The Toronto Star published an excellent article by Gordon Pape today. His view? “The low interest rate party may be ending.” To link to that article Click Here.
The message from the US Central Bank is that quantitative easing may be nearing an end and a “normalizing” process of economic policy is in the near future.
It’s no secret by now that mortgage rates–particularly the 5 year fixed rate terms–have risen in the last week by as much as 20-30 Basis Points (.2% to .3%). While minor in nature compared to historical norms, affordability is being affected.
This rate increase is primarily due to falling bond market prices resulting in increase yields for quality bonds and mortgages. This, together with recent rule changes by government, has had an effect on borrowing ability for most real estate buyers and refinancers. Here are some examples of changes in today’s mortgage market:
- Fixed rates increasing (although variable rate mortgages are slightly decreasing)
- Lenders are tightening criteria for qualification, e.g. if you have a credit line, you may find that you no longer qualify for as much of a mortgage.
- Properties that are not “prime” and readily saleable may present problems for financing.
- Lower Credit Scoring and credit blemishes on a borrower’s record may prevent qualifying
- Self Employed Borrowers are facing more stringent criteria than before
The obvious conclusion is that these and other policy changes will reduce the number of qualified buyers, thus reducing housing demand across the country and eventually softening house prices–clearly our government’s strategy.
Will these trends continue? I can’t find anyone that knows for sure, but my recommendation remains the same. In this market, with regard to acquisition and maintenance of debt….STAY SAFE!
The Canadian Association of Accredited Mortgage Professionals just released their report on the State of The Residential Mortgage Market in Canada. Some of the more significant indicators and trends are very interesting.
- 35% of all mortgage holders have either increased their payments or made a lump sum payment on their mortgage in the last 12 months
- Vast majority of Canadians have ability to afford higher mortgage payments. 84% said they could handle monthly increases of $300 or more in their monthly payments
- 90% of Canadian homeowners have at least 10% equity in their homes, 81% have over 20% equity
- 70% of Canadians are satisfied with their mortgage terms
- Despite low Bank of Canada interest rates reflected in low variable rate mortgages, a majority (66%) of Canadians still have a five year fixed mortgage, 29% have variable mortgages and 4% a combination
- Overall, 22% of mortgages have an amortization of greater than 25 years compared to 18% last year
- Overall home equity is 72%. For homeowners with mortgages, equity level averages 50%
- Mortgage rates continue to drop. Average mortgage rate is 4.22% versus 4.55% last year. For those who took out a mortgage in the last year, the average rate was 3.75%, 72% of those renewing saw a decrease in their mortgage rate
- Overall, mortgage brokers account for 25% of all mortgages, for new mortgages in the past year this number rises to 40%
- As of August 2010, there was over $1 trillion in outstanding residential mortgage credit in Canada
- Mortgage arrears rate remains stable at 0.42%, lower than for most of the 1990s