Mortgage Market: Bearish or Bullish?

Mortgage | June 10, 2020


Geez, if I don’t post every single day, you guys are going to steal my ideas!

My mortgage broker emailed me on Friday morning with “BREAKING NEWS” about the upcoming changes to CMHC, but suddenly this “BREAKING NEWS” feels old.  It’s sort of like how CNN always hits the air with “BREAKING NEWS,” except it’s not really breaking.  Protesters in Washington for the 15th day in a row?  Yeah, I mean, that’s interesting, but it doesn’t really deserve the bright-red banner running across the screen, or the ALL CAPS font.

Nevertheless, here I am, watching the readers fight the good fight in the comments section, wondering, “Are they going to talk about the changes to the mortgage market?  If they do, then does my Wednesday blog post seem like classic Monday-morning quarterbacking?”

Well, it’s either go back to blogging every day, Monday-through-Friday, like I did from 2007 to 2011, or, just let the readers get the jump on me now and again.

The recent CMHC changes in the mortgage market was only the beginning of the story, and as some of the readers pointed out (Spoiler Alert!), there’s a Genworth and Canada Guaranty angle here, and of course, I’d be remiss if I didn’t talk about the (gasp!) rock-bottom, 5-year, fixed-rate mortgages that have been making headlines all week.

1.99%

That can’t be right.

Must be a typo.

Too good to be true.

But before we get to that, which is depressing for those of us already in fixed-rate mortgages at substantially higher rates, and exciting for those active buyers in the market who will never, in my opinion, fully grasp the concept of just how low those rates are, I’d like to start from the beginning…

The CMHC provided us with a press release last Thursday, which most brokers didn’t see until Friday, and which wasn’t really talked about until Monday.  Right.  That was a mouthful.

Here’s the full press release:

 

CMHC Reviews Underwriting Criteria

The COVID-19 pandemic is affecting all sectors of Canada’s economy, including housing. Job losses, business closures and a drop in immigration are adversely impacting Canada’s housing markets, and CMHC foresees a 9% to 18% decrease in house prices over the next 12 months. In order to protect future home buyers and reduce risk, CMHC is changing its underwriting policies for insured mortgages.

Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:

    • Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42;
    • Establish minimum credit score of 680 for at least one borrower; and
    • Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.

To further manage the risk to our insurance business, and ultimately taxpayers, during this uncertain time, we have also suspended refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvestment in housing. Consultations have begun on the repositioning of our multi-unit mortgage insurance products.

“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” said Evan Siddall, CMHC’s President and CEO. “These actions will protect home buyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”

These decisions are within CMHC’s authorities under the National Housing Act and are in anticipation of potential house price adjustment. We will continue to monitor market conditions and work with our federal colleagues on potential macro-prudential policy options.

CMHC supports the housing market and financial system stability by providing support for Canadians in housing need, and by offering housing research and advice to all levels of Canadian government, consumers and the housing industry.

 

Link HERE for those interested.

We already heard about the CMHC’s forecasted 9-18% decline in housing prices across Canada, but it seemed in this press release that they were repeated themselves, only this time, they tied together their change underwriting policies to their predicted decline.

Interesting.

CMHC is reacting to their own prediction.

Those who abhor the role of the CMHC in Canada, insuring mortgages at the taxpayer’s expense, will applaud this round of underwriting policy changes, so this probably comes as welcome news to many of you!

Then for others, they’ll recognize that these changes, once again, are aimed at the buyers who are reaching for the lowest run on the real estate ladder.

Currently, debt service ratios are 39% (GDS) and 44% (TDS), and they’re being tightened to 35% and 42%, meaning your income doesn’t stretch as much.

Currently, the minimum beacon score permitted is 600, and this is jumping to 680.

Currently, borrowers can use debt for their down payment, but this “loophole,” so to speak, is being tightened.

All three of these changes can be seen as either:

1) Very smart, almost obvious.  Could have, should have been done sooner.
2) Completely unnecessary, almost arbitrary.

I make a living of arguing both sides, so I’ll leave this for now.

Keep in mind that these changes only affect insured mortgages, thus high-ratio borrowers.  If you have a down payment in excess of 20%, you need not worry about any of this.  Then again, if you have a Beacon score of 600, why the hell are you looking to buy real estate?  There are always exceptions, but for the most part, that’s a really, really bad score, indicating a person with financial issues, past or present.

On Friday, I emailed my mortgage broker the following:

Thanks Tony.

