Saturday, April 25, 2009

Mortgage rates drop again

Contact your mortgage broker to latch onto a great low 5 year fixed mortgage rate. At just 3.59%, its not looking like rates can drop any further than this! Last spring, discounted mortgage rates were available at approximately 5.75% ... that's a drop of over 2% in less than a year's time.

Most Canadians never take advantage of their lump sum prepayment feature ... and let's face it, who has extra money to plunk down as a lump sum ? Why do we mention this ? Read on ...

This new "Value Mortgage" offering is specifically designed with this fact in mind. Mortgage lenders take into account the cost of offering a prepayment feature into their normal pricing and the resultant interest rates. By removing this extra cost, they pass the savings on to you.

First-time homebuyers are prime candidates for this type of feature and can reap huge benefits in the savings and spend that money on furnishing their home, RSP contributions, renovations etc.

This new offering will be available Monday, April 27/09 through licensed mortgage brokers.

Over the five year term, this makes for interest-cost savings of roughly $1,200 on a $100,000 mortgage with 25-year amortization period.

For all the details on the product make sure you get in touch with your mortgage broker as soon as possible .. you never know when these historically low rates will disappear again.

Wednesday, April 22, 2009

What does the Bank of Canada announcement mean to you ?

Garry Marr, Financial Post Published: Tuesday, April 21, 2009

The latest rate cut means consumers buying a house can borrow for as little as 3% interest on their loan if they are willing to buy into the Bank of Canada's statement Tuesday that it won't be changing rates until June, 2010.

If you don't believe the bank will hold steady on its promise, you can lock into five-year, fixed-rate mortgages for as low as 3.85% on a discounted basis (editor's note: actually, 3.69% by using a mortgage broker) -- the lowest rate in Canadian history.

But all of that may amount to nothing when it comes to soothing a Canadian housing market in which new construction has fallen below 200,000 on an annualized basis for the first time in seven years. March existing-home sales were off 13.7% from a year ago.

"What is 25 basis points among friends? It's really nothing," said Benjamin Tal, senior economist with CIBC World Markets. "This is not something that is going to change the course of the market. It only helps at the margin."

Mr. Tal did say mortgage refinancings have risen dramatically in the past few months as Canadians who might have borrowed at 5.75% just over two years ago are ready to eat any interest rate penalty because a five-year rate mortgage is now so low.

The penalty to break an existing mortgage is the greater of three months interest or what is called the interest rate differential. The interest rate differential is the lost interest between your current rate and market rates.

Mr. Tal says while there is not much lower for variable-rate mortgages to go, the gap between short-term money and long-term money is still significant enough that the temptation is not to lock in.

"You might do better the first two years [of a five-year mortgage] but not the remaining three. I'm convinced long-term interest rates will rise. I can see [long-term] rising 200 basis points. These are emergency rates and at some point this emergency will end," says the economist.

John Turner, the director of mortgages at the Bank of Montreal says he's never seen anything like what is going on in today's market.

"There is a possibility of another drop," says Mr. Turner. "But does your tummy feel good about something that has a higher possibility of going up than going down any further."

He is convinced these lower rates will boost the housing market. The 13.7% decline in home sales in March was the smallest year over year decline in six months. "I think there is a segment of the market that couldn't afford a home before," said Mr. Turner.

Don Lawby, chief executive of Century 21 Canada, said while rates are declining, banks are getting tighter with how they hand out credit.

"If you are self-employed, the banks are demanding more documentation. Appraisals are getting harder too. It's not what you bought the house for but what it's appraised for," said Mr. Lawby, who also heads up a mortgage broker business. "There is not a lot of subprime out there for people with any credit problems in their history."

Tuesday, April 21, 2009

Bank of Canada Rate Drop Announcement

Bank of Canada cuts target rate by 25 bps to 0.25%; provides "conditional
commitment" to hold policy rate at 0.25% until end of 2010

The Bank of Canada cut the target for the overnight rate by 25 basis points to 0.25% citing a deeper-than-expected recession in Canada and the fact that "measures to stabilize the global financial system have taken longer than expected to enact". Markets were evenly split on whether the Bank would cut by 25bps or leave the target for the overnight rate at 50bps. In a twist to its usual policy, the Bank indicated that it did not lower the deposit rate paid on deposits by financial institutions at the BOC. Under normal circumstances, the deposit rate would also be cut by 25 basis points however to avoid distortions in short-term money markets, the Bank left the deposit rate unchanged. The Bank rate was cut to 0.50%.

The Bank also committed to keeping this rate structure until the end of the second quarter of 2010 in an effort to ensure that the inflation rate gravitates back to the 2% target over the medium term. While no mention of quantitative or credit easing was made in today's statement, the Bank stated that it "retains considerable flexibility in the conduct of monetary policy at low interest rates" and a framework will be outlined in Thursday's Monetary Policy Report.

