Guest Post by Dave Larock
This is an important week in the mortgage world because our federal banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), is expected to release a draft of its B21 guidelines which will amend, and most likely tighten, the underwriting guidelines used by Canada’s big three high-ratio mortgage insurers.
There is concern within the real-estate industry that the four rounds of mortgage rule changes that have already been made have not yet had time to fully work their way into our real-estate markets. The fear is that more rule tightening in the meantime may turn the regulatory screws too tight, causing a sharp slowdown in housing activity that cannot easily be reversed.
Our policy makers would argue that our real-estate markets have held up well in the face of the first four rounds of changes and that ultra-low interest rates are still fuelling house-price increases, which will become unsustainable without further tightening. Raising interest rates to bring our largest real-estate markets off the boil would damage our broader economic momentum, whereas tightening our high-ratio mortgage rules provides a more targeted solution. If you’re going to conduct surgery on part of our economy, goes the thinking, better to use a scalpel instead of a chainsaw.
The Bank of Canada (BoC) will also release its latest Monetary Policy Report (MPR) this week, which provides us with the Bank’s latest take on the state of the world’s largest economies and includes projections for where the BoC sees foreign and domestic economic momentum headed over the next several years.
The BoC has become decidedly more cautious in its recent commentary, most notably on its interest-rate projections, and this report will give us an in-depth look at the Bank’s evolving view on the subject. Given that our central bankers are no longer using the threat of higher interest rates as a policy tool designed to slow household borrowing, the BoC’s MPR commentary should offer a more unvarnished view than those we have grown used to reading over the last several years.
Five-year Government of Canada bond yields fell by ten basis points last week, closing at 1.65% on Friday. Market five-year fixed rates are still available in the 2.84% to 2.99% range, and five-year fixed-rate pre-approvals can still be had at rates as low as 3.09%.
Five-year variable-rate mortgages are offered at rates as low as prime minus 0.65%, which works out to 2.35% using today’s prime rate of 3.00%.
The Bottom Line: It isn’t every week that we get both a major regulatory announcement and an in-depth view of our central bank’s evolving interest-rate outlook. The Canadian mortgage landscape could look a lot different by the time the Easter Bunny is hiding eggs next Sunday, and we’ll report on both in next week’s update. Stay tuned.
David Larock is an independent full-time mortgage planner and industry insider. Visit his blog for many more interesting articles and some great mortgage advice.