Securing a rate hold is like having insurance on your mortgage rate – you no longer have to worry about mortgage rates increasing while you find your new home over the next 90-120 days. And if rates drop within that same period, so too will your pre-approved rate.
For instance, if you obtain a 3.75% rate hold and then global risks subside and the economy strongly recovers over the next three to four months, that 3.75% could easily jump to 4.50% or higher. In this case, your rate hold for 3.75% would have saved you three-quarters of a percentage point, which would translate to a savings of a significant amount of money over the term of your mortgage.
But a rate hold means nothing if you don’t meet the lender’s qualifications. By working with a mortgage professional or lender to obtain a pre-approval and a rate hold, you can be confident you have access to mortgage financing and you will know how much you can spend before you head out shopping for a property.
It’s important to note, however, that there is a significant difference between being pre-approved and pre-qualified. In order to obtain a pre-approval, the lender fully underwrites the deal, whereas with a pre-qualification only the most basic details are considered. Remember that many banks will only issue a pre-qualification.
There are several reasons why you may want to secure a rate hold, including when you:
• Are thinking of buying a home in the next few months
• Are considering locking in your variable rate to a five-year fixed if rates rise, but your lender won’t hold a good rate for you
• Are casually thinking of refinancing but prefer to wait for fixed rates to rise so that your interest rate differential (IRD) penalty falls
You want to hold a rate on a different term than you were pre-approved for by a different lender
Showing posts with label Nelson BC Real Estate Mortgage. Show all posts
Showing posts with label Nelson BC Real Estate Mortgage. Show all posts
Tuesday, November 16, 2010
Monday, September 20, 2010
Low Mortgage Rates Boost August Home Sales
The British Columbia Real Estate Association (BCREA) reports that Multiple Listing Service® (MLS®) residential sales in the province declined 35 per cent to 5,590 units in August compared to the same month last year. On a seasonally adjusted basis, MLS® residential unit sales in the province increased 7 per cent in August from July 2010. The average MLS® residential price climbed 4 per cent to $487,804 in August compared to the same month last year.
“August home sales posted the first month-to-month increase since March of this year,” said Cameron Muir, BCREA Chief Economist. “Lower mortgage interest rates and an improving labour market are inducing additional consumer demand.”
“The number of new residential listings in the province has fallen 30 per cent since April,” added Muir. “With fewer new listings, total active listings are now on the decline, signalling that an end to the buyer’s market may be on the horizon.”
Year-to-date, BC residential sales dollar volume increased 8 per cent to $26.9 billion, compared to the same period last year. Residential unit sales rose 2 per cent to 53,717 year-to-date, while the average MLS® residential price climbed 10 per cent to $501,226 over the same period.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
“August home sales posted the first month-to-month increase since March of this year,” said Cameron Muir, BCREA Chief Economist. “Lower mortgage interest rates and an improving labour market are inducing additional consumer demand.”
“The number of new residential listings in the province has fallen 30 per cent since April,” added Muir. “With fewer new listings, total active listings are now on the decline, signalling that an end to the buyer’s market may be on the horizon.”
Year-to-date, BC residential sales dollar volume increased 8 per cent to $26.9 billion, compared to the same period last year. Residential unit sales rose 2 per cent to 53,717 year-to-date, while the average MLS® residential price climbed 10 per cent to $501,226 over the same period.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
Mortgage Forcast
MORTGAGE RELIEF FOR BC HOUSEHOLDS
The global economy is feeling the lasting effects of the most serious financial crisis since the 1930s. As meticulously documented by economists Ken Rogoff and Carmen Reinhardt in their examination of 8 centuries of data, recoveries from financial crises are characterized by sluggish growth in output and employment.
Although Canada’s relative stodgy banking system ensured that we did not suffer a domestic financial crisis, our fundamental dependence on the United States, the epicenter of the global crisis, means that we are mired in the second-hand effects of the US’s economic lethargy. However, as we detail below, there may be a silver lining for BC households in these cloudy skies.
Growth Outlook
Second quarter GDP growth fell well below expectations at just 2% (annualized). This represented a marked deceleration from first quarter growth of 5.8%. Flagging consumer spending and weaker residential investment resulting from the expiration of the home renovation tax credit tempered growth in the second quarter.
Economic growth in the remainder of 2010 and 2011 may continue to underwhelm due a cooling housing sector, sluggish economic growth in the United States and an end to Government fiscal stimulus. Moreover, unemployment that is projected to hover near 8% for several quarters may hinder consumption going forward.
In all, we see the Canadian economy growing at a 3.3% pace in 2010 before slowing to 2.5% in 2011.
