Thanksgiving 2020 Video Update

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VIDEO: Mortgage Update and Social Distancing

We are now over a month into Social Distancing across most of the world. It will likely last a few more months. It has wreaked havoc on our mental health. It has caused a large number of layoffs, or reduced hours of work for others. The uncertainty is crushing!

Alberta lost 100,000 jobs in March and more are being lost in April. There are more government aids than normal, but even this may fall short of keeping everyone well taken care of. The Canada Emergency wage subsidy has been slow to launch but will help some business keep their employees and to stay in business.

The Bank of Canada in it’s April 15th 2020 announcement said that real economic activity was down 1-3 percent in the first quarter of the year and is expected to be down 15-30 percent in the second quarter that just started. This will be a deep recession, but hopefully a short one.

The Alberta government has doubled its infrastructure budget for the year to nearly 2 Billion dollars which will get some people back and working.

Over half a million Canadians have deferred mortgage payments. One lender recently told us they had over 100,000 of their customers reach out, and are nearly done working through the backlog. Most lenders are now able to process deferral requests through online banking or in the case of non-bank lenders, via their online portals. This is by far the most efficient mechanism to defer payments if you haven’t needed to yet, or do need to but haven’t yet.

There is some confusion over what a payment deferral is. Simply put, the payment is delayed. The interest is still charged each month, but instead of asking you to pay that interest, the bank or lender is adding it on top of your mortgage balance, effectively lending you the interest at the same rate as your mortgage. Your mortgage balance will be higher at the end of your payment deferral period, by the amount of the interest that would normally have been paid in that period, and then your mortgage amortization will continue as normal once it is over.

And of course, mortgage rates. The money markets that provide money and liquidity for mortgage financing were hit too. The usual correlation of the Canada bond rates and fixed mortgage rates broke. We saw fixed mortgage rates rise in the last half of March, but thanks to large injections by the government and relaxing of certain behind the scenes rules at CMHC, that has helped return the cost of mortgage financing to be closer to what was happening before the drop. We may see 2.49% 5-year fixed rates again in the coming weeks.

For those who are in existing mortgages with rates above 3%, and still employed, there may be an opportunity to replace your mortgage with a lower rate. Ask me about it in the question box below.

Homes are still being bought and sold. I had a client this week buy a home and he got $35,000 of the listing price. If you have been thinking about buying a home in the coming months, there will be some good deals. Some people still want to sell or need to sell, and builders still have inventory they need to unload. Price reductions have been happening, and more will likely happen over the next couple of months. Ask me about what this might look like for you.

But most importantly, I hope you are doing well. I hope you are still working, if you are not, know that my heart breaks for you, and for everyone who is suffering financially right now. Please stay safe. Stay healthy. Stay positive. We will get through this together, and there are good times in the future.

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VIDEO: Canadian Mortgage Rates and COVID-19

Alberta and pretty much the whole world is in a state of a public health emergency. Many jurisdictions are under forced quarantine, or shelter in place orders.

In addition to the emotional, and economic mayhem caused by COVID-19, and the generally cautious response by governments around the world, we also have somewhat of a price war happening in oil. Russia and Saudi Arabia have increased productions at the same time that the demand for most forms of refined oil has ground to a halt. Oil companies and refineries are cutting production to minimize losses.

A barrel of Alberta oil is now trading for less than the cost of a barrel of monkeys.

This morning Prime Minister Justin Trudeau announced a measure that will help small businesses supplement employee wages to 75%. Details are thin at this point.

The Bank of Canada made history this morning. March 27, 2020. It announced the third rate drop in less than a month. Normally interest rate announcements by the Bank of Canada follow a set schedule of once every 6 weeks, and most of the time, they announce that there is no change to the rate. Three drops in one month is unprecedented. Each of the three rate drops was a full half percent, or 50 basis points, where normally rate changes happen in 25 basis point, or quarter percent, intervals.

The bank of Canada rate is now 0.25%. This is the rate that the banks pay each other overnight as they settle accounts between each other. The retail Prime rate floats quite a bit higher than that. With the first two half-point drops, the retail Prime rate dropped from 3.95%, where it sat for over a year, down to 2.95%. It remains to be seen if the banks pass on the latest half percent, or even a portion of it, on to consumers. We will likely find out by April 1st.

