Prime Rates are All Over The Map

Unfortunately, not all variable rate holders are getting the full benefit from the 1/2 percent drop in the Bank of Canada overnight rate announced on October 8.   In the past, all lenders have the same prime rate.  With the credit crunch and the tighter cost of credit for lenders, this has all changed.

Here is a list of some of the major lender’s prime rates.

Island Savings     4.25%
Van City               4.25%
BMO                     4.25%
Scotia                    4.25%
Maple                   4.25%
Ing                        4.25%
Street                   4.25%
First Line             4.35%
CIBC                     4.35%
TD                         4.35%   (effective Nov. 1)
Merix                    4.50%
MCAP                   4.50%
HSBc                     4.50%
BW                        4.50%
Nat Bank              4.50%
Resmor                 4.50%

Monthly Review of Interest Rate Forecasts from the Major Banks

The Bank of Canada (BoC) held their benchmark interest rate on September 3 at 3.0%. This was in line with the expectations of most economists from the major banks.  As in their previous communique, the Bank cited three main developments affecting the Canadian economy: (1) economic weakness in the US; (2) on going turbulence in the Global Financial markets and (3) a sharp increase in commodity prices.   From the Bank’s point of view, the US economic weakness and the turbulence in the financial markets are progressing as expected.  The sharp increase in commodity prices, however, has not materialized due to slower global demand.

Our roundup of the Big 5 Bank’s economic forecasts show that economists at these institutions are expecting rates to stay the same until 2009. Note: There are only 4 banks in our report since Scotia Bank did not release their interest rate forecast this month.

Here is what they are saying:

• TD Economics -  “..we feel that the next move by the BoC will be a rate hike – but not until the second half of 2009″ –TD Economics The Weekly Bottom Line September 5, 2008
• BMO Nesbitt Burns – Forecast shows the overnight rate holding steady until Sept 2009 (see Forecast Summary on page 1) — BMO Rate Scenario dated September 3, 2008
• RBC – The bank is looking at a rate hike “..a rate hike by the Bank of Canada likely in the first quarter of 2009.”– RBC Financial Market Update dated Aug 6, 2008
• CIBC Wood Gundy – “We continue to expect the next move will be a hike in 2009″ — CIBC Market Call dated August 29, 2008

Gas Prices and its Impact on the Real Estate Market

GM and Chrystler recently announced that they are leaving the auto leasing market due to heavy losses in this sector.  Apparently, when their trucks (and also cars) are returned to the dealership, the vehicles cannot be sold for the residual value as people trade down to a more fuel efficient vehicle.  This is a sure sign that the impact of high gas prices are being felt by the auto sector.

There is no doubt that this trend will also affect the real estate sector.  Home purchasers would be wise to heed this warning.

Here at BCMortgage.ca, we believe a home is not just a place to live and raise a family, it is also a very significant long-term investment.  The effects of high gas prices will influence where people purchase property and consequently, where demand for real estate will head.  This sentiment is echoed by Cameron Miur, chief economist for the BC Real Estate Association.  Mr. Muir says that while it may take a while before we notice this trend, we can expect demand to increase in areas near mass transit nodes.

The writing on the wall is clear.  If you’re looking for long-term property appreciation in your home, you need to consider purchasing either near a mass transit system or within the city.

Monthly Review of Interest Rate Forecasts from the Major Banks

The Bank of Canada (BoC) surprised financial markets by holding rates on June 10 siting higher inflation risks. With the expectation of a BoC rate drop, the financial markets had already priced-in lower fixed interest rates. When the drop did not materialize, fixed rates increased by 1/4% across the board.

With the BoC’s overnight rate remaining static, variable rate mortgages remain unchanged.