Interest Rate Outlook
In the face of slowing growth and low inflation, the Bank of Canada raised rates for what we expect to be the final time in 2010 at its September 8th meeting. Although the Bank’s medium-run objective of returning rates to normal long-run levels is still intact, the Bank will take a very cautious approach to tightening monetary policy over the next 6 to 12 months and further rate tightening will be highly dependent on how solid the ground is underneath both the Canadian and US economies.
Given that inflation is projected to remain subdued and growth is expected to slow, we have trimmed our forecast for the overnight rate to 1% at the end of 2010 and 2.00% by the end of 2011 (from 1.0%-1.25 and 2.50% respectively).
In our July forecast, we noted that mortgage rates would continue to trend lower in the short-run and indeed downward pressure on interest rates has not only continued, but has in fact intensified.
Although fear stemming from the European debt crisis has seemingly subsided, fresh concern has emerged about the United States economy where hopes of a “summer of recovery” have quickly faded into fear of a dreaded “double-dip” recession.
In response, cautious households and companies have increased savings, adding to the flood of demand for safe assets and forcing long-term Government bond yields to levels not seen since the height of the global financial crisis.
Yields on Canadian Government 5-year bonds, the benchmark for mortgage pricing, have fallen a remarkable 100 basis points since the spring to just 2.10%. Although this decline in interest rates is likely overdone, it is difficult to say when bond markets may normalize.
A much discussed second round of quantitative easing by the Federal Reserve (so-called QE2) could mean that US and Canadian interest rates stay low for an extended period. On the other hand, unexpected good news on the US economy may translate to faster pace of interest rate normalization.
Mortgage Rate Forecast
The silver-lining in the lacklustre economic outlook is that the normalization of both short-term and long-term interest rates will be deferred. BC households with variable rate mortgages will therefore be facing lower payments than we would have originally predicted at the beginning of the year.
Moreover, new homebuyers or homeowners set to renew their mortgages will be offered a second chance at securing rates at levels last seen at the depths of the financial crisis.
The BCREA mortgage rate forecast is for a continuation of the current low-rate environment into early 2011, when prompted by a new round of tightening by the Bank of Canada and (hopefully) brighter economic prospects, interest rates will renew their ascendency to historical norms but at a measured pace.
The 1-year fixed mortgage rate is forecasted to finish 2010 at around 3.20% and to reach 4.05% by the end of 2011. The 5-year fixed mortgage rate is forecasted to end the year at 5.35% and to reach 6.10% by the end of 2011.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
The global economy is feeling the lasting effects of the most serious financial crisis since the 1930s. As meticulously documented by economists Ken Rogoff and Carmen Reinhardt in their examination of 8 centuries of data, recoveries from financial crises are characterized by sluggish growth in output and employment.
Although Canada’s relative stodgy banking system ensured that we did not suffer a domestic financial crisis, our fundamental dependence on the United States, the epicenter of the global crisis, means that we are mired in the second-hand effects of the US’s economic lethargy. However, as we detail below, there may be a silver lining for BC households in these cloudy skies.
Growth Outlook
Second quarter GDP growth fell well below expectations at just 2% (annualized). This represented a marked deceleration from first quarter growth of 5.8%. Flagging consumer spending and weaker residential investment resulting from the expiration of the home renovation tax credit tempered growth in the second quarter.
Economic growth in the remainder of 2010 and 2011 may continue to underwhelm due a cooling housing sector, sluggish economic growth in the United States and an end to Government fiscal stimulus. Moreover, unemployment that is projected to hover near 8% for several quarters may hinder consumption going forward.
In all, we see the Canadian economy growing at a 3.3% pace in 2010 before slowing to 2.5% in 2011.
Interest Rate Outlook
In the face of slowing growth and low inflation, the Bank of Canada raised rates for what we expect to be the final time in 2010 at its September 8th meeting. Although the Bank’s medium-run objective of returning rates to normal long-run levels is still intact, the Bank will take a very cautious approach to tightening monetary policy over the next 6 to 12 months and further rate tightening will be highly dependent on how solid the ground is underneath both the Canadian and US economies.
Given that inflation is projected to remain subdued and growth is expected to slow, we have trimmed our forecast for the overnight rate to 1% at the end of 2010 and 2.00% by the end of 2011 (from 1.0%-1.25 and 2.50% respectively).
In our July forecast, we noted that mortgage rates would continue to trend lower in the short-run and indeed downward pressure on interest rates has not only continued, but has in fact intensified.
Although fear stemming from the European debt crisis has seemingly subsided, fresh concern has emerged about the United States economy where hopes of a “summer of recovery” have quickly faded into fear of a dreaded “double-dip” recession.
In response, cautious households and companies have increased savings, adding to the flood of demand for safe assets and forcing long-term Government bond yields to levels not seen since the height of the global financial crisis.