These bank of Canada rate announcements usually make people think that rates are dropping!

For those in Lines of Credit, the prime rate has dropped. However, the banks are able to change how much above prime they price these credit lines since there is no fixed term. If you are in a Home Equity Line of Credit, I wouldn’t be surprised to see your rate increase from Prime + half a percent, to Prime + a full percent.

If you have a variable rate mortgage, your rate is dropping, and in most cases, your payment.

However, if you are thinking about getting into a new variable interest rate today, the decision isn’t immediately obvious. With the full percent rate drop in prime earlier in March, we saw lenders go from offering rates on new mortgages at a full percentage rate below Prime, to equal to prime. So Before when Prime was 3.95%, variable-rate mortgages were available between 2.75% and 3%. Now that Prime has dropped to 2.95%, variable-rate mortgages are still available for about 2.85% to 3.1%. With this most recent drop, I would expect the rates to only drop slightly as the discounts from prime fully disappear and become bonuses above prime instead.

Now – FIXED RATE mortgages. Last time I did a video blog on March 17, a couple of days after the second rate drop on Friday the 13th, I mentioned that fixed rates were low. This was after the March 6th big drop in the bond market which you can see on the chart of bond pricing over the past year. Bond pricing is a key driver to fixed-rate mortgages. Bonds are debts to government, banks, or other businesses and fund most fixed-rate mortgages.

However, there is an inverse relationship between the stock market and the bond market. As companies lose value, the risk of lending them money increases, thus raising the interest rate. And with COVID-19, the risk of layoff or property devaluation has caused mortgage bonds to become riskier too, which has lead to a large increase in fixed mortgage rates. Now, back to that chart, at the far right, you see that today, March 27, 2020, that bond rates dropped again, so we will have to wait and see if that sticks, and what it means to interest rates over the coming weeks.

There is a lot of uncertainty is the markets. We are really only two weeks into extreme social distancing and isolations. If you have questions, concerns, or are looking for any advice, let me know!

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VIDEO: COVID-19 and Mortgage Rates

We have seen the novel coronavirus spread faster than many of us thought. COVID-19 has closed schools and is hurting the economy. Today Alberta declared a state of emergency and most non essential services are closed.

Two weeks ago the Bank of Canada lowered it’s overnight rate by a half percent. This was the largest single-day drop since 2008. Just over a week later on Friday the 13th, they did it again in an unscheduled rate announcement.

The major banks didn’t immediately follow suit, but as of today, we have seen the banks pass along the full half percent rate drop again.

Current variable rate mortgage customers will now see their mortgage rate drop a full percent from February. Rate drops like this typically come in effect the start of the next month so your March payments are not impacted but April’s are.

Most variable rates change payment when rates change. However some of the major bank variable rates keep the payment the same, but now you will pay more principle in each payment.

Fixed rates have also been going crazy. It is normal in the springtime to see interest rates drop, but a week and a half ago, following the first Bank of Canada announcement, we saw the stock market drop significantly as well as the bond market. The bond market is the primary driver for fixed-rate mortgage rates. When this happened we saw major rate drops from some of our lenders, but those rate drops were short-lived and most have since increased with a bit of a recovery in the bond market Friday and onward to today.

With the virus shutting so much down, there will be some out of work for a while. Making mortgage payments will be more difficult for some of you. There are payment relief programs with most mortgage companies. I will be publishing details of that soon once we have a more comprehensive list. I will also send that information out by email.

These are unprecedented times. The immediate future is unsure, but long term things are still looking good. With downward rate movement, there are opportunities for some of you who hold fixed-rate mortgages. If you want to discuss those, please reach out to me.

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Fixed Rates on the Rise Despite Covid-19 Scare

The Bank of Canada announced an unplanned change to their overnight rate to take effect Monday March 16, a cut of an additional 50 basis points just 9 days after the Bank had already cut the overnight rate by 50 basis points. In under two weeks the overnight rate will have dropped from 1.75% to just 0.75%.

