Happy Long Weekend!
Opinion
< 1 minute read
May 17, 2019
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8 Comments
Pick5 is a weekly series comparing and analyzing five residential properties based on price, style, location, and neighbourhood.
Opinion
< 1 minute read
May 17, 2019
Pick5 is a weekly series comparing and analyzing five residential properties based on price, style, location, and neighbourhood.
Appraiser
at 8:33 am
HSBC_Canada has:
* Slashed its 7yr special fixed rate from 3.59% to 3.24%
* Launched a special 10yr fixed rate of just 3.24%
Capital Economics predicts 2 BoC rate cuts this year. The overnight index swaps are forecasting at least one rate cut in the next 2 years.
Lenders and many others obviously believe that rates are not on the rise any time soon.
Tell me again why we need a mortgage stress test at a full 2% above the going rates.
Housing Bear
at 11:09 am
In the short term I do not see rates exploding so I can understand where you are coming from, but borrowing rates can still move higher if lenders start to think there is more risk of a price correction. Poloz has come out and hinted at the fact that he thinks prices will go down. Capital Economics is pretty much alone in predicting two cuts this year (markets believe only one) because they think the BOC is massively underestimating the impact a housing slowdown would have on our economy. One good reason I can think of for keeping it is that it helps to ensure that new mortgages are going to lower risk individuals than higher risk individuals. If you have a good buffer in place there is a much smaller chance you will have issues upon renewal if you are underwater…….. If you are underwater when you go to renew banks will probably want to charge you a higher rate or ask you to top up the equity. For a household that goes out and borrows the absolute max they can without the stress test could be in a much worse position. I still think it would be smarter to remove the test once the market has started to go south. Should provide a nice stimulus and will hopefully put a floor on prices much sooner.
Definitely think the stress test should be removed for renewals.
Derek
at 11:49 am
An article on BNN purporting to summarize Poloz’ current views, but not very responsive to criticisms being raised:
And while the B-20 guideline has been cited as a factor in recent data showing sharp year-over-year declines in home sales across Metro Vancouver, Poloz said the impact has been less profound outside of that city and Toronto, where prices ran up most sharply before policymakers intervened.
“If you look at markets that didn’t have any froth, people are adapting quite normally,” he said. “Any place from Winnipeg to Ottawa, Montreal, Halifax, Moncton are all behaving exactly according to our models. So we think it’s doing its job.”
While the central bank’s Financial System Review acknowledged progress on vulnerabilities surrounding consumer debt and housing market imbalances, it also put the spotlight on at-risk Canadians. Indeed, the Bank of Canada noted a significant proportion (42 per cent) of households would struggle to refinance their mortgage if home prices fall 20 per cent.
While not common, Poloz said that type of market correction is “conceivable,” particularly given the run-up in prices in recent years. But he’s confident Canadians understand the risk.
“I think that most people are mentally prepared,” he told BNN Bloomberg. “And, in Canada, historically when these things have happened, people understand they’ve gone maybe underwater, but you know that within a few years they’re no longer underwater and life goes on. People pay their mortgage and we’re okay.”
Housing Bear
at 10:44 am
Happy Long Weekend David!
Appraiser
at 8:48 pm
Update:
“Today, HSBC has become the first lender in Canadian history to sell 10-year fixed mortgages as low as 2.99%.” https://www.ratespy.com/10-year-fixed-rates-under-3-first-time-ever-05179425.
Stress test is looking stupider and stupider.
Jimbo
at 11:12 pm
If it limits what people borrow it is a great tool. Short term pain for long term gain. If the market is as strong as you say it will get over it.
If the long term average for interest rates continues to lower then by all means let’s lower the test to that long term average. I don’t understand why we wouldn’t want to qaulify people at long term average rate.
Appraiser
at 8:19 am
Forcing well-qualified buyers with solid income and good credit in to the arms of less regulated alternative lenders at higher interest rates is simply unnecessary. As is forcing more people to rent, thereby exerting ever-increasing demand for rentals and sky-rocketing monthly lease payments.
Sorry Jimbo, smarmy cllchés don’t cut it.
Jimbo
at 5:44 pm
It is a choice to go to the private lender over buying with a big 5 type lender within the regulated means.
I don’t feel bad for anyone that chooses the private lender except for the self employed. They should be able to qaulify the same way as a salary employee. Foreign students can qualify with 35% down no income verification, why not self employed?
If prices for rents go up, more opportunity would be created in the rental segment to balance, not saying overnight but it would correct itself. The rental segment in most US cities are quite healthy.