market stories we read about every day in the newspapers.

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