The Bank of Canada stated that, “This unscheduled rate decision is a proactive measure taken in light of the negative shocks to Canada’s economy arising from the COVID-19 pandemic and the recent sharp drop in oil prices.”

Variable Mortgage Rates

This news impacts homeowners with variable rate mortgages. Variable rates are determined by the lender’s PRIME rate, which is influenced by the Bank of Canada’s overnight rate. When the Bank cut the overnight rate by 0.50% on the 4th most (if not all) mortgage lenders followed suit and cut their PRIME rates in lockstep. When the Bank announced on the 13th that they would again cut the rate by 0.50% (effective March 16) lenders immediately put the additional cut into place.

Mortgage rates normally fall when their is economic uncertainty and inflation is expected to be low. The coronavirus contributes to both of these. The Bank went on to say, “It is clear that the spread of the coronavirus is having serious consequences for Canadian families, and for Canada’s economy. In addition, lower prices for oil, even since our last scheduled rate decision on March 4, will weigh heavily on the economy, particularly in energy intensive regions.”

The Bank will continue to keep both eyes on the situation and make changes as necessary. The next scheduled rate announcement will be on April 15.

It is expected by some that interest rates will come up again after the coronavirus has been contained and threat of further spread decreases. When this happens, consumer spending will return to normal, the economy pick back up, and inflation will come back to target, which will justify increased interest rates.

Fixed Mortgage Rates

Despite seeing massive drops in variable rates, fixed rates are on the rise. Why? This is because fixed mortgage rates are not guided by the Bank of Canada overnight rate. They follow the pattern of Canadian Bond Yields, plus a spread, where yields are influenced by things like inflation, export, and unemployment.

Gordon Ross, Managing Partner at Axiom Mortgage Solutions, sent an email to associates today explaining the rising rates.

“I have spoken with a few of our lending partner’s credit managers and the answer, while perhaps counter-intuitive, is fairly simple. They site the fact that the 5 year Canada bond is on the rise and that the stock market is up 10%. This, coupled with the way that they hedge funds, could lead them to losing large sums of money with further rate reductions.”

For the Consumer

When it comes to choosing between a fixed or variable rate mortgage there are pros and cons on both sides to consider. Fixed rates give you the reassurance that your mortgage payment will remain the same whether or not rates change. The comfort of predictability is often a preference homeowners choose. However, locking in with a fixed rate can prevent you from taking advantage of a significant drop in rates.

Variable rates have the benefit of giving the homeowner lower payments if the interest rate drops. However, this same flexibility also leaves the borrower open to higher payments should the rates increase. This type of risk must be weighed against your financial stability as well as the likelihood that you will see rate increases during the length of your mortgage term.

To find out which option is best for you, contact me anytime!

 

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Big Banks Mirror Bank of Canada Rate Cuts

Within hours of the Bank of Canada’s announcement that they had cut the overnight rate down by 50 basis points to 1.25% several big banks followed suit. It was uncertain whether the banks would move in lockstep with this announcement, but they have.

The Bank of Canada’s move was not predicted by speculators, but is largely believed to have been prompted by the US Federal Reserve’s rate cut of the same amount the day before. The Bank stated that the coronavirus and its impact on the Canadian economy was a core factor for the decision. However, big banks did not cite the Bank of Canada’s move or the virus in their decisions to cut rates as well.

It is believed that the Fed cut rates in an attempt to trigger a rebound in the stock market, which would have improved fixed mortgage rates, but the attempt seems to have failed. In fact, some analysts suspect the move may have actually frighted off investors.

Although rate cuts are good for mortgage lenders (and anybody else with a loan) because it means they can borrow more and pay less, it’s uncertain whether this was really a good economic move by the government.

“Monetary policy is generally not highly effective in resolving supply-side shocks,” TD economist Beata Caranci wrote in a report on Monday. Fiscal policy, on the other hand, is effective “when targeted at the source of the supply shock,” she added. This means that because of the change in monetary policy, prospective homeowners might have more buying power, but a change in fiscal policy is what’s going to increase the number of houses available in the market.

