In case you missed it, the war ends on Thursday. This means you have about 48 hours to lock into a five-year mortgage rate you might not see again. Ever.
Days ago Scotia told brokers it was pulling its 2.99% special on four-year fixed loans. On Monday RBC, too, yanked the plug, not only jumping its four-year rates from 2.99% to 3.49%, but increasing its five-year mortgage by a fifth of a point, and goosing the VRM at the same time. And BMO’s cheapo product – which started this latest basis-point pissing contest – also expires on the very day F stands up to deliver his budget. How unexpected is that?
This is happening because at 2.99% the banks make no money. The whole exercise was to build market share in a slagging economy where mortgages are critical because the banks view them as ‘relationship’ products. If you have a home loan, then the odds are you’ll also apply for a LOC and a car loan, as well as opening a TFSA and an RRSP, filled with bank mutual funds. Before you know it, [email protected] is rubbing your thigh when you go in to pay a bill.
And it’s no coincidence all this will be over by the time F struggles onto his cute little pixie legs in the House of Commons at four in the afternoon. Ottawa’s been aggrieved that throwing around bank billions at crazy low rates is doing nothing but encouraging house-horny people to bury themselves in masses of debt, destined to reset at higher rates. That just adds to a record level of personal indenture and fuels house prices.
Recently, bidding wars erupted again in godless Toronto with the average SFH price jacking through $841,000, at exactly the time this mortgage war erupted. Ironically, the same bank CEOs pushing the feds to hose down borrowers with shorter amortizations or higher down payments, share blame for the housing orgy. If they could suck and blow any harder they’d be airborne.
Speaking of F, that little devil, he’s now been relieved of the burden of icing the housing market in this budget. The mortgage truce helped, but the real knockout punches are coming from CHMC and the bank regulator, OSFI. As I told you last week, tough new rules will be enacted within the next few months forcing the banks to scrutinize borrowers more, get accurate house appraisals, then reappraise when mortgages are renewed. That could mean if house prices fall between purchase day and renewal five years later, homeowners might be forced to make up the difference. Yikes.
As for CMHC, it plans on drastically cutting the amount of insurance available for those high-risk, high-ratio loans that everybody loves.
How drastic? Well, the average rate of growth in the CMHC portfolio over the last five years was 13.5%, and that’s now scheduled to plunge to just 1.5%. The change is so profound, it’s led insiders to wonder if the Crown Corp has had its chain yanked big time by a federal government terrified real estate could meltdown.
The likely victims: people buying investment properties to rent, self-employed and commissioned borrowers, banks wanting blanket coverage on loans they’ll sell or (of course) the Y&H upon which our entire real estate empire is based.
F no longer needs to drop the 30-year amortization to 25 or consider raising the minimum down to 7%. Instead, with the regulator about to ban cash-back mortgages and force tighter lending guidelines, while CMHC turns off the insurance spigot, that housing bubble is history. If you can remember 1991, you know what comes next.
So if you have a variable rate mortgage with the ability to lock up, do it. A year from now the cost of money will be higher, and houses lower. Bankers will be dorks again, which will be comforting. And hopefully more people will be investing than slobbering over granite.
Did you hear about the new survey on savings? Almost four in ten Canadians say they have none. But seven in ten have houses.
How can the outcome not be obvious?