Toronto Condo and Real Estate Blog

CBC News

Canadian banks have begun to lower fixed mortgage rates to their lowest levels since last spring.

RBC Royal Bank announced Thursday that it would chop most of its mortgage rates by a fifth of a percentage point, effective Friday. TD Canada Trust, BMO Bank of Montreal, Scotiabank and CIBC followed later with similar cuts.

The posted rate for a five-year closed mortgage drops to 6.99%. That’s the first time the posted rate for the popular five-year term has been below seven per cent since last May.

The posted rates for a one-year closed mortgage falls to 6.95% at some banks and 6.90% at others.

Banks will generally chop at least one percentage point off their posted rates — especially for their longer-term fixed mortgages.

Other mortgage lenders, such as virtual banks and some credit unions, promise to beat the best rates offered by the major banks.

The Bank of Canada has cut its key overnight lending rate by a full percentage point since early December as it tries to keep the Canadian economy from following the U.S. into recession.

That’s led to a similar one percentage point drop in variable rate mortgages and other floating rate loans tied to the banks’ prime rate.

But fixed mortgage rates have been much slower to drop. Since the start of December, the posted five-year fixed mortgage rate has fallen by two-fifths of a percentage point, counting Thursday’s rate drop.

Longer-term mortgage rates reflect the cost that banks pay to borrow money in the capital markets. Analysts say the global credit crunch — triggered by the U.S. subprime mortgage crisis — has made it more expensive for Canadian banks to access funds.

A further cut in the Bank of Canada’s key lending rate is expected when the central bank makes its next scheduled announcement on April 22, so borrowers can look forward to a corresponding drop in their variable rate mortgages then.

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By Carolyn Leitch - Globe and Mail

Toronto is finally seeing some mild spring weather and real estate agents officially welcomed the spring market by throwing open the doors of houses listed for sale. Many house hunters, however, seemed to be off at the park.

It seems the enthusiasm of potential home buyers has remained cool even as the temperature outdoors heats up.

None of this is surprising to CIBC World Markets economist Benjamin Tal, who says economic indicators are pointing to a balanced market between buyers and sellers for the first time in 7 or 8 years.

“It’s the end of an era, if you wish,” says Mr. Tal. “I think that the real estate market will be more boring for the next couple of years - which may be a good thing.”

Mr. Tal says one key measure - unit sales as a share of new listings - is sitting at about 55% right now. Last year, it was about 65%.

A range of 40% to 60% is considered a balanced market, and Mr. Tal expects to see Toronto real estate sales remain in that range. In fact, the percentage will likely to fall to 50% or so, he predicts.

“We expect it to go even lower.” Still, Mr. Tal is not calling for a buyer’s market any time soon.

Instead, he foresees a market where buyers will be able to take their time, have a house inspection done, and sit back from dizzying bidding wars. Mr. Tal forecasts that prices will rise in line with inflation of about 2%.

“You won’t have a situation where people are buying in panic.”

Mr. Tal says the pent-up demand that drove the Toronto real estate market in the past 7 or 8 years has been utilized. At the same time, the Canadian economy and therefore job growth is slowing. That’s especially true in Ontario’s manufacturing sector. The woes of the U.S. economy will undoubtedly weigh on Canada too, he adds.

Mr. Tal says the climbing prices of the past years have also inevitably priced some people out of the market. “You reach a point where affordability starts to be an issue.”

Figures from the Toronto Real Estate Board show that sales in the Greater Toronto Area dropped 22% in March compared with the same month last year. The decline was even more noticeable in the city of Toronto, where sales fell 27% compared with March of 2007.

“The March figures probably point in the right direction but they are exaggerated because of the bad weather,” says Mr. Tal. He thinks April could be a little more lively.

One Toronto real estate agent, who specializes in the west end High Park and Roncesvalles neighbourhood, says he has clients who want to buy but a dearth of good-quality properties to show them.

“There’s not much inventory, but what there is, is selling. There are buyers out there.”

Still, the agent says his sense is also that bidding has been rather mild lately, with two or three offers more common than the frenzied bidding of previous seasons when there were sometimes 15 or 16 potential buyers vying for one house.

He also thinks that homeowners who are thinking of selling will likely see lots of interest for their houses because so few are on the market. “I think if you’re thinking of selling, this is the time. It’s a great time to be going to market.”

Toronto Real Estate Board president Maureen O’Neill notes that a 6% drop in listing inventory - or homes for sale - kept prices strong in March. Compared to March of last year, the average price in the GTA rose 4% to $380,338.

Will Dunning, an independent housing economist, says it’s too soon to tell how the spring Toronto real estate market will shape up. He points out that, after being buried in snow all winter, people seemed to be happy just to get outdoors.

“We’ve only had one good weekend,” says Mr. Dunning. “I think, after all this time, people may have found they had better things to do than go to open houses.”

