Why Are Some Mortgage Rates Rising?

Fears over the COVID-19 pandemic and plummeting oil prices have caused mortgage rates to plummet to multi-year lows over the past couple of weeks. But now some lenders are actually starting to raise rates. Fixed rates on certain terms have been creeping back up, while some of the big banks have been quietly cutting their discounts on prime rate (which affects floating rates).

Scotiabank, for example, raised its published 5-year closed variable rate 60 percentage points on Saturday, from 3.45% to 4.05%.

A host of other lenders have also been slashing their discounts from prime by anywhere from 20 up to 75 basis points. At one lender, for example, a new borrower could have obtained a high-ratio 5-year variable mortgage at Prime – 1.00%, or 2.45%. Today, that same rate is now Prime – 0.25%, or 3.20%.

So, what’s going on? Fear has saturated the market to the extent that lenders are now concerned about liquidity and rising defaults, according to observers.“I think if you’re a bank, you’re scared of losses right now,” Shawn Stillman, founder of mortgageoutlet.ca, told CMT. “The banks are in this to make money, and if they don’t think that they’re going to be able to make money because all of a sudden their default rate is going to go up, then they’re going to protect themselves by raising rates.”

In addition to the potential for an increase in default rates, Stillman says that with more people facing temporary layoffs due to the coronavirus, more people will start drawing on their available credit. “If you’re a business and you have a line of credit, you’re drawing on that line of credit. If you have credit cards, you’re maxing out those credit cards. You are using your ability to borrow more money and it becomes a shock to the system,” Stillman said.  Essentially the banks could face a growing run on available credit facilities, which could challenge their ability to finance all of that credit.

That’s one of the reasons why the Office of the Superintendent of Financial Institutions (OSFI) announced on Friday that it was lowering the capital requirements for banks, which would free up an additional $300 billion of lending capacity. Despite the Bank of Canada’s emergency rate cut on Friday, markets are still pricing in an additional 50-bps cut when the Bank meets next month. That will bring Canada’s overnight lending rate down to 0.25%.

Knowing this, banks are starting to increase the discounts from prime so that the economics of funding variable-rate mortgages continues to make sense. “We’ve seen these shock-and-awe rate moves before,” wrote Rob McLister, founder of RateSpy.com. “On October 6, 2008, in the midst of the credit crisis, TD shocked the market with a massive 100-bps rate increase to prime + 1.00%. It applied to new variable and HELOC customers. TD rates were below prime just days before.”

Advice for Mortgage Shoppers

For those in the market for a new mortgage, and who are leaning towards a variable rate, experts recommend obtaining a rate hold as soon as possible. “I would say act sooner rather than later. Basically, this is not a time to think,” said Stillman. “Lock it in now and if something changes your mind, you can change your mind. But there’s a good chance it’s not going to be available (in a matter of days).”

McLister advises the same, whether you’re shopping for a fixed rate or a variable.

“Fixed rates aren’t rising like variable rates, not yet,” he noted. “But there’s a risk they could. Get a rate guarantee soon if you need a fixed mortgage in the next four months.”

You're asking big money but your kitchen appliances are old...and they show it! If you spent a bit on new ones do you think you'd recover that cost in the sale? The answer is yes, even increase your sale price! Buyer's will negotiate downward but not nearly as hard when those sparkling new appliances catch their eyes..

Mar 6, 2020 - Bank of Canada Governor Stephen Poloz attempted to ease concerns yesterday that lower interest rates will further stoke overheated housing markets.

Poloz argued this week’s rate cut was needed to combat the risks posed by the current global health crisis, adding that the easing will in fact help stabilize housing markets.

“Not surprisingly, the threat to the global economy of COVID-19—the coronavirus—played a central role in our deliberations, and we are coordinating actively with other G7 central banks and fiscal authorities,” he said in a prepared speech on Thursday.

The 50-bps rate cut was in stark contrast to the cautious “wait-and-see” approach that the Bank had previously adopted as it held rates steady while dozens of central banks around the world were cutting rates to head off growing economic headwinds. This week’s rate move also flew in the face of Poloz’s own fears about further stoking heated housing markets.

Just two months ago, Poloz told BNN Bloomberg: “Should this housing rebound continue, we will be watching for signs of extrapolative expectations returning to certain major housing markets—in other words, froth…It can be very unhealthy when the situation becomes speculative.”

But extraordinary times call for extraordinary measures.