Will Genworth and Canada Guaranty follow suit?  Any chance this opens up an opportunity for them?

Tony said that we’d get more information this week, but if history was any indication, there’s a chance that Canada Guaranty and Genworth would fall in line.

Most of their policies and lending criteria are identical to CMHC, and when CMHC implements changes to their underwriting standards, they almost always make changes accordingly.

That’s why it was so shocking to read the news on Tuesday, as some of the readers pointed out:

 

“Genworth Sees No Change As Canadian Regulator Tightens Insurance Terms”
Financial Post/Reuters

From the article:

Genworth MI Canada Inc, which runs the largest Canadian private residential mortgage insurer, said on Monday it has no plans to change its underwriting policy for debt service ratio limits, minimum credit score and downpayment requirements.

Government-backed Canada Mortgage and Housing Corp (CMHC) said last week it would tighten rules for offering mortgage insurance from July 1, after forecasting declines of between 9% and 18% in home prices over the next 12 months.

The move would make it harder for riskier borrowers, who offer downpayments of less than 20%, to access CMHC’s default mortgage insurance.

Genworth Canada Chief Executive Officer Stuart Levings said the company, which provides mortgage default insurance to Canadian residential mortgage lenders, was able to manage its mortgage insurance exposure, including to borrowers with lower credit scores or higher debt service ratios.

 

Who saw that coming?

I’ll be honest, I don’t know exactly how many major underwriting policies differ between these three mortgage insurers, but I would be willing to bet it’s only a handful, at best.

For the most part, CMHC has been the brand-name, government-backed, go-to, and first choice among borrowers, with Genworth and Canada Guaranty being the never-heard-of mortgage insurers that brokers bring their clients to when there’s a problem with the loan.

But now?

Now, it’s quite possible that a high(er)-risk borrower goes to Genworth and/or Canada Guaranty first, and works backwards to see if CMHC will insure their mortgage.

In a market absolutely dominated by CMHC (I was recently told by a colleague that CMHC has a 70% market share), it’s possible that we see the dynamic shift dramatically as we move forward.

Competition is never a bad thing, although the market pessimists will suggest that this is not a step in the right direction.

The third piece of big mortgage news that came out this week was brought to us by our friends at HSBC, who long to be part of “The Big Five…”

“Five-Year Fixed-Rate Mortgage Falls To 1.99% In Canada For First Time”
Financial Post
June 8th, 2020

Pretty self-explanatory from the headline, but an excerpt from the article nonetheless:

 

A mortgage lender for the first time is offering Canadians a five-year fixed rate below 2 per cent.

HSBC has dropped its five-year fixed mortgage rate to 1.99 per cent, the lowest ever, though the rate is for default-insured mortgages only, according to mortgage comparison site RateSpy.com. The uninsured five-year fixed rate is roughly 2.29 per cent.

In the first quarter, 96.6 per cent of default-insurers borrowers chose a fixed rate, said the Canada Mortgage and Housing Corp.

 

We’ve all got those stories involving mortgage rate benchmarks, right?

Like mine…

I told my father in 2006 that I was buying a condo, and that I was taking a 5-year, fixed-rate mortgage of 4.99%.

He told me, “Rates will never be this low again.  Take the 10-year for 6.79%.”

He explained to me just how low 4.99% was, historically, and how crazy it was to even think about 4.99%.

Rates went up as high as 5.99% for a 5-year fixed within the next eighteen months or so, and then they came down.

And down, and down, and down.

And while rates have increased here or there over the last fourteen years, they’ve never been over 5% again.  Not even closes.

I remember the first time I heard of a 3.99%, 5-year, fixed-rate mortgage.  That was a wild number.

Then the first 2.99% mortgage.  HERE‘s an article from 2012.  Back then, it was a stripped-down package with no benefits other than the rate, and brokers were advising borrowers to be weary.

Rates went up again, then down, then down some more, and eventually, all the ‘frills’ to the 5-year, fixed-rate mortgage returned (portability, pre-payment, etc.) along with the 2.99% rate.

Then in the past two years, we’ve seen rates go below 2.5%.

I was King of the Castle last summer when I hustled a 2.59% extension when prevailing rates were 2.89%.  “Great job, babe,” said my wife, with little actual interest.

And now?

1.99%.

Did you ever think you would see this day?

So what is the overall feeling here in the mortgage market?  Bearish or bullish?  Good place, or bad?