Yields on Canadian Government 5-year bonds, the benchmark for mortgage pricing, have fallen a remarkable 100 basis points since the spring to just 2.10%. Although this decline in interest rates is likely overdone, it is difficult to say when bond markets may normalize.
A much discussed second round of quantitative easing by the Federal Reserve (so-called QE2) could mean that US and Canadian interest rates stay low for an extended period. On the other hand, unexpected good news on the US economy may translate to faster pace of interest rate normalization.
Mortgage Rate Forecast
The silver-lining in the lacklustre economic outlook is that the normalization of both short-term and long-term interest rates will be deferred. BC households with variable rate mortgages will therefore be facing lower payments than we would have originally predicted at the beginning of the year.
Moreover, new homebuyers or homeowners set to renew their mortgages will be offered a second chance at securing rates at levels last seen at the depths of the financial crisis.
The BCREA mortgage rate forecast is for a continuation of the current low-rate environment into early 2011, when prompted by a new round of tightening by the Bank of Canada and (hopefully) brighter economic prospects, interest rates will renew their ascendency to historical norms but at a measured pace.
The 1-year fixed mortgage rate is forecasted to finish 2010 at around 3.20% and to reach 4.05% by the end of 2011. The 5-year fixed mortgage rate is forecasted to end the year at 5.35% and to reach 6.10% by the end of 2011.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”
Thursday, January 21, 2010
Canadian Mortgage Debt – A Closer Look
Newspaper editorials have been overflowing lately with speculation on how rising rates may lead to a surge in mortgage defaults. In response to this issue, CIBC Economist Benjamin Tal released a report that took a closer look at the facts and determined history doesn’t support this premise. Below is a summary of Tal’s report.
House Prices – Some Overshooting
Over the past two years, the degree of volatility observed in the Canadian housing market has been unprecedented. Within this short timeframe, house prices fell by almost 13%, only to rebound by an impressive 21%.
Meanwhile, resale activity is now rising by close to 67% on a year-over-year basis after falling by close to 40% in 2008. Housing starts are presently 33% higher than in April 2009 despite dropping by more than 50% earlier in the recession.
In fact, no other segment of the economy has rebounded as fast as the housing market, making it one of the real surprises of this recession. This rapid uptick in housing activity, in the face of recessionary conditions elsewhere in the economy, raises concerns about its sustainability, and is causing some to wonder whether house prices are, in fact, rising too quickly given current economic fundamentals.
Tal estimates that the Canadian housing market as a whole is indeed beginning to overshoot its “fair value”. At just under $350,000, the current average price of a home is estimated to be roughly 7% over what would be consistent with current housing market fundamentals such as interest rates, income growth, rents and demographics.
But this modest overshooting is far from uniform across the country. Those figures are skewed to western Canada, which has seen the most dramatic swings in house prices over the past 24 months. That market now appears to be overvalued by roughly 10-15%, suggesting that the imbalance in the rest of the country is much more modest.
Note, however, that overvaluation does not necessarily mean a bubble or a dramatic price correction. Given that the current overvaluation is occurring in a context of historically low interest rates, what we are most likely witnessing is a temporary period of exuberance that is “borrowing” activity from the future, as households take advantage of lower rates and accelerate their borrowing and home purchasing activities.
To the extent that current activity is simply a redistribution of sales from the future to the present, the housing market of tomorrow may be in store for a more muted level of activity. Housing starts will also catch up with the sudden spurt in demand, with the increase in supply helping to moderate price trends. Rather than plunging, house prices are more likely to stagnate in coming years (or fall modestly in the most overheated markets) as fundamentals catch up with a market that has gotten ahead of itself.
What Worries the Bank of Canada?
Rather than house prices, it is the accelerated pace of borrowing at very low rates that is beginning to raise some concerns at the Bank of Canada. For the first time in the post-war era, real household credit continued to expand through a recession. In fact, mortgage credit is now rising at a year-over-year rate of more than 7%.
This strong performance is a clear reflection of an extremely effective monetary policy in Canada. With Canadian consumer confidence only 10 points below its pre-recession level (versus a 50% decline in the US), Canada is benefiting not only from properly functioning credit channels, but also from a household sector that is willing and able to take on new credit.
Remember that low rates only work as an economic stimulus if Canadians take advantage of them. The wave of borrowing does, however, have consequences in terms of consumer debt levels. The household debt-to-income ratio is now at a new all-time high of more than 140%.
Despite a record low 4.4% effective mortgage rate, overall mortgage interest payments as a share of after-tax income are now at levels that in the past were consistent with a 6% effective mortgage rate. Since rates will no doubt at some point return to those higher levels, the Bank of Canada is worried that Canadians are making themselves increasingly more vulnerable in terms of their ability to continue to service these new, higher debt loads.
How Big is the Problem?
