*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[blankall]

Originally Posted by PeteMoss

I don't think the bank of canada is responsible for worrying about housing prices. They worry about inflation so housing doesn't factor in - but housing prices were going up like mad and they didn't alter interest rates until after overall inflation rose.

And yes - housing prices are going down but they aren't any more affordable for any first time home buyer now.

If you bought a $500,000k house with a 5% down payment when mortgage rates were 1.5% - you were paying about $2000/month.

If the same house went down 20% to $400,000 now and you are making the same $25k down payment - you are now paying $2200/month at 4.59% interest.

And I don't think the lower end homes that first time home buyers typically buy have gone down anywhere near 20% yet.

You are incorrect about housing being factored into inflation. However you are correct about affordability.

The lack of affordability is being driven by increasing population and lack of supply. Baby boomers aren't leaving their larger houses, millennials are the biggest cohort ever, Canada is adding 400k immigrants per year, housing expansion and densification is abysmal. On top of that he pandemic further delayed building.

Canada has the lowest number of houses per capita in the G7 and one of the highest birth and immigration rates. Canada also has by far the lowest population density in the G7, so it's actually impressive how effective our red tape has been at destroying people's lives and denying them a basic right.

With a housing shortage, no matter how they manipulate rates or inflation, it will always become increasingly unaffordable. We might see some price drops, but only because mortgage payments have increased. The idea that you can make housing affordable via increasing interest rates is absurd. In fact that only helps people with large amounts of capital.

[shermanator]

People who over leveraged on cheap money are in for some trouble...

[PeteMoss]

Originally Posted by blankall

You are incorrect about housing being factored into inflation. However you are correct about affordability.

The lack of affordability is being driven by increasing population and lack of supply. Baby boomers aren't leaving their larger houses, millennials are the biggest cohort ever, Canada is adding 400k immigrants per year, housing expansion and densification is abysmal. On top of that he pandemic further delayed building.

Canada has the lowest number of houses per capita in the G7 and one of the highest birth and immigration rates. Canada also has by far the lowest population density in the G7, so it's actually impressive how effective our red tape has been at destroying people's lives and denying them a basic right.

With a housing shortage, no matter how they manipulate rates or inflation, it will always become increasingly unaffordable. We might see some price drops, but only because mortgage payments have increased. The idea that you can make housing affordable via increasing interest rates is absurd. In fact that only helps people with large amounts of capital.

Yeah - that was a typo on the housing and inflation.

[GreenLantern]

Originally Posted by nik-

Sometimes a number that technically works on paper during a stress test doesn't really work in the real world. It doesn't need to be fraud, it can just be underestimating what "tight budget" can actually mean.

I've also seen examples where people are buying a house with a basement suite and the broker works the rent of the suite into their income.. before the house is even built or the suite is even rented... not sure how that works.

I've also seen people who are buddy buddy with their broker in houses I can't even understand how they afford.

I guess if you just keep leveraging your equity you can keep upgrading/renovating houses... but I mean eventually you have to pay that lump sum off, or work for the rest of your life.

We've played it very safe during this covid situation, watched a lot of people make big moves, build their dream home on record low interest rates.. all I know is if winter is coming we will be in good shape to weather the storm..

[Firebot]

Originally Posted by nik-

Sometimes a number that technically works on paper during a stress test doesn't really work in the real world. It doesn't need to be fraud, it can just be underestimating what "tight budget" can actually mean.

Stress test also doesn't include horrible consumer spending habits such as leasing a new car every 2 years, buying the latest iPhone, getting HELOCs and building that new pool and bathroom expecting that the raising housing prices will pay for itself.

Stress tests also only started in 2018 and a stress test done in 2018 would have been higher then a 2020 mortgage.

And when you have our BoC governor encouraging Canadians to borrow and buy buy buy at historically low rates, you are going to have a bad time.

“If you’ve got a mortgage of if you’re considering making a major purchase, or you’re a business and you’re considering making an investment, you can be confident rates will be low for a long time,” Macklem said.