The taxpayer-backed mortgage insurer, who is forecasting a massive decline in prices, has tightened their lending criteria.

The private mortgage insurers are trying to open a new space for themselves, thereby allowing some borrowers to get back into the market, having been kicked out for a little more than two days.

And the banks are dropping their rates faster than baseball fans are dropping their support for Major League Baseball in the face of this insane and greedy dispute between players and owners.

I dunno, folks.

Feels like a bullish day in the mortgage space, no?

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71 Comments

  1. Appraiser

    at 7:48 am

    It has the hallmarks of a spring market, with lenders competing for buyers each and every day.

    Better late than never, and technically it’s still spring.

    CMHC is simply handing business over to its competitors. Maybe that’s the overall plan.

  2. Natrx

    at 10:59 am

    Housing in Toronto (and big banks) is the absolute reflection of monetary and fiscal policy . Where it goes.. housing goes. Anybody who doesn’t get it is going to continue to be left in the dust. Just look at the instant implementation and reaction of anything going negative. Just throw everything, including the kitchen sink at it to make sure it keeps going up (also known as deflating debt as the only way to really ‘pay it off’).

    While certain people are fortunate to have gotten in early or have taken that near-risk free chance of leveraging up (while many others see it as risky), there’s still an uneasiness I feel for society as a whole. Especially for the next generations. Despite me being on the fortunate side (i.e. more than 2 properties)

    But heck, just look at everywhere else in the world. A system of asset owners at the top while everyone else is just scrounging around and often powerless.

    1. M

      at 12:11 pm

      Price conveys information. The price of money is the interest rate. Traditionally N/ZIRP would indicate an economy on life support. It is clear that the world is experimenting with new monetary policies. The only thing clear is that the free market is an illusion. I think it is foolish to think one can be confident on either side of the bear/bull sentiment, in the face of such uncertainty. The right side to be on is the side the government is on. They can make the market, and they can break the market.

      1. condodweller

        at 1:36 pm

        I agree the government’s side is the right side the big question in my mind though is how long can the government keep this up? And how long can they keep it up and at what ultimate cost?

        For individuals the banks eventually cut off credit and they have no choice but to either cut back or find ways to increase their income. With the government the fox is in charge of the hen house. The US keeps bumping up to their own self imposed debt limit only to keep increase it to kick the can down the road.

      2. Not Harold

        at 6:01 pm

        ZIRP is more a creation of the structural savings glut.

        All the rich and middle class countries have VERY old populations and some of the middle class countries have VERY high savings rates (China, etc). So there’s a very strong demand for “safe” assets. That drives prices down, hard, regardless of central bank money printing and government debts. You also see people reaching for yield by taking on highly questionable products… Argentinian bonds, various small countries in Africa, very stinky junk bond debt all going covenant-lite and to exceptionally low spreads to US Treasuries. Argentinan bonds do one thing – default. Argentina defaulted in 01, restructured in 05, did a second restructure in 2010, defaulted in 2014, restructured in 2016, and then defaulted again this year before COVID began to bite. And yet professional money managers were buying Argentinan debt in 2019!!!

        There just is so much money looking for a home that it’s either take very low if not negative returns but preserve (almost all) of your capital or go for an actual return but risk losing much if not all of your investment!

        It’s like the 2003 era issue with the US balance of payments – so much money was flooding into the US looking for a safe haven investment that it screwed with global trade flows creating a current account deficit funded by investment inflows. China, India, etc didn’t want to trade goods, they wanted to sell goods for US dollars and then keep them in the US where their government couldn’t seize them through “corruption trials” (China, Vietnam, etc.. most everyone IS guilty but the enforcement is rather partial) or demonetization (India).

        It all seems weird and fake but there are real reasons for this behaviour.

    2. J G

      at 1:25 pm

      I think it’s arrogant to say it was “risk-free“. Even when I bought Amazon/Apple at much lower prices a while back, I don’t consider them “risk free”.

      Government intervention in stock market is even more direct. During this crash, the Fed just bought stocks and ETFs straight up. As the result, stocks have recovered faster than RE in the last 2-3 months.

      1. Professional Shanker

        at 2:42 pm

        Great point – people often confuse hindsight with their ability to predict the future. It was only obvious after time has passed.

        1. Clifford

          at 6:08 pm

          Very true. I remember buying a 700sqft 1bed condo in 2009 for $300K thinking I was taking a huge risk. So much so that I was too afraid to up my budget and grab the 1+1 that was $25K more. I kick myself every day because those units have quadrupled in value.

