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BoC’s Macklem: More Interest Rate Hikes Are “Warranted.”

Having already raised interest rates by 300 basis points this year, the Bank of Canada’s Tiff Macklem confirmed on Thursday that additional rate hikes (plural form) are “warranted.”

In a prepared speech delivered at the Halifax Chamber of Commerce, Macklem said the Bank has yet to see clear evidence that underlying—or “core”—inflation is coming down.

“When combined with still-elevated near-term inflation expectations, the clear implication is that further interest rate increases are warranted,” he said. “Simply put, there is more to be done.”

Additionally, he said labour conditions remain “very tight,” wage growth is rising, and the economy remains in excess demand. “We will need additional information before we consider moving to a more finely balanced decision-by-decision approach,” he said.

Observers took the comments as hawkish and a signal that the Bank isn’t likely to pivot to a more dovish stance at its upcoming rate meeting on October 26 as some had expected.

“There had been a narrative offered in the market that October’s hike would be one more and done with a coming dovish pivot,” wrote Scotiabank economist Derek Holt. “That narrative got flushed today.”

“With less than three weeks to go before the next decision on October 26…the Governor is clearly not thinking that the October communications will involve a dovish pivot versus a largely preset path to keep hiking thereafter,” he added.

Source: https://www.canadianmortgagetrends.com/2022/10/bocs-macklem-more-interest-rate-hikes-are-warranted/

Steve Huebl·Bank of Canada·October 6, 2022

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Housing Affordability Worsened In Q2, But Should Improve Due To Falling Prices.

Housing affordability in Canada reached its worst level in 41 years in the second quarter, shortly after home prices peaked and as interest mortgage rates started to rise.

That’s according to National Bank of Canada’s latest Housing Affordability Monitor, which recorded its sixth consecutive quarterly decline in housing affordability.

But with home prices down significantly in certain markets, and a stabilizing of fixed mortgage rate increases, affordability should begin to improve, the report’s authors noted.

“We are noticing a considerable slowdown on the resale market, with home sales now 12.8% below their 10-year average,” the report reads, adding that’s translating into a decline in home prices. “This development, combined with a stabilization of the benchmark 5-year mortgage rate, should improve affordability before the year-end.”

While rapidly rising home prices were largely responsible for the deterioration in housing affordability over the past year, an increase in mortgage rates was the key factor in the second quarter.

NBC noted that the 5-year benchmark rate used to calculate its affordability metrics rose 123 basis points in Q2, the largest quarterly change since 1994.

“This increase has propelled the benchmark mortgage rate to its highest level since 2011,” the report noted.

Source: https://www.canadianmortgagetrends.com/2022/08/housing-affordability-worsened-in-q2-but-should-improve-due-to-falling-prices/

Steve Huebl·Real Estate·August 22, 2022

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Is Canadas Mortgage Stress Test Still Relevant?

Earlier this month, the Bank of England scrapped its mortgage affordability stress test.

With mortgage rates now north of 4% and 5%, and with some speculating they’re near a peak for this rate-hike cycle, it begs the question: are changes to Canada’s stress test overdue?

The mortgage stress test requires both insured and uninsured mortgage borrowers to prove they can meet monthly mortgage payments based on a rate of 5.25% or two percentage points higher than their contract rate—whichever is higher. These days, borrowers are commonly being stress-tested at rates in excess of 6% and 7%.

The stress test was introduced to address risks the government and the regulator saw as a result of high household debt and high real estate prices, coupled with what were historically low interest rates at the time.

Fast-forward to today, and home prices are now dropping across the country from the peak reached earlier this year, while interest rates have risen dramatically as the Bank of Canada tries to curb record inflation not seen since the 1980s.

What do you think about the mortgage stress test?

Source: https://www.canadianmortgagetrends.com/2022/08/is-canadas-mortgage-stress-test-still-relevant/

Brennan Doherty·Government and Regulation·August 21, 2022

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Rent Prices On The Rise Again.

After taking a breather in June, rent prices continued to trend upward in July, rising 2.6% in the past month.

The average national rent price is now $1,934, up 10.4% compared to a year ago, according to data from Rentals.ca.