• Monetary policy involves changing the interest rate and influencing the money supply.
• Fiscal policy involves the government changing tax rates and levels of government spending to influence aggregate demand in the economy. [https://www.economicshelp.org]

“Clearly, the Bank is making a big tradeoff here, deciding that the risks of a virus-driven slowdown are much higher than the risks of a raging housing market,” BMO chief economist Douglas Porter wrote in a note to clients. Mike Eppel, Senior Business Editor of 680 News, disagrees. He says that yes, it might add fuel to the fire but “it’s likely just going to be another thing that will help the housing market to the upside this Spring.”

With low rates it’s expected that banks will get rid of discounts. And the more the bond yield drops (which determines fixed mortgage rates) the greater the indication our economy is headed into the toilet. If we head into a recession it’s likely Canada will drop its leading rate to 0%. The Bank of Canada will make its next announcement on the overnight rate in April. Stay tuned.

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Bank Of Canada Cuts Rates for First Time Since 2015

The Federal Reserve made an unscheduled rate announcement yesterday and cut their overnight rate by 50 basis points. The Bank of Canada wasn’t largely expected to cut its rate today at its scheduled announcement, but it followed suit and also cut its overnight rate by 50 basis points. This is the first rate cut we’ve seen since 2015.

Anyone who did expect to see the Bank of Canada make a change was anticipating only a 25 basis point cut. The Bank hasn’t cut more than .25% at a time since 2009. The speculation is that if the Bank didn’t mimic the Federal Reserve’s move it would have put upward pressure on the Canadian dollar and added to problems exporters are already experiencing.

Further cuts are expected this year, the first of which being at the next rate announcement in April.

So why the sudden drop? COVID-19. If you’ve been living under a rock or doing a social media cleanse in the last couple of months, you may not have heard, but COVID-19 is today’s SARS or H1N1. The disease, which started overseas, has claimed more than 2000 reported deaths worldwide and, according to the Bank of Canada’s announcement, has seriously impacted Canadian and global economies.

“Before the outbreak, the global economy was showing signs of stabilizing, as the Bank had projected… However, COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted. This has pulled down commodity prices and the Canadian dollar has depreciated. Global markets are reacting to the spread of the virus by repricing risk across a broad set of assets, making financial conditions less accommodative. ” [Bank of Canada press release]

Thankfully the health of Canadians has been largely unaffected, with less than 35 confirmed cases of COVID-19, but it is becoming increasingly evident that the virus is affecting our economy. People don’t want to travel, businesses are more hesitant to do international trade, some people are even putting their lives on hold. A good friend of mine has been planning for years to spend his 40th birthday this year with his wife in Indonesia. But because of the virus, they’ve cancelled their trip. Yesterday I heard on the radio that one local lady who runs a business out of her home and has packages delivered to her from China is keeping the items sealed in their boxes for five or six days, quarantined in her garage, just in case the packages have been contaminated.

The topic of of coronavirus is all over social media, the news, the radio, and even seemingly unrelated sources, like right here on my blog! So what does this virus and the Bank of Canada rate cut have to do with a mortgage?

The Bank’s overnight rate typically affects the Prime rate offered by consumer banks, which affects the mortgage interest rates available to you. Typically banks will match whatever drop the Bank of Canada announces, but that wasn’t the case in 2009 at the last rate drop. How much of this decrease will get passed on to the consumer is yet to be seen. However, changes may come as early as this afternoon.

Brad Walker from Redline Real Estate Group said, “With our market the way it is around here, [the rate cut] definitely helps more people feel comfortable in what they can afford with a lower rate.” If you’re in the market to buy a house, this is good news for you! In addition to the relaxed stress test for insured mortgages coming in April, we’re also expecting to see the stress test ease up on conventional mortgages. There’s also news that the stress test will be done away with on renewals with new lenders.

Brad went on to say, “[This] should put our market in a better position and more buyers will likely come out of the woodworks and look at buying again now that they can afford more. Low prices, super low interest rates, and a reduced stress test all point to good news for buyers looking to take advantage. And when more buyers come out, that levels out supply and demand which is when the market starts to turn around.”

So! Wash your hands, cover your mouth when you cough, and stay home if you’re not feeling well. If you’re in good health, come see me about setting up the mortgage you’ve been waiting for. If you’re not in good health, call me instead.

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