Blast from the Past

At the end of 2009 I had this exchange with Garth where he discussed how the Bank of Canada hiking rates would impact mortgage payments. He thought a 5-year fixed rate would be close to 7% as they move lockstep with the BoC. He had also argued there would be no more discounts available for some reason.

and that by this time a year from now BoC rate will be sitting at almost 1.6%, higher than today by 1.3%. That doesn't sound like a lot, but it puts the lowest VRM at 3.55% – which increases the monthly on a $400,000 loan by $300. A five-year mortgage would like go for close to 7%. Barn door. Horse.

#5 BearClaw on 12.16.09 at 9:47 pm

Garth,

I don’t think 5 year mortgages will be close to 7% with only a 1.3% increase in rates. 5 year mortgages are about 4% right now. An increase of 1.3% will put them at 5.3%.

There is a large spread between variable and fixed because there is some anticipation of rate increases priced in. So fixed rates may be less than 5.3% in this scenario.

Posted rate is 5.49% now at all majors. We are on the way back to 8% money in a few years. Get used to it now. — Garth

#7 BearClaw on 12.16.09 at 9:54 pm

“The first hike will be at least a half, and probably a full load. That could raise VRMs overnight by 1% “or a little more than 44%. Ouch.”

Garth,

For a 25 year amortization it would raise the *total* payment by 12%. The interest portion would increase by 44%.

A 1% increase on a 2.25% rate is 44%. I did not mention payments. — Garth

#10 BearClaw on 12.16.09 at 10:03 pm

"Posted rate is 5.49% now at all majors. We are on the way back to 8% money in a few years. Get used to it now.” -Garth

I think you know the difference between discounted and posted rates. But who cares? That’s not entertaining.

Kiss discounts goodbye as the BoC moves. That’s not entertaining either. — Garth

#11 Siberta on 12.16.09 at 10:16 pm

You ain’t going to win on this site BearClaw, get used to it. You recently purchased to, if I remember correctly.

#12 lgre on 12.16.09 at 10:21 pm

Bearclaw is learning that GT has every angle covered, dont bother trying to come from the back.

The ‘we are different’ theory is getting boring, nothing is different but everything is and will be the same…just wait for it.

18 months later a 5 year mortgage can be found for well under 4%. This is because fixed did not move with variable and discounts from the posted rate still exist. Two points I tried to make. Note how the blog dawgs mindlessly cheer on their leader as opposed to considering moderating arguments.

Canadian Recession and Recovery

From Stephen Gordon at Worthwhile Canadian Initiative:

The investment recovery was in two stages. In late 2009 and early 2010, expenditures were concentrated in the residential construction sector, but housing has played almost no role in the last four quarters. Happily, fixed business investment - and especially expenditures on machinery and equipment - started picking up just as the housing sector stopped contributing to growth.

See previous posts: here, here and here

Edmonton New Construction Stats May 2011

There were 2,974 single family homes under construction in Edmonton during April. This is less than half of the amount of construction during the peak (6,528) but up from the low reached during the recession (1,764).


Looking at all types of dwelling under construction shows less of a rebound because the condo glut took longer to work off and new starts having been slower to recover. In fact there remains a surplus of completed and not absorbed units when considering all types of construction other than single family (shown in dark gray).

link

Calgary Sales

Edmonton Sales

The story: Sales increased from crisis levels but are still low historically. New listings have been relatively tame and inventory is down year over year.