Mortgage & Market Update Articles

Mortgage & Market Update – Sept 20, 2010

I hope this finds you well and settling back into your routine after the Summer! With everyone’s return to work, there is more meaningful economic information to help us provide an overview of where the mortgage and real estate markets are heading this fall.  I suggest we take a quick look at some global factors and then circle back for our local review.

The U.S. is still struggling
U.S. Lenders are still clearing their backlog of foreclosures with only 1/3 of foreclosures currently listed on the market. Lenders do not want to flood the market with homes and are progressively releasing inventory to try to keep prices stable. Still a long way to go…

U.S. Unemployment and debt levels are weighing down economic growth. Even with an US Federal Reserve rate of 0.00%-0.25%, and long term fixed rates at record lows, the US consumer is more into saving than spending which is keeping U.S. growth weak. Combine weak domestic demand with the recent devaluation of the Japanese Yen and undervaluation of the Chinese RMB,  U.S. exports are now less competitive. This adds yet another challenge to the U.S. economy. There is a realistic fear of further devaluation of the U.S. dollar. This is why we are seeing a lot of capital moving to fixed returns in the money market. To date, investors have moved $190.7 Billion into bonds & withdrawn $7 Billion from equity funds!

 

Europe is improving
The Euro zone has been growing at a faster pace than the U.S. but has similar structural challenges with unemployment and debt levels which will moderate growth.

In reviewing analysts forecasts, the threat of a double dip recession seems remote, however the reality will be sluggish economic growth in the U.S. and Europe. This should keep inflation concerns on the back burner for the foreseeable future.

So back to Canada where Canadian Mortgage Bonds and Mortgage Backed Securities have been on a tear! With investors waiting for the next chapter to unfold in the US & Europe, Canada is being viewed as a safe haven with investors who are happy to take a 2% guaranteed yield on CMHC insured Mortgage Backed Securities and Canadian Mortgage Bonds.   Here are a couple of articles which reflect the growing popularity of Canada and growth in Mortgage Backed Securities & Canada Mortgage Bond:

http://moneymorning.com/2010/09/10/investing-in-canada-2/

http://www.financialpost.com/news/Banks+hold+most+cards+mortgage+game/3541007/story.html#ixzz101gAAq47

Steady as She Goes
Circling back – What does this all mean when it comes to taking a mortgage or wanting to buy a property in Vancouver? Our view is the Real Estate market  in Vancouver is in buyer’s market territory. With the recent influx of capital into Canadian Bonds, we have seen a return to record low fixed rates. This, combined with softer pricing in certain areas of the GVRD, creates a window of opportunity first time and move up buyers.

This is also a great time for clients with fixed mortgage rates to consider an “Extend & Blend” to average down their fixed rate mortgage, or extend savings if they are already at an attractive low rate (e.g., a fixed mortgage rates from 1 or 2 years ago).

With inflation on the back burner, this is also a good time for clients with good cash flow to consider a variable rate mortgage. With maximum discounts of up to Prime minus 0.70% O.A.C., we suggest clients in higher rate variable products such as Prime or Prime Plus, consider paying the nominal 3 month interest penalty to maximize their discount below prime.  We also recommend those in variable rate mortgages consider increasing their payments so they automatically pre-pay more to principal while rates remain low. In paying more than the minimum payment this strategy creates a form of dollar cost averaging. By paying more principal while rates are low clients will  pay less interest when rates increase due to less owing on principal. The other bonus is they will already be used to higher payments and avoid any payment shock.

Our team is growing and we are excited that we will have more capacity to assist you in the current market! Whether its restructuring an existing mortgage,  consumer debts, or taking advantage of the current buyer’s market, our team are up to date on all lending guidelines and possibilities to ensure the best mortgage plan possible! We look forward to hearing from you soon and being of assistance – Have a great week!

Mortgage & Market Update – Aug. 6, 2010

Hope you’ve had a fabulous week. Good news to share – A few more lenders have reduced their fixed rates to match recent lows of competitors. We are slowly getting down to rates not seen since Feb of this year. US unemployment claims were up last month so the fears of an overheating economy and runaway inflation are receding fast. No one expects rate increases in the US until well into 2011 and possibly later if their economy continues to drag with weak employment numbers.

Locally, Surrey and Delta have harmonized with Vancouver to legalize secondary suites. Here are the links for more information about these recent announcements:

http://www.corp.delta.bc.ca/EN/main/municipal/6231/archives/legal_suites.html

http://www.corp.delta.bc.ca/assets/CPD/PDF/Forms/w_gen_1015.pdf

 

As a reminder here are some basics on how lenders treat Secondary Suite rental income:

Conventionally (More than 20% down) – Aggressive lenders will use up to 80% of rental income from a secondary suite and add it into the principal & interest component of the mortgage which can significantly boost qualification. Please note not all lenders will offset rental income. Those who do, offer offsets anywhere from 50% to 80%.

Insured (Less than 20% down) – Since April 19th CMHC have mandated a maximum of 50% of rental income from Secondary Suites be added to borrower income. As a competitive measure, Genworth and Canada Guarantee will allow up to 100% of suite income to be added to borrower income in the GVRD, and Capital District to better support local eco-density initiatives. A good rule of thumb is to take 35% of suite rental income as Principal & Interest to estimate how much a secondary suite will add to a borrowers mortgage qualification when going high ratio insured.

This being said the easiest way is to confirm how much impact a suite can have for a specific situation is to give us a call! Thanks again and have a great weekend!