          But people will say that was risk free. Nope. It never is unless you are made of money.

    3. Pragma

      at 9:38 am

      This was a big concern for me. I was afraid the Federal government would “triple down” on housing as driver to get us out of this recession. I am very relieved to see that they have come to their senses. From all the actions they are taking in the background It seems like they are not going to try juice RE and count on that. It actually feels the complete opposite, that they will take this opportunity to let the market retrace and deleverage. This would be the best time to do it for them politically – it’s not their fault, it’s the pandemic’s fault right? The gov couldn’t have seen that coming so you can’t blame us!
      And I’m not a complete skeptic of government. There are definitely people who are well intentioned and see the diminishing marginal return(or negative return) of trying to add another layer of debt to Canadians. We can barely grow now what happens if you add more debt on top of that. The drag on the economy would be tremendous. We could lose a decade to stagnation. I think that’s a real fear for policy makers. They already see the mess we’re in and are trying to find a way out, and a solution is definitely not to try to juice RE again. We did not slide into this recession from an elevated level. We were already just treading water. You need people to spend their way out of a recession but Canadians are all tapped out. Spending was shrinking sharply over the last two years pre-covid. We’ve exhausted monetary policy as a stimulant. I think there is a growing awareness globally that asset price stimulus is not the way out. The Fed cut rates but EU, Japan, and China did not(or barely did). I think that’s a huge shift in thinking, a recognition that the problem isn’t high interest rates and never was.

    4. Numberco owner of real estate

      at 12:28 pm

      Agree with you. Pls don’t forget about ppl in between who are trying to accumulate assets, and those ppl are caught in a crossfire.

  3. Pragma

    at 12:09 pm

    Counting on lower rates as continued tailwinds for housing prices is quite a stretch and ultimately self defeating. We’re not talking about going from 6 to 2, we’re talking about double digit bps moves now. We will not have negative rates in the US/Canada, that experiment was done in the EU and Japan and yielded no results(and it’s probably coming to an end), so don’t count on rates going from +2 to -2. And nobody should want that either as low rates for extended periods of time also provides headwinds. Don’t forget that low rates also means low growth. So if you adjust for inflation does that mean we need to continually spend more of our income on housing to keep prices rising? Doesn’t that create a feedback loop where our economy will get slower and slower? And if the goal is to print and support real estate while the economy stagnates, that is called stagflation, which is a state we do not want to get to. So which is a greater force, mortgage rates dropping by a few dozen bps or an economy which is in the tanks necessitating those low rates.

    Low rates also compress margins for banks and will make them more hesitant lenders. This is why I hate the CMHC, it should not exist. Why am I as a taxpayer bearing the risk of a private company? It just encourages them to be more lax in their standards.

    And while we’re talking about mortgages, here is another very interesting data point. In Canada, 16% of mortgages have been deferred while in the US it’s only 8.5%. I’m not cherry picking data. I’m not a perma bear. It just seems that all the macro data is not long term supportive.

    1. condodweller

      at 1:56 pm

      When the bank of Canada dropped the rates and net/net banks raised mortgage rates initially I figured it would be a matter of time before someone found a way to provide mortgage rates taking advantage of the lowered over night rate and it would be a matter of time before the big banks also got on board. Though I’m not sure who is providing the 1.99%.

      I would not be shocked to see that rate come down even further closer to 1%. However I think there is a limit. The BOC has signaled that they don’t want negative rates therefore the bottom for mortgage rates has got to be around 1% unless something really bad happens to force their hand to go negative.

    2. Appraiser

      at 2:27 pm

      Data doesn’t have to be cherry-picked to be meaningless. Canada has 5 Big banks that garner 70% of the residential mortgage business. The USA has over 5,000 banks and savings institutions and is a country where 67% of mortgage originations are by non-bank lenders. By contrast, in 2010, three banks (Wells Fargo, Bank of America and Chase) originated 56% of all mortgages. Things have changed dramatically in the past decade in the good ole USA.
      https://www.lendingtree.com/home/mortgage/u-s-mortgage-market-statistics-2019/

      Canada has more mortgage deferrals because Canada has more big banks with greater market share, deeper pockets and the concomitant financial ability to defer mortgages.

      1. Not Harold

        at 5:36 pm

        In addition to the challenges of a fragmented market, deferrals in the US are further reduced by the fact that so many are packaged into MBS. They’re serviced by a third party and that servicer may have changed once or twice since origination.

