Archive for the ‘Reviews’ Category

Could bonds pull mortgage rates down even more?

July 13th, 2009 No comments

RITA TRICHUR Toronto Star:    Falling bond yields could spur a slight drop in medium-term residential mortgage rates this summer, but bargain-hungry consumers would be foolish to count on considerably cheaper borrowing costs, experts say.

About a month ago, banks blamed soaring bond yields for two sizeable hikes to key residential mortgage rates.

Those moves drove up posted rates on five-year fixed-rate loans by 60 basis points to 5.85 per cent. 

While yields have reversed course in recent weeks, banks have yet to pass on those savings to consumers. Meanwhile, there are fresh signs of life in the housing market, fuelling increased demand for mortgages.

Some economists and rate strategists believe that yields could fall a bit further and speculate that mortgage rates might follow suit. But there are no guarantees and experts surmise those potential declines would be minimal at best.

Doug Porter, deputy chief economist at BMO Capital Markets, says banks will be more inclined to tweak their rates if yields continue heading south

Typically, they want to be convinced that it is not a flash in the pan and that any retreat in yields is sustained,” he said.

“I believe that we are probably not too far away from that point. It might take a little more of a deeper rally (in bond prices) to make it completely convincing.”

Bond yields move inversely to prices. While variable-rate mortgages are largely influenced by the banks’ prime rates, conventional fixed-rate mortgages are linked to the bond market.

Banks generally try to match maturities when they finance mortgages with bonds. That means five-year mortgages are paired with five-year bonds.”


Charmaine’s comment:  I have highlighted certain phrases, as can be seen by the above article, banks are fast to increase their fixed rates when the bond rate increases however are very slow to reduce them as cited by Doug Porter of BMO Capital Markets, “they want to be convinced that it is not a flash in the pan and that any retreat in yields is sustained”.  

Also note the decrease in the premium on the variable rate from a couple of months ago:

Today I can offer you Prime plus 0.20 – most of the bank’s are at prime plus 0.40 – 0.60!


Hamilton & Toronto Housing Trends

July 9th, 2009 No comments

Some really great trending in the Hamilton CMA as provided by CMHC.  Sales to New Listing Ratio’s have trended exceptionally well over the last several months and while sales are below last years levels by 8% – the previous 2 years were historically record levels and this is a huge improvement over the Oct-Feb results.  70.4% Sales to New Listing Ratio indicates an extremely robust resale home market.



Number of Sales

Yr/Yr² (%)

Number of New Listings

Average Price

Yr/Yr² (%)

Q1 2008






Q2 2009












YTD 2008






YTD 2009








Additionally, I thought I would share some of the numbers coming out of the Toronto CMA as provided by CMHC.  Really exceptional results with Sales to New Listing Ratio showing 65%…indicative of a very healthy resale housing market and positive trending in all categories. 



Number of Sales

Yr/Yr² (%)

Number of New Listings

Average Price

Yr/Yr² (%)

Q1 2008






Q2 2009












YTD 2008






YTD 2009







Categories: Reviews Tags: , ,

Fed not likely to raise rates

June 16th, 2009 No comments

Recently, there has been some loud talk about inflation and how the U. S. Federal Reserve is going to have to start raising interest rates soon in order to nip inflation in the bud.

When first confronted with this news, you may have said, “Hogwash! No way in this economic backdrop could the Fed raise rates, slow down growth and risk sending us into a steep ‘double-dip’ recession.”

That certainly would be my view. It’s unclear at this point even if we are coming out of recession, so it really would be premature to slow things down at this point before any growth traction has been achieved.

However, let’s not just make assumptions. Let’s delve into history to see what the Fed has done in prior cycles.

The last U. S. recession was from March, 2001, to November, 2001, a period of eight months. The Fed funds rate was 6.5% from June, 2000, to January, 2001. In January of that year, the Fed lowered the rate to 6%, then went on a 12-month lowering frenzy during the recession and in the aftermath of the 9/11 attacks. By year-end 2001 the Fed funds rate was 1.75%, with the Fed still maintaining an easing bias.

Despite the official ending of the recession in November, 2001, the Fed maintained very low interest rates for almost three more years. In fact, it kept lowering rates, down to 1% from June, 2003 to May, 2004. This strategy of keeping rates low despite no recession is now widely blamed as the reason for the creation of the housing bubble that popped in 2007. The Fed finally raised rates in June, 2004, a full 30 months after the recession had ended.

In the recession of July, 1990 to March, 1991 (eight months) the Fed had been easing or maintained a neutral bias since February, 1989. At the start of that recession, the Fed funds rate was 8.25%. By the end of the recession, it was down to 6%. Again, despite the recession being over, the Fed kept jamming rates lower, all the way down to 3% in December, 1993. The Fed didn’t raise rates again until February, 1994. In that recession, again the Fed kept lowering rates for 30 months after the end of the recession.