For single-family homes, the monthly rent was $3,043, a 14.1% year-over-year increase. Rental apartments, which make up the majority of listings on Rentals.ca, averaged $1,743, a 7.7% increase since last year.

At a provincial level, British Columbia once again had the highest average rental rate, at $2,590 for all property types. That’s up 0.6% from a month ago and a 19% jump since last July.

Next up was Ontario, with an average rent of $2,332, up 3.1% month-over-month and 15.2% since last year.

Of the seven provinces’ surveys, Manitoba was the only one that saw rent prices essentially unchanged at $1,377.

Source: https://www.canadianmortgagetrends.com/2022/08/rent-prices-on-the-rise-again-in-july/

Steve Huebl·Real Estate·August 17, 2022

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Metro Home Prices Continued To Fall In July.

Home prices continued their downward decline in most of the country’s major metro areas in July, alongside falling sales.

In the Greater Toronto Area, for example, the average selling price fell 6.2% from June to $1,074,754. That still remains 10.3% higher compared to a year ago. The Home Price Index Composite Benchmark, which removes seasonal volatility, remains 12.9% above year-ago levels.

In Vancouver, the average price slid 2.3% from a month earlier, and is up 10.3% compared to July 2021. In Calgary’s housing market, which has so far proven more resilient compared to others, the benchmark price posted a 0.7% month-over-month decline.

“With significant increases to lending rates in a short period, there has been a shift in consumer sentiment, not market fundamentals,” noted Keven Crigger, President of the Toronto Regional Real Estate Board (TRREB).

TRREB added there is currently uncertainty among buyers over where the market is heading and is calling on “all levels of government to reassess and clarify policies related to mortgage lending and housing development.”

Source: https://www.canadianmortgagetrends.com/2022/08/metro-home-prices-continued-to-fall-in-july/

Steve Huebl·Real Estate·August 4, 2022

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Mortgage Rate Pricing: Canada vs. the U.S.

While Canadian brokers watch the 5-year yield for hints on fixed-rate direction, in the U.S. the benchmark is the 10-year Treasury.

When yields are moving meaningfully in Canada, a lender might send a rate update once this week, or perhaps twice if the moves are large enough.

When yields are moving in the U.S., even if it’s a tiny five-basis-point blip, lenders adjust rates on the double.

U.S. brokers can sometimes get three to four rate updates (from one lender) in one day. This happened last Tuesday after the Federal Reserve clarified that there’s much more policy tightening to come—and that people shouldn’t bet on rate cuts next year.

One U.S. wholesale lender I watch lifted rates four times by the end of the day. Some of the others, three times. And most others at least twice.

In Canada, where I’ve been watching rates for over 15 years, I can count on one hand the number of times I remember a lender bumping up rates twice in one day.

By the way, U.S. lenders price to three decimal points instead of two (e.g., 4.375%), which is kind of funky from a Canadian’s perspective.

Source: https://www.canadianmortgagetrends.com/2022/08/rate-pricing-canada-vs-the-u-s/

Robert McLister·Mortgage Strategies·August 3, 2022

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Is Inflation Nearing A Peak? Some Economists Think So.

Despite June’s headline CPI inflation reading rising to a near-40-year high, it was less than markets had expected.

That could signal that inflation is finally nearing a peak, which would be welcome news to the Bank of Canada as it plans its next rate hike on September 7.

In June, the Consumer Price Index (CPI) accelerated to an annual rate of 8.1%—its highest level since 1983—and up from 7.7% in May. Gas prices were the main driver, rising 6.2% month-over-month, according to Statistics Canada data.

What it means for the Bank of Canada.
The smaller-than-expected rise in price growth is good news for the Bank of Canada, which is eager to get inflation back down to its neutral target range of 1% to 3%.

“This first negative surprise on inflation in many months will be welcomed by the Bank of Canada,” noted CIBC economist Karyne Charbonneau, adding that the Bank will have one more inflation report before its next rate decision. “With gasoline prices expected to fall next month, we could finally have seen peak inflation.”

And while TD’s James Orlando expects to see a continued deceleration in monthly inflation figures, the year-over-year numbers are still expected to remain “uncomfortably elevated through 2022.”