“…Risk management demands a prompt and sizable policy response to larger shocks to ensure that the economy remains well anchored. Governing Council agreed that the downside risks to the economy today are more than sufficient to outweigh our continuing concern about financial vulnerabilities,” he told a Toronto audience.

“Indeed, declining consumer confidence would naturally lead to reduced activity in the housing market. In this context, lower interest rates will actually help to stabilize the housing market, rather than contribute to froth.”

Capital Economics’ senior economist Stephen Brown hinted at this in a research note published last week.

“While [the Bank of Canada] has been worried about the effects of looser policy on house prices, it may become more welcoming of a further boost to housing wealth if equity values continue to plummet.”

That seems to be Poloz’s thinking. Even if people are losing confidence (and money) as a result of rising coronavirus infections and plummeting stock markets, they can at least be reassured that the value of their home is continuing to rise (so long as you’re not a first-time buyer looking to enter the market).

“Further, we expect that the B-20 mortgage lending guidelines will continue to improve the quality of the stock of mortgage debt,” Poloz added.

Remember, these are the same lending guidelines (for uninsured borrowers) that OSFI is proposing to loosen as early as this spring, pending a review of public consultation.

More Cuts Are on the Way

While Poloz is defending the Bank’s larger-than-expected rate cut this week, the easing is still far from done, at least as far as the markets are concerned.

Canada’s 5-year bond yield continued to fall on Thursday, coming within 0.36 percentage points of its all-time low. The continued panic over the growing fallout of COVID-19 has markets pricing in up to 75 bps of rate cuts by October, with the next cut coming as early as April.

By the time all is said and done, this week’s 50-bps rate cut may look like just a warm-up.

SURREY, BC – A combination of unseasonably high demand and declining supply reinforced Fraser Valley’s real estate market in November.

The Fraser Valley Real Estate Board processed 1,405 sales of all property types on its Multiple Listing Service® (MLS®) in November, an 11.7 per cent decrease compared to sales in October 2019, and a 36.7 per cent increase compared to the 1,028 sales in November of last year.

Darin Germyn, President of the Board, says, "Some listings are seeing a lot of activity depending on location and property type. REALTORS® are reporting more showings, higher traffic at open houses and even some multiple offer situations, which is atypical for the time of year.

"For our region, a balanced market is when 12 to 20 per cent of active inventory is selling. In November, 33 per cent of our supply of townhomes sold, as did 29 per cent of Fraser Valley condos; indicating that the supply of attached properties isn’t keeping up with demand." 

For the Fraser Valley region, the average number of days to sell an apartment in November was 40, and 38 for townhomes. Single family detached homes remained on the market for an average of 48 days before selling.

Smoke Alarms 101

Smoke alarms are an important defense against injury or death in house fires, so make sure your smoke alarms are in good shape to help warn your family in case of emergency.

• Location is key! Smoke alarms should be installed in every bedroom, outside every sleeping area, and on each level of the home. Follow the manufacturer’s instructions for placement.
• The two primary types of smoke alarm technology are ionization and photoelectric. Ionization alarms are more responsive to flames, while photoelectric alarms are more sensitive to smoldering fires. For the best protection, both types or combination units should be installed.
• Never remove the unit’s battery or disconnect the alarm to stop or prevent annoying alarm bells such as those caused by cooking.
• Replace the batteries at least once a year. Test each unit monthly using its test button and replace the battery if necessary. Many alarms now come with 10-year batteries that can’t be replaced, but should still be tested monthly to make sure they work.
• Smoke alarms that are wireless or hard-wired to the home’s electrical system should be interconnected. If one alarm is triggered, all of the others will sound as well. Hard-wired alarms, interconnected or not, should be installed by a licensed electrician for safety and proper operation.

Remember, a non-working smoke alarm is no better than no alarm at all!

Your Roof & Drainage Checklist

You may not think about your roof and gutters very much, if at all. But it’s important to give them a checkup and some TLC to prevent big problems down the road.

• Clean leaves and other debris from gutters to prevent clogs and pooling water. You may need to do this more than once a year if you have very heavy leaf fall.
• After cleaning the gutters, run water through them from your garden hose to make sure the downspouts are clear and the water is channeled away from the foundation.
• Check gutter sections for alignment and adjust them if necessary. Make sure seams between the sections are watertight.
• Downspout extensions, available at hardware stores, can be used to carry water away from the home. Use these only where they won’t pose a tripping hazard.
• Use binoculars to check the roof for missing or damaged shingles and flashing. If you notice any issues, have the roof inspected and any repairs made by a qualified professional before the snow!

