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“This Isn’t a Drill” Mortgage Rates Hit Highest Level Since May 2014

January 30, 2018

“This Isn’t a Drill” Mortgage Rates Hit Highest Level Since May 2014

A housing bust may be just around the corner. Rates have climbed to a level last seen in May of 2014.

The chart does not quite show what MND headline says but the difference is a just a few basis points. I suspect rates inched lower just after the article came out.

For the past few weeks, rates made several successive runs up to the highest levels in more than 9 months. It was really only the spring of 2017 that stood in the way of rates being the highest since early 2014. After Friday marked another “highest in 9 months” day, it would only have taken a moderate movement to break into the “3+ year” territory. The move ended up being even bigger.

From a week and a half ago, most borrowers are now looking at another eighth of a percentage point higher in rate. In total, rates are up the better part of half a point since December 15th. This marks the only time rates have risen this much without having been at long term lows in the past year. For example, late 2010, mid-2013, mid-2015, and late 2016 all saw sharper increases in rates overall, but each of those moves happened only 1-3 months after a long term rate low.

Not a Drill

So far this month, MBS have stunningly dropped over 200 bps, which easily translates into a .5% or more increase in rates. I’ve been shouting “lock early” for quite a while, and this is precisely why, This isn’t a drill, or a momentary rate upturn. It’s likely the end of a decade+ long bull bond market. LOCK EARLY. -Ted Rood, Senior Originator

Housing Bust Coming

Drill or not, if rising rates stick, they are bound to have a negative impact on home buying.

…click on the above link to read the rest of the article…

Rate Squeeze in Vancouver & Toronto Housing Bubbles

January 23, 2018

Rate Squeeze in Vancouver & Toronto Housing Bubbles

Variable-rate mortgages, the HELOC phenomenon, and new stress tests meet higher rates.

The Bank of Canada raised interest rates another 25 basis points last week. It was the third time in the past six months. Rates have more than doubled in that time, going from 0.50% to 1.25%. This hike was baked into the economic data, and now it’s getting baked into the debt loads of Canadian households.

Following the announcement, Canadian banks hiked their prime lending rateby an equivalent 25 basis points. The prime lending rate is the annual interest rate Canada’s major banks use to set interest rates on variable-rate loans, lines of credit, variable-rate mortgages, and HELOCs (Home Equity Lines of credit).

This means nearly instantly higher interest payments for borrowers carrying variable-rate mortgages, HELOCs, and lines of credit.

This is critically important, considering the context of the current situation. Interest rates have been at historically low emergency levels since the Financial Crisis. This has allowed households to absorb elevated house prices and a record amount of debt. Each rate hike reduces the ability to service that debt.

Given the current size of the mortgages, for Vancouver households, a 1% rate increase in their variable mortgage rate would require an additional 9.2% of their income to make the payment, according to Better Dwelling, and for households in Toronto, it would require an additional 8.3% of their household income. In Montreal, it would require an additional 3.2% of their household income:

Further, the newly required stress tests for variable-rate mortgages require that applicants qualify at the minimum specified rate of the stress test, which just jumped from 4.99% to 5.14%, or at the actual rate they’re borrowing at PLUS 2%, whichever is greater.

…click on the above link to read the rest of the article…

The ‘Everything Bubble’ and What Happens if Credit Freezes Up in a Credit-Based Economy

January 21, 2018

The ‘Everything Bubble’ and What Happens if Credit Freezes Up in a Credit-Based Economy

“It could get really messy.”  Wolf Richter on the X22 Report

The US government bond market has soured, even the 10-year yield is surging, and mortgage rates have jumped. Read… What Will Rising Mortgage Rates Do to Housing Bubble 2?

What Will Rising Mortgage Rates Do to Housing Bubble 2?

January 20, 2018

What Will Rising Mortgage Rates Do to Housing Bubble 2?

Oops, they’re already rising.

The US government bond market has further soured this week, with Treasuries selling off across the spectrum. When bond prices fall, yields rise. For example, the two-year Treasury yield rose to 2.06% on Friday, the highest since September 2008.

In the chart, note the determined spike of 79 basis points since September 8, 2017. That was the month when the Fed announced the highly telegraphed details of its QE Unwind.

September as month of the QE-Unwind announcement keeps cropping up. All kinds of things began to happen, at first quietly, without drawing much attention. But then the trajectory just kept going.

The three-year yield, which had gone nowhere for the first eight months of 2017, rose to 2.20% on Friday, the highest since October 1, 2008. It has spiked 82 basis points since September 8:

The ten-year yield – the benchmark for financial markets that most influences US mortgage rates – jumped to 2.66% late Friday.

This is particularly interesting because the 10-year yield had declined from March 2017 into August despite the Fed’s three rate hikes last year, and rising short-term yields.

At 2.66%, the 10-year yield has reached its highest level since April 2014, when the “Taper Tantrum” was winding down. That Taper Tantrum was the bond market’s way of saying “we’re shocked and appalled,” when Chairman Bernanke dropped hints the Fed might eventually begin tapering what the market had called “QE Infinity.”

