Mortgage rates have stabilized for the time being with latest economic news in Canada regarding stalled oil pipelines and cutbacks, automobile plant closure, and NAFTA2 uncertainties. Bank of Canada held its influential overnight rate constant yesterday at 1.75% and a January hike still looks very unlikely, but the Governor also reiterated that they expected rates to move back to the neutral range. We expect the next rate hike to occur in March 2019, and we continue to look for Bank to eventually finish this cycle at 2.50% up from the current 1.75%. That would put the 5 year fixed mortgage rate in 4.5% range. How long that will take is still the magic question. The graphic above is the 5 year bond, and the 5 year mortgage rate is typically priced at about 1.5% above the bond. As you can see, pressure to increase rates further is off and we are starting to see specials, for example 3.49% for 5 year fixed CMHC-insured purchase.

The changes to the Canadian mortgage finance market in the last 60 days have caught many by surprise and the future is blurry at the moment. Even the mortgage lenders/banks are confused with round two of the new CMHC rules, effective Nov 30, 2016. Some lenders have already left or restructured their role in the mortgage market, impaled by the combination of events and their inability to respond. My biggest concern as a mortgage broker is loss of borrower options.  Our industry has sent delegations to Ottawa, and we have written our MPs and their eyes glaze over.  

I know a number of readers of this Realtor blog are from rural communities, and I wanted to touch on one of the changes that is going to rock owners in rural communities and no-one sees it yet.

New Mortgage Market Landscape – effective immediately

Quick overview from a trusted economist in Canada for our brokerage's use. In summary, mortgage interest rates not going anywhere fast, low Cdn dollar has made housing even more affordable for foreign buyers and a huge up-tick for companies that export their products. Expect increasing tourism industry strength esp. BC. Commodity-based economies world-wide will continue to struggle with over-supply. Click the link, best viewed on desk-top. Verico Quantus Mortgage Solutions Q1-2016 Market Update

Since late last week, the Canada bond market has really jumped up and lenders have been hinting at mortgage interest rate increases, and early this week we saw them, with the most common 5-year fixed generally increasing to 2.79% from 2.59%, although there are still lower rate offered by lenders waiting to see if market is really going to move. As you can see in the graph, bond rates are trending up, and expect the bellweather 5-year fixed mortgage rates to be bond + 1.65%.

Canada's most watched real estate boards reported August results last week which showed that the summer's existing trends continued.

Recap on some developments this week in the Canadian mortgage market.

Mortgage Interest Rate Decreasing

• On Wednesday, Bank of Canada Governor Stephen Poloz lowered the prime lending rate to 0.50%.
• The move is designed to boost a sputtering economy with added spending (read more) 
• Major banks responded by lowering their prime lending rate from 2.85% to 2.70%
• Variable rate mortgages are now available at 2.00%, or about $425/mo per $100K borrowed (25 year AM)
• Fixed rate mortgages for 5 years have dropped to 2.59% with some lenders, or about ~$450/month per $100K borrowed amortized over 25 years.

CMHC Rumored to be Discussing Tightening Mortgage Lending Rules (again)

• The rumor mill is churning again that CMHC may tweak (tighten) mortgage lending criteria further as certain real estate markets are very overheated, specifically Toronto and Vancouver.
• Discussion points rumored are increasing minimum down payment from 5% and decreasing maximum amortization to 20 years.  
• Personally, I see blanket Canada-wide changes to rules to address certain market conditions as the wrong tool, hence unlikely.
• These changes would have impact of cutting out certain borrowers (likely first time buyers) from the market.
• A more surgical approach would be to increase down payments in certain overheated market areas.

Another Mortgage Lender for Mobile Homes Tightens Criteria

• National Bank has changed their lending policy for mobile/modular homes on titled land from permanent foundation to more specifically a cement foundation (hence has removed steel pillings) - drat :/  
  
• Very few lenders will lend on mobile homes on wooden blocks
• Very few lenders will lend on mobiles older than 20 years
• Even fewer lenders will lend on mobiles in trailer parks (rented lots), especially old homes on blocks!
• CMHC very tight on providing insurance for lenders on mobiles these days.

Any questions, deals to discuss, please contact me.