And Canadians sure took advantage of those comments and borrowed borrowed borrowed.

https://www.cmhc-schl.gc.ca/en/blog/...-mortgage-debt

Purchase of new property is the main driver of mortgage debt for chartered banks, especially in the uninsured space. In the third quarter of 2021, close to $58 billion worth of residential mortgages were extended. This is an increase of 60% compared to the same period in 2020 and almost double what was extended in the same period of 2019.

Refinancing also contributed to the increase in mortgage debt, (+16%) year-over-year. This is due to mortgage borrowers capitalizing on the low interest rate environment and added equity due to house price increase.

The bill is coming and it's not pretty.

[MillerTime GFG]

Some interesting info from my PD day yesterday, mainly from the Sagen economist. (Sagen is one of the three insurers in Canada, along with CMHC and CG)

- 48% of insured mortgages in 2021 were variable rates (staggering!)
- Sagen is now allowing "those in financial distress" to increase amortizations up to 35 and potentially 40 years. OSFI and lenders are on board with this
- Mortgage defaults were at all time lows the last couple years with where interest rates were. Lenders put aside money for defaults, and didn't need to touch it. Defaults are expected to increase in the next couple years of course, but overall, it should average out
- OSFI looking into making some other changes as well
- Home prices in AB expected to remain stable, especially compared to the rest of the country. Net migration is good, as is GDP. Interesting to note the vast majority are migrating to Edmonton as opposed to Calgary, due mostly to the variety of industries. Calgary still with more direct ties to O&G.
- Expectation is BoC will raise the overnight by another 0.50-0.75% by end of year, and then predict it to remain flat into 2024

[powderjunkie]

Originally Posted by Azure

Perhaps there is a reason we have two outliers in one country?

Frankfurt and Munich are #2 and #4.

Zurich and Geneva are both on the list...

Originally Posted by blankall

You are incorrect about housing being factored into inflation. However you are correct about affordability.

The lack of affordability is being driven by increasing population and lack of supply. Baby boomers aren't leaving their larger houses, millennials are the biggest cohort ever, Canada is adding 400k immigrants per year, housing expansion and densification is abysmal. On top of that he pandemic further delayed building.

Canada has the lowest number of houses per capita in the G7 and one of the highest birth and immigration rates. Canada also has by far the lowest population density in the G7, so it's actually impressive how effective our red tape has been at destroying people's lives and denying them a basic right.

With a housing shortage, no matter how they manipulate rates or inflation, it will always become increasingly unaffordable. We might see some price drops, but only because mortgage payments have increased. The idea that you can make housing affordable via increasing interest rates is absurd. In fact that only helps people with large amounts of capital.

You must be talking about # of homes? I find it hard to believe that Japan or any of the Euro countries have a higher per capita number of SDDs (though TBH I have not searched the numbers).

So moving to the second bolded, could the issue be more rooted in our definition of 'basic housing' being a 1600 sq ft house compared to an 800 sq ft apartment in the G7 nations outside of NA?

I don't know enough about living in Europe beyond traveling and using a fair number of airbnbs, but even their 800 sq ft units seem far more economical than our 800 sq ft condos...old buildings, no big balconies, no/small parkades, no/small courtyards, no gym rooms, etc

[tvp2003]

Originally Posted by Firebot

And Canadians sure took advantage of those comments and borrowed borrowed borrowed.

https://www.cmhc-schl.gc.ca/en/blog/...-mortgage-debt

The bill is coming and it's not pretty.

Are there stats as to how many took variable rate mortgages versus fixed rate?

I have to say, there ought to be a mandatory course out there for people to figure out how mortgage rates are calculated, how they fluctuate, what an IRD is, the actul difference between insured and conventional mortgages, etc. I sure would have benefitted from something like that -- it's the biggest decision most people will ever make in terms of actual dollars coming out of their pocket.