For now, economists at the Big 5 Banks agree that rates (i.e, for variable rate mortgages) will hold. Here is what they are saying:

1. TD Canada Trust – “…we think that the Bank will do what it can to avoid making any interest rate moves in the near term, raising rates only when the economy is back on track. To us, that means the overnight rate will remain at 3.00% until the second half of 2009.” — TD Quarterly Economics Forecast dated June 18, 2008.
2. Scotia Capital – “…The BoC left its overnight rate unchanged at 3.00%. Policymakers appear likely to remain on hold for the time being, with the accompanying statement shifting focus to the upside risks to inflation, noting that global growth and commodity prices have been higher than expected. Still, future rate reductions are not off the table yet. The BoC retained its view that core inflation only gets back up to 2% by 2010 and still points to downside risks to growth. –Scotia Capital Weekly Trends dated June 13, 2008
3. CIBC World Markets – “…We’re inclined to take Carney at his (new) word, and expect that the next move will be a rate hike in 2009. “– CIBC World Markets Economic Flash dated June 10, 2008 .
4. RBC Economics – “…The Bank of Canada is unlikely to switch to a tightening policy stance in the near-term, especially with the economy growing at a slower-than-potential rate this year.” — RBC Economics Report dated June 10, 2008
5. BMO Capital Markets Economics Research – Please refer to BMO’s economic forecast on Page 7 showing the overnight rate at 3% (unchanged) until the end of 2008. BMO report dated June 13, 2008 .

Survey Shows Consumers Satisfied with their Mortgage

A recent survey conducted by the Mortgage Brokers Association of BC (MBABC) confirms the increasing acceptance of mortgage brokers as a source for financing. Here are some of the findings of the study:

1. 91% of consumers were satisfied with the services provided by mortgage brokers
2. Keys reasons for using a mortgage broker include: General satisfaction, good competitive rates, simple/no hassle, helpful and accommodating. Mortgage customers placed value in the research provided by the broker.
3. 86% of consumers felt that mortgage broker services were valuable in arranging a mortgage
4. 69% of BC mortgage consumers would consider using a mortgage broker. Of those who have already used mortgage brokers, 96% said that they intend to return using a mortgage broker.
5. Mortgage brokers customers would typically be younger compared to customers who would go direct to their bank.

The study was designed to understand awareness, usage and opinions of mortgage brokers in British Columbia. A total of 350 random surveys were completed between Oct 18 to Nov 1, 2007.

First National’s Excalibur programme – The Latest Casualty in the Sub-Prime Crisis

On May 15, First National announced that they will no longer be offering their Excalibur programme. Excalibur was an excellent programme targetted to individuals with challenges proving their income. Applicants under this programme would include self-employed individuals and individuals earning partial commissions or earning tips. Many lenders offer self-employed programmes insured by CMHC, Genworth or AIG. Unfortunately, many borrowers cannot fit under these guidelines. For example, if an applicant earned less than 100% commissions, they would not qualify for an insured mortgage. Secondly, individuals who had a significant income from tips could not self-declare this income.

During the past year, the players in the alternative lending market have dwindled. The remaining ones include Wells Fargo, GE Money, Citifinancial, Abode Mortgage and possibly a few others. These leave me to wonder how long the remaining players will stay in this market. With less competition, I expect that these lenders will want to charge a higher rate and possibly be more difficult to deal with.

The lesson to be learned is that these alternative lending programmes can be taken off the market anytime. If you feel you are ready to purchase, you should get yourself evaluated now before the market landscape changes (as it always does).

Where are house prices in Vancouver / BC headed in 2008?

You may find this hard to believe but I’m hearing that we can still expect house prices to increase in 2008. I was at the Mortgage Broker’s Association of BC Trade show this week and attended the presentation of two well respected economists – Cameron Muir of the BC Real Estate Association and Benjamin Tal of CIBC World Markets. Mr. Muir expects house prices to continue rising, albeit at a slower growth rate of between 7-8%, not the 20% growth rate we are accustomed to seeing during the past few years.

Unlike our friends in Ontario and Quebec, British Columbia is less impacted by the slow down in the US economy. For us, the biggest impact will be in the softwood lumber industry, which is reeling from the high Canadian dollar and from lower US housing starts. Thankfully, the forest industry now accounts for only 3% of our economy. Commodity and energy prices are at its peak and the pulp and paper industry is holding its own. With Central Canada being hit hard by the US slowdown, the Bank of Canada will be forced to drop interest rates. This will have a positive impact on BC’s housing market.