        There are just lots of links in the chain to try to get approval for a deferral in the US, most of whom are very hard for regulators to persuade.

        You see the same issue with small commercial landlords. Ford and Tory tried to tell them to give extensions to tenants and to not evict. The Feds created a rent subsidy program. But so many small landlords don’t care, don’t realise the problem they’re in, and just kept pushing and evicting. So we ended up with a ban on commercial evictions for a few months. Large landlords like the real estate arms of pension plans and insurance companies are sophisticated enough to know the challenge they would face by having hundreds or thousands of empty units for many, many months and are prominent enough that their actions will be noted locally, provincially, and federally. Large landlords also have many other projects which need help or involvement by various levels of government and thus need to listen when the Mayor or the Premier raises an eyebrow at them.

        The Big 5 also have to listen when the Feds gently suggest that they engage in forbearance, since their entire lives involve dealing with one aspect of the Feds or another. Corporate tax, bank asset tax, wealth management issues, tax treatment of retirement accounts and TFSA, corporate asset purchases and sales, continued restrictions on competition from foreign banks and other financial institutions (Manulife Bank, etc)… Bank execs learned after the failed attempt to merge the Big 5 into the Big 3 that they HAVE to listen to the Feds or they’re screwed.

        Joe’s Federal Bank of Rochester doesn’t have nearly much interaction with regulators nor do they need favours across 37 different lines of business. The small non-bank financials have even less visibility to the Feds and even less susceptibility to pressure. Most of them their clients don’t even know who they are and if the brand gets trashed they can start up a new corp with the same or similar financial backers. Buyers don’t care, they just want the rate, plus it’s going to be securitized in 5 seconds anyway and the blame for not deferring actually goes to servicers and MBS shareholders…

      2. FSB

        at 8:06 pm

        This really gets my goat…we just renewed our five year fixed for 2.47…..Ce La Vie

        I believe the 1.99 is for high ratio mortgages FYI….2.29 for regular

    1. Not Harold

      at 5:37 pm

      We’ve been in ZIRP for 11 years.

      Between COVID and the structural worldwide savings glut it’s probably another decade or two at minimum.

  4. Daniel

    at 8:21 pm

    I am renewing with CIBC now for 2.5 for 5 years because I’m lazy to switch to HSBC. My existing was a 5 year var that has dropped down to an incredible 1.78%. It sucks now that var rates are maybe 25 basis points lower than fixed due to the reduced discounts to prime.

  5. Appraiser

    at 8:44 pm

    The anecdotes are rolling in too:

    “Ontario Home Sales Market On a Roll

    Well, its official, been feeling the build up for the last couple of weeks but this week the market just caught fire. With mortgage people the action has about a 8 day delay from the point of purchase

    Purchases are pouring in” ~Ron Butler https://twitter.com/ronmortgageguy/status/1270836464926982145

    “This is pretty much what we are seeing on the ground too. The real estate market is on fire. Buyers are active, financing is there and confidence is high.

    Most people (myself included) were expecting the market to be very slow this summer.” ~John Pasalis

    https://twitter.com/JohnPasalis ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor

  6. jeanmarc

    at 7:59 am

    My philosophy of mortgage debt is paying the damn thing down as fast as you can regardless of what best rate you get from the bank. It is shocking to hear from colleagues and from talking to mortgage reps over the years of how much much the average mortgage has risen over the years. If you set a proper budget and focus on double up and lump sum payments, you will be surprised to see how fast you can pay things down. Over the last twenty years, I have been mortgage free twice and finally now staying put and mortgage free for the last time come next year. I am sure my bank hates me just as much I hate paying them anything. All comes down to proper budgeting and being savvy with your wants and needs.

    1. Jimbo

      at 11:39 am

      Most people will not pay down their mortgage faster than their term because they can get a better compounded return in the market in their RRSP or TFSA.
      Some don’t because they like to have toys but nobody should be sweating when rates are below 5%.

      1. jeanmarc

        at 11:52 am

        Debt is a debt no matter how much it is. Paying down mortgage debt keeps money away from the greedy banks that we love to hate. When it comes to RRSP and TFSA, it’s called diversification in RE, stocks, bonds, gold, fixed income, etc.

        1. Jimbo

          at 12:50 pm

          I agree debt is debt, the cost to service the debt and still allocate funds towards investments, toys, food, family outings etc. is important.

