[000]

4.25 by 2015 is definitely out of the question while the US Fed vows keeping their rates at 0.25 until 2015. If our major trading partner switched from US to China in a short period of 3 years, then I see risk of rates rising.. but I doubt that's going to happen that quickly, if ever.

 

[ILuvTO]

Are you denying that Canada is special? Everyone knows that gravity applies everywhere but here. Just like in the US before 2008.

I am a RE bear admittedly. With that said the bulls have been right so far and they do have low rates and very tight present day supply to back up their continued bullishness.

 

[ILuvTO]

Since Canadians are signing a new mortgage they can adjust the amortization back up (possibly back to 25 years again) to reduce payments as they will have paid down a bit of principal.

Yes, but the longer the amortization, the higher the fixed rate, thus compounding the problem if rates "reset" here.

 

[Riverdale Rink Rat]

Agree with you about mortgages being tax deductible thus encouraging people to take on more debt.

Disagree with you about the differences between US teaser ARM's and our 3,4,5 year fixed rate mortgages. They really are no different IMO. If someone here takes a out a 3 or 4 year to get the best fixed rate, how are they any different from someone in the US with a teaser rate mortgage that resets after 2 years? Who says our rates won't reset much higher for the people that took out 4 year terms?

They're different b/c the teaser ARMs had a much higher rate built into the contract. A 5 year here would roll into a completely new mortgage, which may be at a higher, lower, or same rate depending on the market at the roll over date.

 

[Riverdale Rink Rat]

Yes, but the longer the amortization, the higher the fixed rate, thus compounding the problem if rates "reset" here.

What? Amort has nothing to do with rate - term guides rate, amort guides mthly pmt.

 

[marsh]

Story from the National Post on the condo rental market:
http://news.nationalpost.com/2012/09/22/rental-condos-a-trend-for-the-brave-of-heart/

 

[ILuvTO]

What? Amort has nothing to do with rate - term guides rate, amort guides mthly pmt.

Yes, my bad .I confused myself when replying to the other post.

 

[ILuvTO]

They're different b/c the teaser ARMs had a much higher rate built into the contract. A 5 year here would roll into a completely new mortgage, which may be at a higher, lower, or same rate depending on the market at the roll over date.

Can you give me an example teaser ARM scenario that you think would have been realistic at the time?

 

[cdr108]

They're different b/c the teaser ARMs had a much higher rate built into the contract. A 5 year here would roll into a completely new mortgage, which may be at a higher, lower, or same rate depending on the market at the roll over date.

while true, with current historical low interest rates, it's hhighly unlikely they'll go any lower.
it may be the same but most likely higher as QE1/QE2/QE3 will ultimately cause hyper-inflation.

 

[interested]

while true, with current historical low interest rates, it's hhighly unlikely they'll go any lower.
it may be the same but most likely higher as QE1/QE2/QE3 will ultimately cause hyper-inflation.

I think most of agree that when renewing mortgages rates will be at best at the same rate and likely higher rates.

I am not sure we will get "hyper-inflation" even if things improve. I say this as generally one requires wage inflation pressures for this to occur, at least that is what I believe. In my view, in North America, there is very little wage pressure with unemployment running so high. So there will be "inflation" but I don't think it will be "hyper". My greater concern is stagflation which I am viewing as more and more likely. However, unless we have a lot more job losses, we will just continue as present with relatively low interest rates for the next couple of years anyway.

I agree with the posting that suggested Carney will be hard pressed to raise rates with US interest rates stuck until 2015.

 

[daveto]

I would agree that hyper-inflation (or even anything beyond 2%) is unlikely.

But ultimately house prices don't move in response to interest rates. Rather they move in response to the demand vs supply. Low interest rates do indeed juice demand (especially when those rates are decreasing). And high (or increasing rates) would indeed restrict demand.

But we've seen in the US and other countries that even the lowest interest rates in history are not enough to entice buyers into a market with declining prices.

For a long time in Toronto (and Canada) the consensus has been that our prices will increase at a rate above inflation (or in sync with inflation as a worst case). A lot of demand has derived from this believe that leveraged purchases of property is an easy way to guaranteed wealth.

If (when?) our prices crest and begin a downward slope, I think the status of inflation and mortgage rates probably won't be the main factor which determines the demand for housing purchases

 

[interested]

^^^
Agree Daveto.

Inflation and mortgage rates will be just 2 of the factors. Confidence in the economic prosperity will be the most important one I believe. People will still want to own rather than rent if possible because that is the North American psyche (for most people). That said the situation could change in the future and also if we go long enough, people get antsy and want to step off the sidelines and get back in the market after waiting a few years (unless prices are continually dropping).

 

[cdr108]

^^^
Agree Daveto.

Inflation and mortgage rates will be just 2 of the factors. Confidence in the economic prosperity will be the most important one I believe. People will still want to own rather than rent if possible because that is the North American psyche (for most people). That said the situation could change in the future and also if we go long enough, people get antsy and want to step off the sidelines and get back in the market after waiting a few years (unless prices are continually dropping).

the American psyche now isn't home ownership as they've been burnt in many parts of the country.

ironically, now would be a good time for them to buy in some areas with the low prices (some substantially less than the cost of construction) and their fixed mortgage rates / terms / amortizations / etc compared to Canada where prices are high and rates guaranteed to reset higher throughout the amortization.

 

[interested]

^^^
Agree once again.
In fact, I bought a condo in Florida last year. We had our old one which we decided to rent out rather than sell in the down market. It is up about 20% since last year. Running it is just break even but I am in for the capital appreciation.
We actually dropped about 65% from the peak. It is now about 3x in USD (almost 2x in C$) from what we originally paid so I am OK but after 25 years...not a great investment. From 2000-2006 prices trebled....pure ridiculousness.
I figured if it was the right time to buy it was not the right time to sell.

This is however vacation property on the ocean and as they say....they ain't making more ocean. In fact, they have started to build more new condo developments.

 

[Riverdale Rink Rat]

Can you give me an example teaser ARM scenario that you think would have been realistic at the time?

http://money.cnn.com/2006/10/09/real_estate/arms_nightmare/index.htm

Teaser ARMs of less than 2% jumping to more than 6% or even 9% after two years. And, you're locked in for 30 years at that new rate!

FYI - I found this using a little-known online search called 'Google' and typing in '2006 teaser ARMs rates'. In less than a minute.

Canadian prices may or may not be higher, relatively or in real terms, than the US in 2006. And it will do no good to our banks nor our housing market as prices moderate or fall. But, let's not pretend we're even close to the craziness that was the US housing market back then.