The 10-year yield has now doubled since the historic intraday low on July 7, 2016 of 1.32% (it closed that day at 1.37%, a historic closing low):

Friday capped four weeks of pain in the Treasury market. But it has not impacted yet the corporate bond market, and the spread in yields between Treasuries and corporate bonds, and particularly junk bonds, has further narrowed. And it has not yet impacted the stock market, and there has been no adjustment in the market’s risk pricing yet.

…click on the above link to read the rest of the article…

Chinese Banks Begin To Raise Mortgage Rates

February 9, 2017

Chinese Banks Begin To Raise Mortgage Rates

Raising rates on reverse repos, hiking the cost it charges on its Medium-Term Loan Facility and Standing Lending Facility, five consecutive day without a reverse repo liquidity injection (or rather a CNY715 billion liquidity drain), and now in the latest indication of overall tightening of monetary conditions, China has started to hike mortgage rates.

According to press reports, some bank branches in Beijing, Guangzhou and Chongqing have raised mortgage rates for first-home buyers recently. The China Securities Journal confirms as much, reporting that China’s banks in some big cities have started to lower discounts on lending rates for fist-time home buyers, joining recent steps to curb financial risks stemming loose credit conditions.

Following up on the Chinese report, Reuters notes that since the start of 2017, banks in Beijing have started discounting mortgage rates as much as 10 percent off the official benchmark rate, reducing from as much as 15 percent previously, CSJ said on its website. The current one-year benchmark lending rate set by the People’s Bank of China is at 4.35 percent, the lending rate for loans up to five years is at 4.75 percent and loans longer than 5 years is at 4.9 percent.

Few lenders in Beijing and Shanghai still offer mortgage rate discounts more than 10 percent off the benchmark, the Chinese paper said. “There are indications that the financial environment for the property market will no longer be loose in 2017,” it said.

In the southern city of Guangzhou, for example, the Postal Savings Bank, Industrial Bank and Rural Commercial Bank have also adjusted discounts on mortgage rates to as much as 10% off the benchmark rate from as much as 15%, the paper said.

…click on the above link to read the rest of the article…

Meridian credit union offers 1-year mortgage at 1.69%

February 2, 2016

Meridian credit union offers 1-year mortgage at 1.69%

Spring mortgage wars start early, as member-owned lender makes new low offer to homebuyers

Meridian credit union just offered a one-year mortgage at 1.69 per cent.

Meridian credit union just offered a one-year mortgage at 1.69 per cent. (Daniel Munoz/Reuters)

Alternative lender Meridian has launched the first shot in the spring mortgage wars with a one-year fixed mortgage rate of 1.69 per cent.

“As we are quickly approaching the busy spring home buying season, this is the perfect time for people to evaluate their home buying options by getting a pre-approval now,” the credit union said in a release Tuesday announcing the offer.

The deal is the lowest mortgage rate currently on offer from any lenders, for any term, listed on RateSupermarket.ca. It also comes with a so-called 20/20 prepayment ability, which means the borrower is able to pay off 20 per cent of the principal in any given year. The borrower can also increase the monthly payment up to 20 per cent of the original payment plan each year.

Competitive market

The move is a first strike in the battle for market share in the upcoming spring buying season. The big banks have raised their mortgage rates incrementally over the past 12 months in some cases, even as the Bank of Canada has twice slashed its benchmark rate, and yields in the bond market — where the banks borrow from to get money to loan out to mortgage buyers — are also getting cheaper.

In recent years, mortgage lenders have been keen to cut their rates in the lead-up to the busy spring buying season in order to gain market share.

Meridian’s announcement came with a potshot against the big banks, who haven’t passed on the full extent of the last two central bank rate cuts to consumers by lowering their consumer rates by the same amount.

…click on the above link to read the rest of the article…

“Perverse, Unpredictable Effects” of Negative Interest Rates: Mortgage Rates Soar in Switzerland

December 17, 2015

“Perverse, Unpredictable Effects” of Negative Interest Rates: Mortgage Rates Soar in Switzerland

The unintended consequences of NIRP.

Negative interest rates – called “punishment interest” in Germany – have morphed from sheer impossibility to solid reality in Europe. Having seen how they work, the Bank of Canada has invoked them now, and Fed Chair Janet Yellen, has put them “on the table” before a House of Representatives committee.

In Europe, after they became established as the latest method of flogging savers until their mood improves, all kinds of absurdities saw the light of the day. For example, bailed-out national governments can now fund their deficits at negative rates, extracting money from their bondholders, rather than paying them. Perhaps the coolest notion was that banks would be “paying your mortgage.”

That may have been an illusion – at least in Switzerland, where the Swiss National Bank slashed its benchmark rate on “sight deposits” to negative 0.75% on January 15, the day of the epic “Frankenschock.” That day, the SNB abandoned its cap on the franc, which within the blink of an eye, soared nearly 40% against the euro and the dollar, wiping out currency speculators in the process and shaking up global currency markets.

The negative benchmark rate had the effect that by now, 70% of franc-denominated corporate bonds trade with negative yields, according to Credit Suisse. And the theory was that mortgages would certainly head that way.