The statement provided the broad strokes of the Bank's economic forecast update with details to follow in Thursday's Monetary Policy Report. On the back of recent reports, the Bank downgraded its forecast and now looks for the economy to continue to contract in the third quarter of the year. The 2009 forecast for real GDP growth was revised down to show a 3.0% decline compared to January's forecast of a 1.2% slip. The longer and deeper recession in 2009 will also put strains on the economy in 2010 and the Bank lowered its growth forecast to 2.5% from 3.8%. The Bank provided a forecast for 2011 real GDP of 4.7%. Against the weaker growth backdrop, the Bank now looks for the inflation rate to return to its target in the third quarter of 2011 rather than the second quarter and said that risks to the
projection are "tilted slightly to the downside."

Today's announcement was different in many ways relative to past statements and importantly provided a "conditional commitment" to holding both the target and deposit rate at one-quarter of a percent for a specific time frame (until the end of the second quarter of 2010). While the Bank did not produce or commit to using any other tools to implement additional easing in monetary policy, the details of their program on be released on Thursday will provide the means by which next steps can be taken if the economy disappoints the Bank's already-weak economic assumptions. The Bank also provided the detailed framework which it will use to conduct policy during this new regime. By providing removing some of the uncertainty about the direction of interest rates over the next year, the Bank is working hard to boost the confidence of Canadian households and businesses with the goal of putting the economy on a firmer growth path.

Sunday, April 19, 2009

The signs are everywhere ... here in the GTA and in several U.S. markets. Buyers are well, buying again!

Now that the cost of home ownership (lower home prices plus falling mortgage rates) get low enough, people realize the value of owning compared to renting.

In the U.S., February sales were up 5% compared to one year ago ... and in the U.S. Northeast, sales were up 16% and condominium sales overall were up 11.4%.
Mortgage rates south of the border are at six-decade lows right now. But they're nowhere near the low rates we're seeing here in Canada.

Although foreclosures take up almost 50% of the sales each month in some markets, agents are seeing multiple offers on some of them due to the low prices. These prices can often be below the cost of construction for 1-5 year old houses.

Miami Herald newspaper was quoted recently saying "Buyers are starting to
think that prices are where they should be and that the market is near a bottom".

The stock market experts are starting to talk about an economic recovery from the 'Great Recession' by the end of 2009 to early 2010. Although jobless numbers are still high, the psychological effects of the G20 meeting recently in London are definitely positive.

The Toronto real estate market is really blessed. Out of almost 23,000 Toronto Real Estate Board MLS listings available for sale, a microscopic 0.80% are Power Of Sale have-to-sell homes (properties being sold by lenders - our equivalent of foreclosure in the U.S. or western Canada).

As a result, we have not been faced with the severe downward pressure on prices that many US markets have encountered.

Let's talk about the ratio of sales-to-listings in the Toronto real estate market for a minute. By the way, a "neutral" market is 24-28%. Above that is a "seller's" market and below 24% is a "buyer's" market.

Looking at the sales-to-listings for the period from January
2008 to March 2009, you'd see that we hit a low of around 13% during the months November, December and January and then the ratio started to climb again. That was big time buyer's market territory according to those ratios mentioned above. By the month of March the ratio was back up and in high neutral-market territory at 26.8%.

It's impossible to know where the bottom is until after the fact. Maybe we're still on the way down and just hit a speed-bump, at the bottom or the bottom has already passed. The point is, nobody knows so don't listen to someone who says they do.

Currently, mortgage brokers have interest rates for a 5-year fixed term ranging from 4.05% down to 3.69% - historic lows to say the very least. In January 2009 this same mortgage was 4.99% making for savings on a $300,000 mortgage payment to be about $175 monthly - that drop in just 90 days. Combine this with Toronto home price declines of about 10-15% since last September and it's no wonder the market is moving faster now!

Recently we heard of a realtor's client coordinator booking buyer showing appointments. 30 or so listings were contacted but 16 of them were already sold or had multiple offers on them after just a few days on the market.

So what should YOU do? Stay on the fence? Test the waters? Maybe attend a home buyer's seminar? There are several available in different locations across the GTA offered by many different resources.

Here's a better idea. For those who don't want to run around and add to an already hectic life, why not contact a mortgage broker and have them do it for you? Unbiased advice and access to all lenders at the same time sure do make it easy for you to save time and money.

There's an old stock market adage about trying to catch a falling knife. If applies well here in the real estate and mortgage market. Get pre-approved, be ready to pounce on the property, take advantage of these historic low rates and take advantage of this once in a lifetime situation.

Sunday, April 12, 2009

Bunny prints ?

Happy Easter everyone ... my little girl is running around on a chocolate high ever since we told her we saw bunny prints in the lawn.

Enjoy the day and celebrate the renewal of spring.

Thursday, April 9, 2009

Is it time to lock in your mortgage ?

The continued drop in rates has revived the ongoing debate all homeowners face over whether to choose a variable or fixed mortgage rate.

With interest rates so low, a lot of people are spending a whole lot of time worrying about whether or not to lock in their mortgage payments.