SAFETY SENSE

Help keep your loved ones and your home safe during the holidays with these smart precautions.

• Check holiday light strands for damaged or broken wires and plugs. Enjoy indoor lights only while someone is home and turn them off before going to bed.
• Keep live Christmas trees in a sturdy, water-filled stand and check daily for dehydration. Dried-out trees are dangerous and should be discarded immediately.
• Always use non-flammable decorations both indoors and outdoors.
• Be sure to keep space heaters away from bedding, curtains, paper — anything flammable. Never leave space heaters unattended while in use.
• Children should not have access to or be allowed to use matches, lighters or candles.
• Candles add lovely ambience to your holiday home. They need to be placed in stable holders and kept away from flammable items, drafts, pets and children or use an LED candle for peace of mind.
• Busy with holiday cooking and baking? Kitchen fires are the leading cause of house fires. Keep an all-purpose fire extinguisher within easy reach and know how to use it.

We hope you enjoy a happy and safe holiday season!

SURREY, BC – The demand for Fraser Valley real estate is the strongest it's been since the spring of 2018.

The Fraser Valley Real Estate Board processed 1,592 sales of all property types on its Multiple Listing Service® (MLS®) in October, a 18.5 per cent increase compared to sales in September 2019, and a 37.8 per cent increase compared to the 1,155 sales in October of last year.

Darin Germyn, President of the Board, says, "Our market started to pick up in the summer and we've been steadily improving since. It's rare to see October home sales in the Fraser Valley outpace April and that's what we've seen this year; our typical spring and fall markets have flipped.

"Consumers are feeling more confident. Buyers have grown accustomed to the government's regulation changes. Interest rates have thankfully remained stable and we're likely seeing some pent-up demand from buyers who were holding off earlier this year. October's beautiful, sunny weather didn't hurt either."

Germyn adds, "We're still seeing some hesitation from sellers to list as they continue to watch for further price erosion, however, it's important to talk to your local market expert because prices in some areas have turned the corner and are starting to creep up again."

SURREY, BC - For the third straight month, home sales in the Fraser Valley surpassed 2018 levels bringing the market back in line with long-term averages.

The Fraser Valley Real Estate Board processed 1,343 sales of all property types on its Multiple Listing Service® (MLS®) in September, a 3.5 per cent increase compared to sales in August 2019, and a 29.8 per cent increase compared to the 1,035 sales in September of last year.

Darin Germyn, President of the Board, says, "The market's return to balance is good news for both buyers and sellers, however it's important to put the 30 per cent year-over-year increase in sales into context. September's sales went from amongst the worst in 10 years to just above our 10-year average."

"Home prices are still dropping compared to a year ago, but on a month-to-month basis, prices are moderating because supply is shrinking. Our incoming supply of new listings has dropped consistently for the last four months pushing our total inventory in the Fraser Valley to the lowest it's been since April, which has had an impact on prices."

There were 7,946 active listings available in the Fraser Valley at the end of September, an increase of 3.9 per cent compared to September of last year and a decrease of 1.2 per cent compared to August 2019. The Board received 2,769 new listings in September, a 17.5 per cent increase compared to August 2019's intake of 2,357 new listings and a 6 per cent decrease compared to September of last year.

Germyn adds, "Financing is still a challenge for many clients, but fortunately in a balanced market like this, REALTORS® have the time to work with clients and advise them of the best strategies for them, whether they are buying or selling."

MLS® HPI Benchmark Price Activity

• Single Family Detached: At $950,000, the Benchmark price for a single-family detached home in the Fraser Valley decreased 0.4 per cent compared to August 2019 and decreased 3.9 per cent compared to September 2018.
• Townhomes: At $520,000 the Benchmark price for a townhome in the Fraser Valley in the Fraser Valley decreased 0.3 per cent compared to August 2019 and decreased 4.8 per cent compared to September 2018.
• Apartments: At $405,500, the Benchmark price for apartments/condos in the Fraser Valley decreased 0.9 per cent compared to August 2019 and decreased 7.6 per cent compared to September 2018.

For the Fraser Valley region, the average number of days to sell an apartment in September was 41, and 37 for townhomes. Single family detached homes remained on the market for an average of 46 days before selling.