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Banks cut mortgage rates
Two big Canadian banks — the Royal and Bank of Montreal — cut long-term mortgage rates slightly Thursday as borrowing costs fell in the bond market.
The two banks said their rates for a four-year loan will drop by one twentieth of a percentage point to 6.6%, effective Friday. A five year rate drops by the same amount to 6.7%.
All other rates remained unchanged.
The changes reflect a drop in the cost of borrowing on the bond market, where banks finance their mortgage lending.
Investors expect inflationary pressures to cool and interest rates to drop as the North American economy slows down.
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Is There Toronto Condo Market Bubble?
Excerpt from an article by Tony Wong – Toronto
A correction in the red-hot Toronto condominium market “cannot be far away,” says a leading housing economist.
Buying for investment purposes in the Toronto condo market has been “far in excess of market needs” and buyers face “very high risks,” said economist Will Dunning in his most strongly worded analysis yet of the Toronto market, released yesterday.
Nearly a decade into a robust housing cycle, high-rise condo sales remain extremely strong, with second quarter sales at an annual rate of 20,800, a record high, said Dunning.
While other housing economists have expressed concern over what they see as a potentially frothy Toronto condo market, Dunning, a former Canada Mortgage and Housing Corp. economist, has been among the most conservative.
Price appreciation for condos continues at a good clip – 5.9% year over year – and the average condo rent has increased 2.1%.
“An onslaught of Toronto condo completions is just beginning and I expect that rents will start to fall late in the year with the possibility of price weakness to follow,” said Dunning.
Toronto condo buyers have lucked out so far only because the construction industry is at capacity, said the economist.
Some analysts have said the market is sustainable because prices haven’t gone up as far or as fast as in the 1980s, just before the market crashed.
They also say banks are much more stringent and developers have to sell most of their units before construction. Also, high house prices mean Toronto condos are now the only choice for some buyers.
He forecasts 15,910 condo starts this year, with another 16,623 for 2007 and more than 10,000 in subsequent years, meaning buyers will have a lot more Toronto condos to choose from.
He has revised his home price forecast upward for 2006, and expects the average home to increase by 5.7% this year (compared with a previous forecast of 4.3%) to $355,305. He expects resale prices to move 3.4% higher in 2007 and then level off at about the inflation rate in 2008 and 2009.
With the deterioration of affordability due to higher house prices and rising interest rates, Dunning estimates that sales of existing homes (both condos and low rise) should be 10% lower than current levels.
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TD, RBC raise mortgage rates
By Madhavi Acharya-Tom Yew – Toronto Star Moneyville
If worries about the sickly U.S. economy and Ireland’s rocky financial situation seemed remote a few days ago, they shouldn’t anymore.
Those global concerns are pushing up Canadians’ borrowing costs when it comes to buying a home.
TD Canada Trust and the Royal Bank of Canada said separately that they are increasing some of their fixed-term mortgage rates by as much as one-quarter of a percentage point, effective Wednesday.
At both banks, five-year mortgages, one of the most popular among Canadian homeowners, will rise by 0.25 of a percentage point to 5.44%.
Rates on three- and four-year mortgages are also increasing by a quarter of a percentage point, while one-and two-year rates will go up by 0.15 of a percentage point.
Rates for mortgages that have six, seven, and 10 year terms will be unchanged.
Five-year mortgages rates in particular are closely tied to yields (rate of return) in the bond market, which have recently rebounded, following about three months of declines.
That means Canadian banks have been paying a higher rate to borrow in the bond market in order to lend to customers.
“In the past month, the five-year bond yield has risen quite substantially, given that rates are so low,” said Francis Fong, economist at TD Economics
While Canada’s economy remains relatively strong and the Bank of Canada has been hiking interest rates, concerns over the U.S. recovery continue to simmer.
The U.S. Federal Reserve hinted in late August that it planned to take additional measures to jolt the moribund U.S. economy back to life. Its preferred approach, quantitative easing, amounts to pumping more money into the economy.
The market began pricing in the Fed’s anticipated intervention, though it would take another two months to get all the details – a further $600 billion (U.S.) purchase of Treasury securities.
Since then, yields have rebounded. “The market was likely waiting a bit for the details to see what the price of bonds should really be,” Fong said, adding that the process is similar to the anticipation of a company’s stock price prior to an earnings announcement.
Anxiety in Europe also continues to play a role in the bond market as nervous investors demand higher yields in exchange for higher risk.
Irish bonds fell Tuesday as the prime minister expressed doubts that an agreement to resolve his country’s fiscal crisis could be reached at a meeting of European finance ministers.
Investors are also nervously watching as Greece and Portugal make attempts to manage their own massive fiscal crises.
Meanwhile, North American stocks fell broadly, in part due to concerns about Europe’s debt problems, which may have helped demand for U.S. Treasury debt.
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Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they reproduce them here for people who
are interested in Toronto real estate. They do not work for any builders.
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