Source: https://www.canadianmortgagetrends.com/2022/07/is-inflation-nearing-a-peak-some-economists-think-so/

Steve Huebl·Mortgage Industry News·July 20, 2022

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Bond Yields Plunge. What It Means For Fixed Mortgage Rates.

Bond yields dove over 30 basis points on Friday as economic worries start to replace inflation concerns.

Bond yields, which lead fixed mortgage rates, fell to 2.84% on Friday, down from 3.15% on Thursday and well off the 3.59% high reached in mid-June.

The decline comes due to growing expectations of an economic downturn.

“The thinking is that central banks will soon have broken the economy,” McLister told CMT. “That implies lower growth, lower inflation, and ultimately lower mortgage rates.”

Ron Butler of Butler Mortgage told CMT that monoline lenders, in particular, can “absolutely offer lower rates” on high-ratio and insurable mortgages, and so he expects fixed rates to continue to drop.

According to data tracked by McLister, average deep-discount 5-year fixed mortgage rates offered by national lenders have so far dropped by about 10 bps since the 5-year bond yield retreated from its recent high.

Source: https://www.canadianmortgagetrends.com/2022/07/bond-yields-plunge-what-it-means-for-fixed-mortgage-rates/

Steve Huebl·Interest Rates·July 22, 2022

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How Will The Latest Rate Hike Impact Variable-Rate Mortgage Holders?

Variable-rate mortgages in Canada are now averaging about 4.20%, a full percentage point higher than they were a week ago.

That’s thanks to the Bank of Canada’s latest 100-bps rate hike, which was followed by an equal increase in the big banks’ prime rate, upon which variable mortgages and lines of credit are priced.

The prime rate at most lenders is now 4.70%, a level not seen since 2008, and up from 2.45% at the start of the year.

“I think the big takeaway here is what it’s going to do to the variable-rate mortgage segment,” Steve Saretsky, a Realtor at Oakwyn Realty, told BNN Bloomberg in an interview. “At the end of the day, we’ve seen a huge cohort of people—more than 60% of purchasers over the last year and a half—going [into] variable-rate mortgages.”

Saretsky added that on top of the 100-basis-point rate hike, new variable-rate borrowers will have to qualify at a stress test rate of 200 bps above their contract rate as opposed to the minimum of 5.25% (something fixed-rate borrowers have had to do ever since fixed rates rose above the 3.25% threshold). Stress test rules for both insured and uninsured mortgages mean borrowers must prove they can afford payments based on their contract rate plus 2% or 5.25%, whichever is higher.

“Now they’re getting stress-tested effectively at about 6.20%, 6.25%,” Saretsky said. “That again will reduce purchasing power and that will feed through to the housing market.”

Source: https://www.canadianmortgagetrends.com/2022/07/how-will-the-latest-rate-hike-impact-variable-rate-mortgage-holders/

Steve Huebl·Interest Rates·July 17, 2022

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Canadian Rent Prices Were Flat In June, But Could Rise Further As Demand Grows.

The average rent in Canada took a breather in June, dropping slightly compared to May, according to data from Rentals.ca.

The flat reading follows a 3.7% monthly increase in May. Average rents are still 9.5% higher than they were last year, but are down 3.5% compared to pre-pandemic June 2019.

Five Canadian cities have seen rent prices for all property types soar over the past year by more than 20%:
Vancouver: $2,926 (+25%)
Toronto: $2,463 (+20%)
Calgary: $1,752 (+26%)
London, ON: $1,933 (+29%)
Kitchener, ON: $1,932 (+21%)

But as report author Ben Myers, president of Bullpen Research & Consulting, pointed out, those oversized increases are largely due to rents having plummeted during the pandemic.

“A couple of those markets are still not even back to where they were prior to the pandemic,” he told CMT, adding that Vancouver is the anomaly, with rents significantly higher than they were in 2019.

Source: https://www.canadianmortgagetrends.com/2022/07/canadian-rent-prices-stabilized-in-june-but-demand-is-expected-to-grow/

Steve Huebl·Real Estate·July 14, 2022

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