The key driver to the housing market is employment. With the unemployment rate the lowest it’s every been at 4%, it’s no wonder that our housing market will continue to remain robust. Wages have also been rising faster than inflation. The correlation between employment and housing makes a lot of sense. As people become confident of the job situation, they will want to own their own home (or upgrade to a larger home if their income increases).

What I take away from this is that if you don’t own your own home, you should seriously consider getting into the market as soon as it is feasible. Don’t bet against the experts. Even if you’re thinking that there will be a bubble (and I don’t know of any Canadian economist predicting a bubble), I suggest you hedge your bets a bit. Buy your own home. Since you’ll be there a while, you’ll be able to ride out any possible downturn while you enjoy the benefits of owning your own home.

Canada’s Best Mortgage Lenders

Canadian Mortgage Professional (CMP) Magazine recently conducted a survey of the best non-bank mortgage companies in Canada. Here are the results for the following three categories:

A) Approval/Loan Turnaround times:

First Place: Macquarie Financial

Second Place: GMAC Residential Funding

Third Place: Optimum Mortgage

B) Interest Rates

First Place: Macquarie Financial

Second Place: FirstNational Financial

Third Place: Merix

C) Product Range

First Place: Firstline Mortgages

Second Place: GE Money

Third Place: Merix

 

While getting the best interest rate is important, there are other factors that are important as well. Time is of the essence in real estate transactions. This is especially true in a hot market. You could lose your deal if your lender takes its time in giving your the approval.

Product range is also an important consideration. A financial institution that offers a variety of mortgage options will likely have the right product to fit your financial plans.

Bank of Canada Leaves Key Interest Rate Unchanged

The Bank of Canada announced this morning that it will leave its key interest rate unchanged, as anticipated by most economists.

In its statement the Bank commented that its current key policy rate “is consistent with achieving the inflation target over the medium term.” The Bank forecasts that the Canadian economy will grow by “2.6 per cent in 2007, 2.3 per cent in 2008, and 2.5 per cent in 2009,” and that inflation will “return to 2 per cent in the second half of 2008.”

As a result of this decision, lending institutions in Canada are expected to keep their prime lending rate steady. However, people looking for a new variable-rate mortgage should note a recent mortgage rate trend – pricing on this type of mortgage has been adjusting upwards in recent weeks. Existing variable rate mortgages do remain unchanged but new variable borrowers are paying more.

If you would like to discuss how current trends in mortgage rates impact the best mortgage strategy for you, contact me at (604) 506-0397. I can obtain a mortgage pre-approval if you’re wanting to buy a home – with a “rate hold” of up to 120 days, you will know how much you can afford.

Top 5 New Developments for 2007

1) AIG Mortgage insurance products – For a long time, the mortgage insurance market had been dominated by CMHC and Genworth. With only two major players in the market, there wasn’t very much innovation and competition in the industry. AIG’s entry has been a catalyst for change in the industry. AIG brought in higher loan amounts, high-ratio mortgages for rental properties, 3% down payment mortgages and 5% down low down payment mortgages. Bridgewater Bank was the first lender to offer AIG insured products. AIG’s insurance is currently available mainly through non-bank lenders such as Firstnational, Firstline, AGF Trust

2) 40 year amortization – Given the high home prices in the Metro Vancouver area, the 40 year amortization mortgage is quickly becoming the standard amortization for mortgages.

3) 20% conventional mortgages – For many (not all) lenders, mortgages with 20% down payment/equity do not require mortgage default insurance anymore.

4) High-ratio investment property mortgages – Up until the Summer of 2007, investors needed at least 25% down payment to purchase an investment property. Now, it is possible to purchase an investment property with as little as 10% down payment. CMHC recently announced that they will insured investment properties without a downpayment. However, a lender has yet to announce that they will participate in CMHC’s zero down rental programme.

5) US Sub-Prime Meltdown – Canada’s subprime market has been hurt by the US Subprime problems. Lenders have tighted up, pulled back or increased their interest rates.