Crude Unreality: Oil dove to its cheapest level since 2002 on Friday, closing at a staggeringly low $18.27 a barrel (WTI). Three months ago, the lowest analyst forecast for 2020 was $50! Given how important the black stuff is for Canada’s economy, its collapse should add downward pressure to bond yields—which are a leading indicator of fixed mortgage rates. Oil could remain bearish for fixed rates, all else equal…unless governments/producers do something to prop up the price, and pronto. Some are predicting a move below $10/bbl for the first time in decades, which would be Oilmageddon for all but a handful of countries, and Canada’s not one of them.
HELOC Bridges: With variable-rate discounts so lousy, a very small segment of borrowers are turning to open HELOCs at prime (2.45%). Their goal: to cheaply switch to a variable at deeper discounts in 6-12 months. The strategy is a small, calculated gamble, and only worth considering for larger mortgages due to the set-up costs. But if history is a guide, variable discounts will meaningfully improve by 2021.
Overinflated Posted: Why does it seem the only posted rates falling are 1- to 3-year terms, the ones that cause borrowers to pay bigger prepayment penalties when they break their mortgages? The chart below shows how elevated 5-year posted rates are in this country, relative to the 5-year government bond yield (a.k.a., the “Posted – Bond spread”). If this spread were theoretically at its 5-year average, Canada’s benchmark 5-year posted rate would be just 3.95% instead of 5.04% today. That would dramatically improve buying power given 5-year posted rates form the basis of the government’s mortgage stress test. That said, will we see big banks drop 5-year posted rates to 3.95% with all the economic risk out there? No chance. Borrowers will have to wait for Ottawa to launch its new stress test if they want easier mortgage approvals. Those revisions were “suspended…until further notice” thanks to COVID-related concerns.
FTHBI Rebuke: Conservative MP Tom Kmiec had more scathing words on Twitter for the government’s First Time Home Buyer Incentive (FTHBI). “They said 100,000 Canadians would benefit, but the numbers show only 2,061 Canadians used the program before the viral pandemic broke out,” he charges. (The Spy verified from CMHC that his data is accurate as of January 31, 2020.) “This confirms that this program was nothing more than an election gimmick and was set to fail to achieve its goals before the pandemic began. The entire program needs to be closed down and efforts focused elsewhere.”
Politics aside, the FTHBI was rushed out and almost dead on arrival. The program is an under-promoted government subsidy that’s too restrictive to be widely appealing, too complicated for borrowers to assess and beneficial mainly to those who could easily qualify without it. Back to the drawing board, Ottawa.
Source: MP Tom Kmiec
Like news like this?
Join our ratespy update list and get the latest news as it happens. Unsubscribe anytime.
The Department of Finance must immediately re-prioritize fixing the stress test. Canada’s economy needs all the help it can get from real estate. It sure as hell won’t get help from resources, manufacturing, finance, leisure, exports, etc etc etc
log in
6 Comments
The image from MP Kmiec seems cut off. Do you have the full data including BC?
Hey Leo, Seems to be cut off at the source: https://twitter.com/tomkmiec/status/1250808850401329153?s=21
I’ll ask for a new version. Stand by.
The Department of Finance must immediately re-prioritize fixing the stress test. Canada’s economy needs all the help it can get from real estate. It sure as hell won’t get help from resources, manufacturing, finance, leisure, exports, etc etc etc
Here’s the official FTHBI data from CMHC, courtesy of Tom Kmiec’s office: https://www.ratespy.com/wp-content/uploads/2020/04/FTHBI-through-Jan-2020.pdf
CIBC has not reduced posted 5 year, still 5.19%. Higher prepayment penalty calculations for anyone needing to break as well.
Nice, thank you Rob for sourcing the full data.