          I’m not saying go and take out $700k in debt but $300k range don’t rush to pay it off. Diversify and pay for things you will enjoy. If you have money during in the bank not allocated towards RRSP etc, don’t let it sit there do a lump sum payment.
          The biggest point is $500 a month put into a stock or etf portfolio that is making 3-6% annually makes way way more sense than paying off a $300k debt early. $700k sure the everything you have at it and don’t invest makes more sense. Inflation is your friend when it comes to future cost of debt Vs value of your future money.

  7. Kyle

    at 9:39 am

    “Ontario Home Sales
    Market On a Roll
    Well, its official, been feeling the build up for the last couple of weeks but this week the market just caught fire
    With mortgage people the action has about a 8 day delay from the point of purchase. Purchases are pouring in
    Pre-approval requests flying
    And oh, talked to 3 clients today about adding HELOCS or refinancing mortgages to provide down payment for kids or purchase a rental
    I told them maybe wait till next year kids JUST married after all
    NOPE, let’s go, we think now is good”

    – Ron Butler

    “This is pretty much what we are seeing on the ground too. The real estate market is on fire. Buyers are active, financing is there and confidence is high.
    Most people (myself included) were expecting the market to be very slow this summer.”

    – John Pasalis

    https://twitter.com/JohnPasalis/status/1270838963260084225

      1. Kyle

        at 11:08 am

        Once again, you have confused her analysis of the impact to the broad economy with impacts to Toronto real estate.

          1. Kyle

            at 11:21 am

            No, he only said she dampened his bullishness, he didn’t say she has dampened his bullishness towards Toronto RE. But you however are posting in response to my comment which is specific to Toronto real estate.

          2. Chris

            at 11:23 am

            And what, pray tell, do you think John Pasalis, noted GTA real estate commentator, was referring to when he mentioned his bullishness? Hertz stock?

          3. Kyle

            at 12:09 pm

            The broad economy obviously, since he was responding directly to Frances Donald about her piece on the broad economy.

          4. Chris

            at 12:12 pm

            Almost all of JP’s tweets are about GTA real estate. He’s said the market is doing better than he had expected. And yet, all of a sudden, you think he’s “obviously” talking about the broader economy when referring to his bullishness?

            Sounds real likely.

          5. Kyle

            at 1:09 pm

            Regardless, whether he *might* have been confusing the two. There is not question that you confused the two.

  8. Kyle

    at 10:18 am

    It wasn’t that long ago, that the bears were claiming there would be a flood of people who could no longer afford to pay their mortgages upon renewal, when they thought rates were rising. Now that people are renewing at rates anywhere from a full 1% to 3% lower, the chatter about how those people’s financial situation will change after they renew has been awful quiet.

      1. Kyle

        at 11:02 am

        Not sure where you’re going with this quote and the article you’ve pasted. Are you suggesting there’s a lot of wild price speculation that’s fueling the RE market right now? I certainly don’t see it happening in the market right now. In fact, on the topic of speculation, the only wild speculation i see is by Joe Oliver who wrote that article you pasted.

        1. jeanmarc

          at 11:15 am

          RE craziness before July 1. I am starting to see a lot more listings popping up in my area. People are forgetting that we are still in a pandemic and that everything is back to normal after almost 3 months (not). The low interest rates (i.e. HSBC) are only compounding the debt of Canadians (i.e. bigger mortgages). As stated before, rates will not stay at .25% forever. Also, who is going to pay for all the gov’t spending right now? Is it not through taxes?

          1. Chris

            at 11:21 am

            Listings definitely picking up.

            “Weekly look-in at 416 Active Listings. Condos & Freeholds continue growth spurt, but Condos hitting market at much faster rate. In last 4 weeks:
            Condos +803 listings Up 37%
            Freeholds +370 listings Up 24%”

            – Scott Ingram

            https://twitter.com/areacode416/status/1270417062180110336

            416 MOI at 2.6 (freehold) and 3.2 (condo), so still fairly low. But will be interesting to see how pace of listings and sales are in comparison to each other.

      2. Crofty

        at 1:26 pm

        Okay, for one thing, Greenspan is not quoted or mentioned in the article you linked to, nor is the word “irrational” nor is the word “exuberance.”

        That being said, no one seems to recall that Greenspan made his (in)famous quote in December 1996, roughly four years before the eventual U.S. stock market crash/correction began. On that day, the S&P500 index was at about 745. Roughly three years later, it had more than doubled, and despite the subsequent crash/correction in the early 2000s, it would not drop below 745 until March 2, 2009. However, in less than two weeks (March 13) it was above 745 again, and (obviously) has never looked back.