The relevant question, however, is just how serious a problem it is becoming, and here we have to dig a bit deeper to get the answers. Aside from an unlikely scenario of a 1970s-type stagflation, any future increase in interest rates will be in response to an improving economy. As such, any analysis of the potential impact of higher rates on the household sector in general, and the housing market in particular, should be done with tomorrow’s healthier economy in mind.
After all, the reality is that, in the past, interest rates have played only a minor role in driving mortgage default rates. Historically, it’s clear that mortgage arrear rates are highly correlated with the unemployment rate, with little or no correlation with changes in interest rates. The same goes for the economy in general. Over the past three decades, personal bankruptcies have risen twice as fast in an environment of falling interest rates than in an environment of rising rates.
And the logic here is obvious – interest rates rise when the economy recovers, and the benefits to employment and incomes of an improving economy easily offset the sting of higher interest rates on debt service costs.
House Prices – Some Overshooting
Over the past two years, the degree of volatility observed in the Canadian housing market has been unprecedented. Within this short timeframe, house prices fell by almost 13%, only to rebound by an impressive 21%.
Meanwhile, resale activity is now rising by close to 67% on a year-over-year basis after falling by close to 40% in 2008. Housing starts are presently 33% higher than in April 2009 despite dropping by more than 50% earlier in the recession.
In fact, no other segment of the economy has rebounded as fast as the housing market, making it one of the real surprises of this recession. This rapid uptick in housing activity, in the face of recessionary conditions elsewhere in the economy, raises concerns about its sustainability, and is causing some to wonder whether house prices are, in fact, rising too quickly given current economic fundamentals.
Tal estimates that the Canadian housing market as a whole is indeed beginning to overshoot its “fair value”. At just under $350,000, the current average price of a home is estimated to be roughly 7% over what would be consistent with current housing market fundamentals such as interest rates, income growth, rents and demographics.
But this modest overshooting is far from uniform across the country. Those figures are skewed to western Canada, which has seen the most dramatic swings in house prices over the past 24 months. That market now appears to be overvalued by roughly 10-15%, suggesting that the imbalance in the rest of the country is much more modest.
Note, however, that overvaluation does not necessarily mean a bubble or a dramatic price correction. Given that the current overvaluation is occurring in a context of historically low interest rates, what we are most likely witnessing is a temporary period of exuberance that is “borrowing” activity from the future, as households take advantage of lower rates and accelerate their borrowing and home purchasing activities.
To the extent that current activity is simply a redistribution of sales from the future to the present, the housing market of tomorrow may be in store for a more muted level of activity. Housing starts will also catch up with the sudden spurt in demand, with the increase in supply helping to moderate price trends. Rather than plunging, house prices are more likely to stagnate in coming years (or fall modestly in the most overheated markets) as fundamentals catch up with a market that has gotten ahead of itself.
What Worries the Bank of Canada?
Rather than house prices, it is the accelerated pace of borrowing at very low rates that is beginning to raise some concerns at the Bank of Canada. For the first time in the post-war era, real household credit continued to expand through a recession. In fact, mortgage credit is now rising at a year-over-year rate of more than 7%.
This strong performance is a clear reflection of an extremely effective monetary policy in Canada. With Canadian consumer confidence only 10 points below its pre-recession level (versus a 50% decline in the US), Canada is benefiting not only from properly functioning credit channels, but also from a household sector that is willing and able to take on new credit.
Remember that low rates only work as an economic stimulus if Canadians take advantage of them. The wave of borrowing does, however, have consequences in terms of consumer debt levels. The household debt-to-income ratio is now at a new all-time high of more than 140%.
Despite a record low 4.4% effective mortgage rate, overall mortgage interest payments as a share of after-tax income are now at levels that in the past were consistent with a 6% effective mortgage rate. Since rates will no doubt at some point return to those higher levels, the Bank of Canada is worried that Canadians are making themselves increasingly more vulnerable in terms of their ability to continue to service these new, higher debt loads.
How Big is the Problem?
The relevant question, however, is just how serious a problem it is becoming, and here we have to dig a bit deeper to get the answers. Aside from an unlikely scenario of a 1970s-type stagflation, any future increase in interest rates will be in response to an improving economy. As such, any analysis of the potential impact of higher rates on the household sector in general, and the housing market in particular, should be done with tomorrow’s healthier economy in mind.
After all, the reality is that, in the past, interest rates have played only a minor role in driving mortgage default rates. Historically, it’s clear that mortgage arrear rates are highly correlated with the unemployment rate, with little or no correlation with changes in interest rates. The same goes for the economy in general. Over the past three decades, personal bankruptcies have risen twice as fast in an environment of falling interest rates than in an environment of rising rates.
And the logic here is obvious – interest rates rise when the economy recovers, and the benefits to employment and incomes of an improving economy easily offset the sting of higher interest rates on debt service costs.
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