A year ago he accused bankers of fueling a debt orgy with a race to the bottom. That warning from F was enough to cut short the 2.99 Special, offing a mortgage war the cowboys at BMO started. But that was then. This is now. Don’t expect the elfin deity to be throwing out any warnings this time. In fact, he wants it.
BeeMo tried to stir a few moist loins last week by dropping the rate for a five-year fixed home loan by a dime to just below the magical 3% mark. When this happened last spring the bank scored big media coverage, at a time when real estate was skidding into its orgiastic climax phase. Bidding wars were everywhere in Toronto. Asking prices were mere suggestions. Sales in March literally exploded. Sellers were gods. Realtors were rock stars. And this blog, ignored as always, warned about the Vancouverization of 416.
Growled a pissed F to the bankers: “You should be cautious about your lending practices, because this is the type of practice that led to a mortgage crisis in the United States several years ago. So my expectation is that you will not compete to the bottom on interest rates, which is the direction they were going.”
My, oh, my. What a difference a year makes.
Yes, BMO has brought back the 2.99 Special. But Scotia and others have been offering it for weeks already. In fact, if you have a good downpayment, or show a little leg, you can get a five-year, locked-in rate for just 2.95%. A seven-year term can be yours for 3.59%, and you can even lock in for an entire decade at 3.69%.
In fact, bankers are getting downright aggressive, understandable since the real estate market this February is a pale shadow of that a year ago in places like Toronto, Van, Montreal, Edmonton and Halifax. How about this email, sent out to realtors last Thursday by a lady named Nicole, whose title is “Home Financing Advisor, Home Financing Solutions” at Scotiabank:
“Did you know that I can offer a re-finance for your client’s who may be facing a matrimonial break up to 95% of the property value to “buy out” a spouse from their matrimonial home…Helping your clients in this fashion is bound to build good will….and be good for your business.
“Did you know I can show you….and your customer’s who may have some equity or cash to invest…..a way to generate an annual rate of return in the 40% range….yes….I said 40!! AND not only that…..we can generate YOU some commission in the process!!! YOU NEED TO SEE THIS PRESENTATION…..and I am happy to sit down with you and show you…and once you see it…..you will want your past client’s to see it also…..email/call me today to set up a meeting.”
Doesn’t this sound more like a Tom Vu commercial, or a Brad Lamb seminar, than an offering from the nation’s second-biggest bank? Is there a whiff of desperation in the air, or is that my hockey bag again?
Banks are scrambling to rekindle the property virgin hormones, now that housing sales have eroded after F kicked the slats out from under the market. Killing off the 30-year home loan had every ounce of the impact I thought it would, shutting out at least a fifth of potential newbie buyers. Meanwhile punting mortgage insurance on listings above $1 million has doused this increasingly critical segment of the market, since buyers now have to come up with a third of the price in cash (including closing costs).
In places like North Toronto and most of Vancouver, it’s serious. Of the 70,000 SFHs in Van, for example, 54% are assessed at more than a million – a number which grew by 50% between 2009 and 2012. This is one more reason sales in VanCity, the Lower Mainland and Victoria are crashing.
The fear in Ottawa, as you know, is whether F & the peckerettes went too far in creaming the market. Given that inflation is now less than 1% and the economy had negative growth at the end of 2012, won’t a weakening housing market just exacerbate the situation? You bet. Of course it will. But a new plunge into more household debt has worse long-term implications.
Given all this, the smart money will stay on the sidelines. Houses will cost less in the future, and mortgages will shrink. If rates rise a little, families will still be better off waiting.
A harder decision is whether people with existing or new mortgages should opt for a radical borrowing – ten years at 3.69%. That means paying a premium of seven-tenths of a point for a long five years, gambling that for the next five you’ll score.
Worth doing? Yes.