Whether F likes it or not, there’s a race to the bottom in mortgage rates. I told you why yesterday. Lenders figure 190,000 jobs will be lost over the next twenty months, and they need fresh meat.
As a result, any bank will give you a five-year closed home loan for 2.99%, or less. Show a little attitude, in fact, and you’ll get 2.74%. There’s even 10-year mortgage money floating around at a little under three per cent – for the first time in two generations. Nobody’s making much (if any) money lending at these levels, but at least they’re moving product and collecting clients.
F was right to try and corral this, although he did it in a clumsy, dumb, Tory kinda way. Leaning on Manulife when it promoted 2.89% money was theatrical, but unfair. If he wants a floor on rates then he could have set one. Making an example of the bank was uncalled for. Amateur. Bully.
But compared to this, guys like NDP leader Tom Mulcair, Liberal boss Bob Rae or wannabe-Harper-replacement Conservative cabinet minister Maxime Bernier were hypocritical opportunists. “It’s the market. It’s supply and demand that decides the prices. It is the case for interest rates, it is the case for other products too,” said Bernier, proving he’s better at massaging epic cleavage than economic policy.
The fact is F has every right to diddle with rates. He earned it. At least $600 billion still buys something these days.
No major bank, no mortgage broker, no credit union would loan money to anyone without a massive downpayment and impeccable credit if it weren’t for CMHC. The lower the down and the iffier the client, the higher the rate would be. To score a mortgage at prime or less only people who didn’t need loans would get them since the risk of default to the bank would be unacceptable.
By wiping away this risk, and transferring it to the government and taxpayers, CMHC has allowed the banks to come to this: offering 95% of the purchase price of a house to people who have been too indulgent, undisciplined or indolent to save any money, who may have no real credit history or homeowning experience. Not only do they get the loan, but at the same rate offered experienced, solvent clients with a 50% deposit.
This is not the way the real world works. By erasing the premium for risk, CMHC has encouraged every lender to take excessive risk. The results are obvious – a massive run-up in housing prices and an historic explosion in mortgage debt as real estate becomes an entitlement. The feds now guarantee about $575 billion in high-ratio loans. We’ve created a housing bubble so gaseous even a minor change – like reducing amortization periods from 30 to 25 years – causes market upheaval and widespread job loss. What more proof do we need that handing out crack causes addiction?
So a mortgage rate war may save some mortgage broker jobs, but it only makes the future worse. The soft landing F dreams of will end up being a smoky hole. The kids who bought with 5% after 2010 won’t know what hit them. Boomers expecting to cash out of the chipboard McMansions and downsize may find their properties unsalable.
Don’t believe me? Look south.
In most ways, the US middle class is like ours. Comparable taxes, incomes and standard of living. Like us, people there have long believed in real estate. And at the height of the housing bubble, homeownership in the States touched 69% (it’s now 70% here). Like us, they had no-money-down loans, teaser loans, lax lending standards and the belief real estate is way safer than, say, the stock market, because it always goes up.
You know the rest.
Like us, Americans concentrated most of their net worth in a single asset. Today, 57% of all workers have less than $25,000 in total household savings excluding their homes. A third of people “have no confidence” they will retire with enough money. Only half of people working or retired say they could find $2,000 if a personal crisis hit. Much unhappiness lies ahead.
See what real estate can do?
By the way, Royal LePage reported this week that 72% of Gen Yers (19 to 33) now worry they won’t be able to afford a home. Good.