EDIT: I see MillerTime posted some stats above -- if you're a first time homeowner (and don't have any equity elsewhere), that 48% figure IS staggering

[MillerTime GFG]

Originally Posted by tvp2003

Are there stats as to how many took variable rate mortgages versus fixed rate?

See my post above.

[DoubleF]

Originally Posted by GreenLantern

I've also seen examples where people are buying a house with a basement suite and the broker works the rent of the suite into their income.. before the house is even built or the suite is even rented... not sure how that works.

I've also seen people who are buddy buddy with their broker in houses I can't even understand how they afford.

I guess if you just keep leveraging your equity you can keep upgrading/renovating houses... but I mean eventually you have to pay that lump sum off, or work for the rest of your life.

We've played it very safe during this covid situation, watched a lot of people make big moves, build their dream home on record low interest rates.. all I know is if winter is coming we will be in good shape to weather the storm..

What's also fun is that those numbers often show gross income rather than net. I held onto my property because I'd be taking a huge bath on a townhouse and they just asked how much rent and mortgage were left on the property... no questions about expenses of the future "rental property". That spiked my income for qualification $24K straight up at $2K a month. Real cash flow wise, I was CF negative after expenses on those rents for mortgage, insurance, property tax etc.

That being said, I'm financially prudent and I always intentionally lump sum to pull my amortization down from the initial 25 years to below 15 within the first 3 years (best time to do it to avoid huge interest accumulation and then just follow the schedule afterwards), so I'll beat those stress tests a dozen times over.

But for some people I know where they have like 2-4 properties because their parents forced them and their parents have like 3-6 all at around 20 years amortization each... they super amplify their problems and often could pass stress tests without too many issues because expenses aren't factored in.

Different markets are also different. Prior to the recession, my wife and I probably made just around $150K combined and I think we could afford a $850-950K mortgage at max. I had friends in Vancouver and Toronto saying they were qualifying for $1.2-1.4 mil and could double to triple that easily if their parents co-signed and the down payment was high enough. I don't know for certain, but I can't help but think Toronto and Vancouver were allowing higher mortgages for the same income as Calgary for a while (and to be fair, those properties have increased far more than the 20-30% difference since then even with recent drops).

[blankall]

Originally Posted by powderjunkie

Frankfurt and Munich are #2 and #4.

Zurich and Geneva are both on the list...





You must be talking about # of homes? I find it hard to believe that Japan or any of the Euro countries have a higher per capita number of SDDs (though TBH I have not searched the numbers).

So moving to the second bolded, could the issue be more rooted in our definition of 'basic housing' being a 1600 sq ft house compared to an 800 sq ft apartment in the G7 nations outside of NA?

I don't know enough about living in Europe beyond traveling and using a fair number of airbnbs, but even their 800 sq ft units seem far more economical than our 800 sq ft condos...old buildings, no big balconies, no/small parkades, no/small courtyards, no gym rooms, etc

You are correct. "Housing units" is the measure.

The small housing units in Europe also depend on having well planned and largely walkable neighbourhoods. You don't need many amenities inside your building, if you can easily walk to them.

Zoning is definitely a huge part of the problem here. Planning cities around sprawling suburbs with large detached lots and then limiting both density and expansion is recipe for disaster.

[opendoor]

# of dwellings per capita isn't a particularly meaningful metric unless you adjust for demographics. Countries with low U20 populations and with high rates of single-person households will need a higher number of dwellings per capita than countries with younger populations and higher 2-person household rates. For instance, 41% of households in Finland and 40% of those in Germany are single-person, whereas only 28% of Canadian ones are.

[Azure]

The amount of variable rate mortgages is stunning. Did people honestly not realize interest rates were going to go up again? Locking in at 2.2%, versus variable rate 2% and 'oh so much cheaper', but not thinking we are due for a big increase? Or am I missing something?

[Azure]

Originally Posted by blankall

You are correct. "Housing units" is the measure.

The small housing units in Europe also depend on having well planned and largely walkable neighbourhoods. You don't need many amenities inside your building, if you can easily walk to them.