        In other words, anyone who took Greenspan’s dubious implied “advice” and sold stocks in December 1996 may well have missed out on up to four years of explosive growth, whereas people who simply stood pat, riding out the ups and downs of the last 24 years, have done just fine.

    1. Jimbo

      at 11:47 am

      I’m 0.4% lower from 5 years ago. I’m not sure how much longer society can afford low interest rates but anyone who said they would be lower today than 5 years ago were foolish. Turned out to be right but still foolish.

    1. Kyle

      at 11:11 am

      And now you’re confusing impacts to the broad Global economy to impacts to Toronto real estate,

      1. Chris

        at 11:15 am

        Oh, of course, how foolish of me. I forgot that Toronto real estate operates in a vacuum, completely isolated from larger national and international macroeconomic factors.

          1. Chris

            at 11:24 am

            I’ll take that as a compliment!

        1. Kyle

          at 12:05 pm

          Never said Toronto real estate operates in a vacuum. But i am saying that it is foolish to assume that Toronto’s real estate prices will respond the same way as the Global economy.

          1. Chris

            at 12:13 pm

            Just as foolish to assume that global and national economic factors won’t impact the Toronto real estate market. Or were you implying something else when you casually dismissed that report?

          2. Kyle

            at 12:50 pm

            Can you ever stop trying to put words into people’s mouths? I get you are super-desperate to win an argument on the internet, and the only way you can is by creating strawman arguments, but again I never said there is no impact. You clearly don’t understand the concept of sensitivities or how things feed through to the local real estate market. Just because the Global economy will shrink doesn’t mean Toronto real estate will be impacted the same way. When across the Globe it is low wage workers who are being most affected that has very little impact on Toronto home buyers and sellers.

            When canada’s profile of job losses looks like this:

            https://behindthenumbers.ca/2020/03/26/unemployment-may-hit-70-year-high-but-new-ei-replacement-will-help/

            Yes there will be impacts to the broader Canadian economy, but when it comes to Toronto real estate the people who buy and sell homes are far less impacted. So either stop trying to substitute the broad economic impacts for Toronto real estate impacts or quit whinging when i call you out for manufacturing the misinformation that you keep polluting the comment section with.

          3. Chris

            at 1:13 pm

            Feel free to quote where I said that impacts to the global economy will feed through directly to Toronto real estate, and have a perfectly proportionate response and identical sensitivities.

            Or, were you just putting words into my mouth in your super-desperation to win an argument on the internet?

            Nobody has stated they will all move in perfect harmony, but you’re hard pressed to make the argument that a significant global or Canadian economic slowdown will translate into anything positive for Toronto real estate.

            That blog post you shared is from over two months ago. It’s not surprising that lower income workers were the first to lose their jobs. Not only are they more concentrated in service sector jobs, which were most susceptible to Covid lockdowns, they’re also the lowest risk to layoff because severance will be less and wrongful dismissal damages lower.

            Since then, we’ve had job and income losses across higher pay levels – Air Canada (pilots), Bombardier (engineers), Deloitte (accountants), as well as the self-employed (dentists, lawyers, other small business owners). We may continue to see this, during the “economic second wave”, as Frances Donald labels it.

            Granted, it’s only one guy’s opinion, but here’s an American look at it:

            “Gundlach: A ‘wave’ of layoffs is coming for $100,000/year white-collar jobs”

            https://finance.yahoo.com/news/jeffrey-gundlach-sees-unemployment-wave-hitting-white-collar-jobs-224443437.html

          4. Kyle

            at 1:37 pm

            And yet Sales and Prices in Toronto continue to rise. One must wonder how all those out of work Pilots, Engineers, Accountants and Self-Employed people are still somehow getting approved for mortgages.

          5. Chris

            at 1:53 pm

            As I said, seems a tad premature to assume all the impacts are in the rearview mirrow. But I guess we’ll just have to wait and see over coming months, to what extent the deferral cliff and second wave, both public health and economic, materialize.

  9. Crofty

    at 11:24 am

    CMHC predicted that Canadian home prices would drop between 9% and 18% (peak-to-trough) before the end of the year. The average GTA price in April ($821,392) was 9.7% below the average price in February ($910,290). So their prediction has already come about in the GTA. Congratulations!