Mr. Dunning spent a day at the Toronto Zoo and said he’s never seen it so busy. But Mr. Dunning believes potential buyers will begin to think about house hunting again soon. Employment growth is healthy, interest rates are low and consumer demand is solid, he points out.

“From that perspective, there should be pretty good demand out there.”

Mr. Dunning notes that the first quarter appeared sluggish but the reason for that is at least partly because there were so few houses on the market, he says. The economist adds that the pace of activity in the first three months of the year is not a reliable barometer of how busy April, May and June are likely to be.

“Spring is always the busiest time of year,” he says.

Looking further out into 2008, Mr. Dunning says employment growth is likely to slow and more gloomy economic news may come out of the United States. Those factors could put a damper on the fall Toronto real estate market, he says.

Still, Mr. Dunning says a good predictor of the future health of the Toronto real estate market is job creation in recent years. He notes that plenty of jobs have been created in the past three or four years and people who were hired during that time may be saving up to buy houses in 2008 and 2009.

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A little mortgage savvy gets some big savings

By Rob Carrick - Globe and Mail

Unwary mortgage borrowers are always a mark, but never more so than this spring.

While interest rate discounts are readily available from lenders, there are things you need to know to avoid being hustled. And look out for those cash-back offers. They’re being flogged aggressively, but they’re a trap if ever there was one.

When last this column looked at the mortgage market, it was late in 2007 and most lenders had inflated their rates well beyond what they should have been according to traditional measures. Today, things are worse.

A good way to assess the level of mortgage rates is to compare how much more a five-year fixed mortgage costs in comparison to a five-year Government of Canada bond. The spread, or differential, is now about four percentage points, up from 3.6 points last fall and much higher than the five-year average level around 2.44.

With financial markets still volatile as a result of the subprime mortgage mess in the United States, it’s costing banks more to raise the money they lend out. Banks are passing these costs on to borrowers, but at the same time they’re trying to protect and build their share of a very crowded market.

Broker Jim Tourloukis of Advent Mortgage Services in Unionville, Ont., said the result is the most competitive mortgage market he’s seen in the past 14 years. “The banks are ultra-aggressive right now,” he said. “So if you’re a keen negotiator, you can do a heck of a lot better with the banks today than you could have six months ago.”

To negotiate effectively, you need to understand that there is a bigger gap than in the past between the fictional world of posted mortgage rates and the actual discounted rates that smart borrowers pay.

It used to be that a discount of one percentage point off posted rates was a top deal for a five-year mortgage, and then the gold standard was around 1.25 points. Today, it’s closer to 1.5 points or more. Variable-rate mortgages were commonly available with discounts of 0.9 of a point off the prime rate a year ago, but today the best deal seems to be in the area of 0.6.

Royal Bank of Canada and Toronto-Dominion Bank’s TD Canada Trust branches were offering “special” five-year rates yesterday of 5.93%, which compared with their posted rate of 6.99%. But the lowest five-year rates in the market today ranged from 5.34% to 5.54%.

It’s a similar story with Bank of Nova Scotia’s limited-time Save More, Save Later Mortgage, which on the surface looks tempting. You get two percentage points off the posted one-year rate (currently 6.9%) and, on maturity, you have the opportunity to switch to a five-year mortgage with a guaranteed discount of 1.25 percentage points. Guess what - most any mortgage broker can get you something very close to 4.9% on a one-year mortgage today, and they should be able to do a fair bit better than 1.25 points off on the long end.

Cash-back mortgages have been around for years, but they’re getting a bigger push than usual from some banks this spring. TD, for example, has been promoting its 7% Cashback Mortgage, which offers up to $50,000 for clients who set up a seven-year mortgage. You can also get 6% cash back with a six-year mortgage and 5% with a five-year mortgage.

It’s a struggle to afford a home today with the average price across the country hitting $313,000 in February. But a cash-back mortgage isn’t the answer.

“A horrible product,” Mr. Tourloukis said of cash-back mortgages. Vince Gaetano of Monster Mortgage in Toronto dislikes them, too. “At the end of the day, the math is not beneficial to clients. They always will lose.”

It’s a general rule that when a financial institution offers you an upfront incentive to buy one of its products, the point is to divert your attention away from getting a better deal on your own. This is never truer than it is with cash-back mortgages.

You have to take the posted rate with these mortgages and, if you want to break the mortgage before it matures, you should expect to pay a prorated amount of the upfront cash you received. The interest rate issue is the more crucial.

Imagine you take out a five-year $200,000 cash-back mortgage at the posted big bank five-year rate of 6.99%. You’d get $10,000 in cash handed to you by TD, but you’d pay about $13,500 more in interest over the five-year term than if you went with a discounted rate of 5.54%.

Another consideration is your household cash flow. The cash-back mortgage would cost you just under $700 on a biweekly basis, while the discounted mortgage would run about $613.

Just say no to cash-back mortgages, and remember that the stakes on mortgage discounts are higher than ever. That’s how you survive in the mortgage jungle this spring.

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Contact the Jeffrey Team for more information - 416-388-1960