Zoning is definitely a huge part of the problem here. Planning cities around sprawling suburbs with large detached lots and then limiting both density and expansion is recipe for disaster.

My original question was also ignored.

Do people honestly believe Toronto & Vancouver housing prices were driven by actual demand and not external shady circumstances?

Why is Vancouver SO much higher than Montreal? Calgary? And why has it been higher for so much longer than other cities in Canada? Where is the money coming from that is driving that insane demand?

[you&me]

Originally Posted by Azure

The amount of variable rate mortgages is stunning. Did people honestly not realize interest rates were going to go up again? Locking in at 2.2%, versus variable rate 2% and 'oh so much cheaper', but not thinking we are due for a big increase? Or am I missing something?

You have to remember that everyone's an expert and 100% of those variable rate holders were going to time the market perfectly and lock in before rates started to increase.

[powderjunkie]

Originally Posted by Azure

The amount of variable rate mortgages is stunning. Did people honestly not realize interest rates were going to go up again? Locking in at 2.2%, versus variable rate 2% and 'oh so much cheaper', but not thinking we are due for a big increase? Or am I missing something?

VaRiAbLe AlWaYs WiNs.

I don't get it either, especially once the pandemic hit my personal uncertainty meter shot through the roof.

I can see playing with variable in future terms when there is actual upside reward, but recently it's been a tiny FOMO reward compared to an unlimited risk (of course you can usually lock in without penalty).

The only sensible reasoning to me (in the last few years) is if you expected to sell sooner than later.

[MillerTime GFG]

Originally Posted by Azure

The amount of variable rate mortgages is stunning. Did people honestly not realize interest rates were going to go up again? Locking in at 2.2%, versus variable rate 2% and 'oh so much cheaper', but not thinking we are due for a big increase? Or am I missing something?

The spread b/w fixed and variable rates was larger than that. I know for my clients that decided to go variable, I recommended setting their payment "as if they took the fixed rate" to mitigate some of the risk.

Not all of those 48% are going to be in trouble thankfully, and those that are, there are at least measures being taken by the Government and OSFI/insurers.

[opendoor]

Originally Posted by Azure

The amount of variable rate mortgages is stunning. Did people honestly not realize interest rates were going to go up again? Locking in at 2.2%, versus variable rate 2% and 'oh so much cheaper', but not thinking we are due for a big increase? Or am I missing something?

I was at a party the other day and the topic of mortgages came up, and the number of people I talked to who renewed in 2020 or 2021 and went variable instead of fixed was staggering. I couldn't believe my ears, but the stats seem to bear that out.

I asked some of them why, given that rates basically couldn't go any lower than they were, and they all basically shrugged and said they listened to their mortgage broker.

[DoubleF]

Originally Posted by Azure

The amount of variable rate mortgages is stunning. Did people honestly not realize interest rates were going to go up again? Locking in at 2.2%, versus variable rate 2% and 'oh so much cheaper', but not thinking we are due for a big increase? Or am I missing something?

The stat was for 2021. I was thinking the same thing at first. Someone taking a variable rate in 2021 doesn't seem out of the ordinary IMO. We didn't get hints of rate hikes until very late 2021 and early 2022. Anyone who took a variable rate any time in 2022 while maxing out their leverage is a complete buffoon though.

Someone in 2021 with a variable rate mortgage should be relatively OK though, even if they're annoyed. Enough down payment float and they bought at the lowest vs the 2022 housing FOMO spike.

[powderjunkie]

Originally Posted by Azure

My original question was also ignored.

Do people honestly believe Toronto & Vancouver housing prices were driven by actual demand and not external shady circumstances?

Why is Vancouver SO much higher than Montreal? Calgary? And why has it been higher for so much longer than other cities in Canada? Where is the money coming from that is driving that insane demand?

That's the $640k studio question. I think that positive feedback loop could easily emerge without any nefarious intervention (of which there is obviously some, but I'm skeptical that it's truly a root cause).

I'd ask the opposite...why is it not possible that demand simply >>>> supply?