    1. mortgagejake

      at 10:40 pm

      If you’re into buying and selling stocks, buy and sell stocks. February was hot. April was hotjunk. Wanna bet that the rest of the year we’ll be back to 910? The numbers for April were so skewed b/c sales were down off a cliff 80%.

  10. Geoff

    at 11:40 am

    All i know is that all real estate is local. And the house next to me just sold for $1,590,000 (was listed at $1,400,000) and it sold in I’d say 2.5 weeks based on just me being next door. So bull or bear, I don’t know, it just seems to keep on rolling. I don’t know what they would have gotten without covid-19 – no one will ever know.

    1. Jimbo

      at 11:50 am

      The problem is supply and demand is essentially the same as before COVID, sales to new listings have lowered by the same percentage point so I would say around the same price

  11. Numberco owner of real estate

    at 12:33 pm

    To be fair, 2006 was before the Great Recession… so I would argue that 4.99% would have been a good rate without the benefit of hindsight.

    Full disclosure: It is in my interest for real estate to appreciate. However, I would completely agree with the CMHC move. Someone who has a 600 credit score (without further credit support like a guarantee) has just as much business getting a mortgage as someone with less than 20% DP. The “lowest rung” buyers are the riskiest borrowers. This move should have been implemented long ago although the timing is not ideal in terms of tightening credit in a slowing/declining economy.

    The 1.99% rate is offered by HSBC but is for high-ratio mortgages only. Maybe someone can explain this to me: a high ratio mortgage is eligible for a much lower interest rate than a lower ratio mortgage. Is this because of CMHC? This cannot be more backwards.

    1. Condodweller

      at 2:01 pm

      An insured mortgage is less risk for the lender for one. Another reason is a high ratio mortgage is likely to be a larger amount vs a low ratio mortgage i.e. volume discount.

      1. Numberco owner of real estate

        at 2:47 pm

        Thank you. Less risk is only due to the mortgage insurance, presumably? Also, some low ratio mortgages have decent amounts owing too: someone buying a $2M property might have a $800k DP. I have lost track now whether there is some form of mortgage insurance that banks can or should buy for low-ratio mortgages.

        1. Not Harold

          at 9:42 am

          While a large amount of equity is nice, it takes time to go through foreclosure and recoup the money while also costing a fair bit in various expenses. An insured mortgage will get your money back faster at less cost.

          30 basis points on your 1.2MM mortgage is still only 3600 bucks a year, which isn’t much in terms of covering default expenses.

  12. Appraiser

    at 8:49 pm

    “The data shows that Toronto was the fastest growing metropolitan area in Canada and the U.S. last year, overtaking Dallas-Fort Worth-Arlington for the top spot,” they wrote in a blog on their findings.

    Metropolitan Toronto grew by 127,575 people, compared to 117,380 newcomers to Dallas-Fort Worth-Arlington. Metropolitan Montreal was the sixth fastest growing area, with a population increase of 65,205.”

    “Once the pandemic is behind us, the GTA will remain by far the most attractive city or region in Canada, as well as one of the most attractive regions in the world.”

    https://www.thestar.com/news/city_hall/2020/06/11/gta-population-growth-topped-canadian-and-american-cities-in-2019.html

    1. J G

      at 9:03 pm

      Net gain is only 45k after people moved away from GTA due to high housing cost. Of course a bull like you would leave that quote out.

      1. Fearless Freep

        at 10:03 pm

        Your comment is misleading at best. To clarify, Toronto CMA was the fastest growing metropolitan area, gaining 127,575 people. Toronto was the fastest growing city (proper) with an increase of 45,742 people.

  13. mortgagejake

    at 10:42 pm

    What is funny is, HSBC, the lender giving 1.99, ONLY works with CMHC (I could be wrong here but I’m pretty sure I’m not). So going to HSBC means you will be 35/42 limited. Secondly, why do people support HSBC? Best rate blah blah but the penalty sucks. Third, they ARE backing Beijing – not to make this political but I just did… ethical borrowing? Of course the average Canadian won’t care, nor should they, but I thought it was interesting they would openly be in favour of Beijing policy. Anyways, I’m rambling. back to underwriting… too many apps to deal with here….

    1. Jimbo

      at 10:24 am

      Yeah but that conversation piece at the dinner table about the deal of 1.99%.

      Nobody thinks of the penalty. Not even the RE agent who bought North of the city tried to sell before the pandemic and then sold during the pandemic and complained about the $30k penalty……

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