The rate-watching game has been a little more uncertain lately as rates have reached a point where they seem to have little room left to move.

Overall, mortgage rates have been on the decline for years now. As a result, those Canadians who opted for variable mortgages, where the mortgage rate fluctuates with any changes in prevailing interest rates, have clearly come out ahead.

Not that they're in the majority. Statistics show that only about 20% of Canadians homeowners opt for a floating rate.

The big move into variable mortgages has really only come in the past few years, with many institutions pushing floating products that allow you to lock in a rate at any time during the term of your mortgage. If you're one of these astute buyers, you'll want to hang on as long as your term allows since lenders are actually losing money on your loan right now.

But, given current bargain basement borrowing costs, will this be the way to go from here on out?

Currently, the Bank of Canada's trend-setting overnight rate is at 0.5%, and Canadian banks' prime rate is at 2.5%. Most major financial institutions are now charging good customers roughly 3.5% for a one-year closed rate and closer to 4.5% for a five-year term. (Editor's note: a licensed mortgage broker can get you 3.85% OAC)

On the variable side, you're looking at prime plus 0.8 percentage points (Editor's note: a licensed mortgage broker can get you prime plus .75%),
which today translates into 3.3% for a five-year term. (Editor's note: a licensed mortgage broker can get you 3.25% OAC)

So, if you're buying a house or simply coming up for renewal, which is it to be? Fixed or variable?

Based on several studies going back as far back as 1950, York University professor Moshe Arye Milevsky has found that homebuyers would have been better off, roughly 88 per cent of the time, financing their home with a variable rather a fixed rate mortgage.

If you don't mind a few ups and downs, the benefits of variable-rate mortgages are very compelling. But a lot has changed since those studies were first done and subsequently updated. Check out the most recent version.

For one thing, lenders have been eliminating the discounts that were once prevalent on many variable mortgages. In the past, rates were calculated as prime less a premium, often as much 0.9 percentage points. But you won't anything like that today. And, although it varies from city to city, housing prices are falling, thus raising the spectre of negative equity for some homeowners.

More importantly, if you look at rates right now, the difference between the two options just isn't that sharp. Right now, you might pay as little as 1% more to lock in a long-term rate.

Economists expect rates to remain low and even decline slightly for another year or so, then rise by as much as 3% as a recovering economy produces an increase in inflation.

This has prompted observers like Canadian Imperial Bank of Commerce's chief economist Benjamin Tal to suggest that while variable rate mortgages might still prove attractive for a bit longer, the threat of interest rates rising makes in locking in a fixed rate much more appealing than it once was.

With some variable mortgages, as rates fluctuate, so does the amount of your mortgage payments. Or, with set payment amounts, the portion of the payment that covers your mortgage principal will vary.

In a falling-rate environment, this means you'll pay down more principal and pay less interest. But if rates go up, your principal payments will shrink and it may take you longer to pay off your home. For every half point interest rate increase, the monthly payment on a typical mortgage of $200,000 jumps roughly $80 - or more than $900 a year.

The right mortgage decision is really a matter of your attitude towards risk and your need for certainty. If the prime rate does drop a bit further and you're working with a variable rate, you'll see the decrease in your mortgage rate almost immediately.

On the other hand, if you lose sleep worrying about the impact of every blip in rates on your monthly budget, then a fixed rate mortgage is for you.

Looking ahead, the odds seem to favour the latter.

Wednesday, April 8, 2009

Home Construction numbers up

The pace of new home construction picked up last month in spite of some who expected the slide to continue according to sources at Canada Mortgage and Housing Corporation today.

Further good news for Ontario residents in that most of the increase stemmed from a large increase in condominiums in Ontario and Quebec. These urban multiple housing starts rose
by 28.3 % and construction of new single homes also increased by 1.3 % in March. This news comes as economists had expected home building to pull back again in March.

Sunday, April 5, 2009

Ontario's Durham Region Home Sales Improve from January to February 2009

Although still showing a steep decline from same month sales in 2008, sales figures are up from January this year to February.

According to the Durham Region Association of Realtors, 507 homes sold in February 2009 - that's nearly 20 a day! Considering that January 2009 only 350 sales took place it looks like what we've been saying here for months now is finally showing up in the media. Sales are increasing - by no means is the trouble over and done with - and consumers are showing optimism.

Couple those increases with the fact that the average selling price of a home also increased and you'll see why industry insiders have something to smile about. Of course the average sale price is still down from same month in 2008 however let's look at the numbers: January 2009 $257,095 and February 2009 $263,899. That increase is about 2.4%.

With all the pessimism and worry about Oshawa and its auto industry woes that the media continues to feast on, its no wonder that people missed the fact that the Canadian Real Estate Association figures show Oshawa ranking #7 out of the top 10 Canadian cities where average house prices were up from the national and major market selling prices that had declined over the year.

With mortgage interest rates at historic lows ... a five year insured mortgage available through a licensed mortgage broker is now just 3.85% ... moderate gains sould continue as we head into the spring and summer market.