Going back further into history, in the recession of July, 1981 to November, 1982 (16 months) the Fed acted a little more quickly. In May, 1981 the Fed rate was 20.0%. By December of that year, the Fed had moved rates down to 12%. In the spring of 1982, though, rates were back to 15%. But, showing signs of confusion, by the end of the summer 1982, rates were much lower, at 9.5%. The Fed was tightening rates again by September, 1982, and for a period of time investors had no idea what to expect, as the Fed moved rates up or down seemingly at random for a period of 18 months.

In the energy crisis of the early 1970s, the recession lasted from November, 1973, to March, 1975 (16 months). In November, at the start of the recession the Fed funds rate was 9.00% but by May, 1974, because of inflation fears the Fed had already raised the rate to 13%. Recession fears, however, ultimately ruled the day, and by year-end 1975 the Fed rate had been cut in half, to 4.75%. The tightening began anew, however, in April, 1976, 13 months after the official end of the recession.

What can we conclude? One, it seems sometimes that the Fed is just winging it, moving rates at random in response to short-term events. But it does seem the Fed is unwilling to raise rates too quickly after any recession.

Based on the severity of this economic downturn, you would have to conclude the Fed is unlikely to risk a double-dip recession, and will keep the Fed funds rate very low (now 0% to 0.25%) for a long time.

This may, of course, cause inflation, but for the time being, that is still better than a giant de-leveraging economic death-spiral.

Source: Peter Hodson, Financial Post 








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Trying to Make Sense of Rate Increases!

June 8th, 2009 No comments

Many lenders have raised their interest rates on 5 year and longer fixed rate mortgages.

Why is this happening?

Banks lend more money than they take in through deposits.  In order to meet the demand for customer loans, they borrow money in financial markets. To ensure they are not taking interest rate risk, they lock in the rate on the money they borrow to match the term of the mortgage. For example, a 5 year fixed mortgage is funded by a 5 year fixed rate bond. In May, the rate on longer term bonds started to rise, meaning the banks cost of funds – the cost to the bank of raising the money needed to loan to customers — went up. When they pay a higher rate to borrow in the bond market this reduces their profit margins. This is why rates on the longer term fixed rate mortgages have increased. The relationship between bonds and mortgage rates is not new. Attached is a chart that shows how bonds track closely with mortgage rates. They tend to go up and down together.The good news is that the upward trend in bonds prices is a positive sign that consumer and investor confidence is on the mend.

What does this mean for you? 

For those of you who are in a variable rate and want to switch to a fixed rate, the general rule is as follows: The variable rate mortgage is usually a 5 year term, if you want to switch into a fixed rate in year two of your mortgage term you may switch into a 3 year term (the remaining term of your mortgage) 

Million Dollar Question, should I switch into a fixed rate now? 

This week in the Bank of Canada’s announcement they maintained their overnight target rate at ¼ per cent (prime remains the same at 2.25%) and they reiterated their conditional commitment to hold the current rate until middle of next year – on condition that inflation did not rise above their inflation target. What we are hearing is that the prime overdraft rate should stay the same until next year, what we are seeing is that the longer term fixed interest rates are increasing.  You should be asking yourself; at what point if any do you want to lock into a fixed rate.  Fixed rates are at all time low, we are told this is the bottom – do you want to lock in now loose your good rate or hold on for awhile – at what point will you be ready to switch if at all? 

Tough decision!


2009 Home Renovation Tax Credit

April 30th, 2009 No comments

The Home Renovation Tax Credit (HRTC) can help improve the value of your home.

Renovating your home is an investment in the long term value of your home. Here’s how the 2009 Home Renovation Tax Credit can work for you. Canadian homeowners can claim a 15% non-refundable tax credit for eligible expenditures exceeding $1,000, but not more than $10,000, meaning that the maximum tax credit that can be received is $1,350 ($9000 x 15%). Taxpayers can claim the HRTC when filing their 2009 tax return.

What is the eligibiliy period for the HRTC?

The HRTC will apply to eligible home renovation expenditures for work performed, or goods acquired, after January 27, 2009 and before February 1, 2010.

Who can claim the HRTC?

Eligibility for the HRTC will be family-based which means the credit can only be claimed once per family. A family is generally considered to consist of an individual, and where applicable, the individual’s spouse or common-law partner. Family members with joint ownership will be able to share the credit. The credit can be claimed on eligible expenditures incurred on one or more of an individual’s dwellings. Renovations to houses, cottages and condominium units that are owned for personal use are eligible for the HRTC.

What should you do?

Keep your original receipts for eligible home improvement purchases and labour (eg. contractors) and submit them for a tax credit when you complete your 2009 tax return.

What types of products, services and expenses are eligible?


_ Renovating a kitchen, bathroom or basement

_ New carpet or hardwood floors

_ Building an addition, deck, fence or retaining wall

_ A new furnace or water heater

_ Painting the interior or exterior of a house

_ Laying new sod

_ Labour costs

_ Professional fees

_ Building materials

_ Fixtures

_ Equipment rentals

_ Permits


_ Furniture and appliances (refrigerator, stove, couch)

_ Purchase of tools

_ Carpet cleaning

_ Maintenance contracts (furnace cleaning, snow removal, lawn care, pool cleaning, etc.)


Source: Canadan Revenue Agency and the Department of Finance Canada for more information.






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