Initially, interest rates on 10-year fixed-rate mortgages plunged to about 1%, with some quoted below 1%, and folks were already speculating about 0% mortgages or negative-rate mortgages. But then something funny happened on the way to the bank: unintended consequences kicked in.

Swiss banks somehow decided, for whatever inexplicable reason, to make a living. That’s hard to do for banks when they lend out money in a negative interest-rate environment. So the biggest Swiss banks accomplished a unique feat: they’ve jacked up mortgage rates since then, with the 10-year fixed-rate now at about 2% and the 15-year fixed-rate at about 2.5%.

…click on the above link to read the rest of the article…

Fed chair Yellen tells Canadian homeowners to watch out: Don Pittis

June 18, 2015

Fed chair Yellen tells Canadian homeowners to watch out: Don Pittis

Your mortgage rates are going up, and U.S. Fed chair is pretty specific on how much

The financial analysts think they have it figured out. After listening to U.S. Federal Reserve chair Janet Yellen’s speech and her wily answers to questions from reporters, the consensus seems to be that a rate rise is coming later this year — the first one probably in September.

While that date is of crucial interest to market wheeler-dealers, for Canadian mortgage-holders Yellen had a far more important message. It is especially important in a week when Manulife warned that for many home owners, a rate hike could be trouble.

While a large majority of Yellen’s advisory committee agrees that the economy will require a rate rise before the end of the year, Yellen herself said the exact moment of such a rise really doesn’t matter.

“The importance of the timing of the first decision to raise rates is something that should not be overblown, whether it is September or December or March,” said Yellen in response to a question. “What matters is the entire path of rates.”

Best guesses

Of course neither Yellen nor the rest of the Federal Open Markets Committee members actually know for sure where the economy is headed. All they can do is make their best guesses, based on examining all the latest economic indicators, then sort of sum up to come to a collective conclusion.

As Yellen said yesterday, the committee’s best guess is that the U.S. economy has begun expanding moderately after a sickly first three months of the year. Jobless figures show that the supply of surplus labour is gradually being used up.

Consumer spending is still pretty soft, they conclude, but the housing market has perked up. On the downside, business investment in plant and equipment remains soft. So do exports.

 

…click on the above link to read the rest of the article…

What If Mortgage Rates Go Up?

May 15, 2015

What If Mortgage Rates Go Up?

From 4% to 5%

If the 30 year mortgage rate increases by just a quarter percent to 4.25%, monthly payment increases by 3%, which may only have a minor impact on the market. Half a percent to 4.5% would increase payments by 6.13% and that may start pushing marginally qualified borrowers into the “application denied” pool. With a 1% increase, from 4% to 5%, the monthly payment goes up by 12.44%. Needless to say, in order to qualify household income would have to increase proportionally. That should put a real damper on purchases, especially at the entry level.

 

30 year fixed rate, log scaleThe 30 year fixed mortgage rate average, 1979 – 2015, log scale, via Saint Louis Federal Reserve Research – click to enlarge.

Scrambling to lock-in rates

Builders may be particularly vulnerable in this environment. They may see a higher cancellation rate, or may have to offer some concessions to keep deals together. Qualified buyers may become marginally qualified buyers, with less incentive to buy.

What about refinances?

With rates being so low for so long, there are not that many procrastinators left. Those who have not refinanced in the last couple of years are probably not qualified to do so because of lack of equity, or income, or unfortunately they may not fit into any of the many easy refinance programs. If rates go up, say, by 1/2% or more, I expect not to see just a decline, but an abrupt stop to refinancing.

…click on the above link to read the rest of the article…

 

 

Canadian house prices 35% overvalued, Economist magazine says

April 21, 2015

Canadian house prices 35% overvalued, Economist magazine says

Cheap borrowing costs are driving up prices in markets around the world

In a survey of housing costs around the world, the Economist magazine says Canada’s housing prices are 35 per cent overvalued when compared to Canadian incomes.

Against the level of Canadian rents, housing prices come in 89 per cent overvalued, according to the Economist housing index.

In calling Canadian house prices out of kilter, the Economist joins voices such as Bank of Canada governor Stephen Poloz, ratings agency Fitch and even the International Monetary Fund, in pointing out that the rise of house values is out of sync with Canadian incomes.

Of the 26 markets surveyed, the magazine found seven where housing prices are more than 25 per cent overvalued.

Belgium leads the pack, with house prices 50 per cent overvalued relative to income. But also highlighted are Australia, France, Britain and Sweden.

Too cheap to borrow

The Economist puts the blame on “ultra-loose” monetary policy. Mortgage rates are at historic lows around the world.

Cheap borrowing has encouraged consumers to jump in and buy, driving demand and pushing prices higher.

The result is a bubble, as housing prices rapidly outpace both consumer incomes and rental costs.

In Canada, housing prices have risen steeply in the past decade, with the hot markets of  Toronto and Vancouver seeing increases of 7.8 per cent and 7.1 per cent respectively in the past year.

 

 

…click on the above link to read the rest of the article…

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