Possible Prime Rate-cut Looking More Likely

[Hubster]

TAVIA GRANT

Globe and Mail Update

November 16, 2007 at 2:49 PM EST

"A growing number of economists now expect the Bank of Canada to cut interest rates in the coming months as a strong dollar takes a bite out of trade.

Weaker-than-expected reports on international trade and manufacturing over the past week show the Canadian economy likely withered in the third and fourth quarters, they say.

At the same time, the strong currency is reducing import prices and causing retailers to cut prices on their goods — putting a damper on inflation.

“We now expect that the Bank of Canada will need to cut its policy rate by 25 basis points on each of its next four decision dates through April,” said Ted Carmichael, chief economist at J.P. Morgan Securities Canada on Friday. That would bring the rate to 3.5 per cent from the current 4.5 per cent.

Previously, most economists had expected the central bank would stand pat for the foreseeable future. But opinion started to shift last week, with Merrill Lynch Canada saying the probability of a rate-cut in December had tilted to a greater than 50-per-cent chance."

Article here (http://www.theglobeandmail.com/servlet/story/RTGAM.20071116.wboc1116/BNStory/robNews/)

[thelefteyeguy]

hehe...3 days late?

[Hubster]

Talking to me?

[SMC23]

Does this mean we can expect mortgage rates to follow?

I'm at 5.99% now so by spring does that mean my rate will be at 4.99%? :confused:

[stewpy]

Does this mean we can expect mortgage rates to follow?

I'm at 5.99% now so by spring does that mean my rate will be at 4.99%? :confused:

If you have a variable rate mortgage yes. If it is fixed, no. At 5.99 I am guessing it is fixed. My variable is 5.25% and I am gonna ride the downward wave :)

[Daboss]

How soon after a interest rate drop do banks post updated mortgage rates?

My home is closing on Dec 1st, and I wondering if there is a way to push out the closing by a week so I can taking advantage of a rate drop on my closed mortgage.

[SMC23]

If you have a variable rate mortgage yes. If it is fixed, no. At 5.99 I am guessing it is fixed. My variable is 5.25% and I am gonna ride the downward wave :)

You are right it is fixed for 5Yrs. PLease help me get out. How can i do this??

[Hubster]

How soon after a interest rate drop do banks post updated mortgage rates?

My home is closing on Dec 1st, and I wondering if there is a way to push out the closing by a week so I can taking advantage of a rate drop on my closed mortgage.

The major bank's will all reflect the new Prime rate, if there is one, by the next business day. Lenders will typically allow a one time rate drop seven days before closing - after that you are almost always locked in.

If you are going to be in a Variable rate mortgage (closed can be Variable or Fixed), they will go with the Prime rate at that time. Dependent on the lender - it will adjust monthly or every 3 months max.

If this is a newly built home your builder may extend the closing date if they have some legitimate reason to do so. If it is a resale home, then you will have much more work on your hands as all parties and representatives would have to agree to the new date.

[Hubster]

You are right it is fixed for 5Yrs. PLease help me get out. How can i do this??

Not understanding you - what is there to get out of - your Fixed mortgage???

Nothing wrong with 5.99% for 5 years Fixed. It doesn't get tremendously better out ther these days. Certainly nothing that would be worthy of breaking a mortgage contract.

We need further explanation of what your issue is!


Sorry - I keep forgetting about the multi-quote option :cry:

[pitz]

My home is closing on Dec 1st, and I wondering if there is a way to push out the closing by a week so I can taking advantage of a rate drop on my closed mortgage.

If its fixed, there won't be a rate drop per se. Unless conditions improve in the MBS market, and a bank wants to underwrite it.

If you believe in falling Bank of Canada policy rates, the solution is to get a variable rate mortgage, linked to the prime rate.

[grant]

I sure hope the rate holds up til at least the end of the year, or else i'm going to have to eat some crow.

[watungga]

I sure hope the rate holds up til at least the end of the year, or else i'm going to have to eat some crow.

Rate holds up? You mean you hate it when it goes down?

[matradley]

I dislike it when the rates decrease - I lose out on monies on my savings accounts. :/ Other than that, all power to the people on mortgages. The decrease in the interest rates is only going to provide another way for the housing marking to increase exponentially more than the actual homes are worth again.

[watungga]

I dislike it when the rates decrease - I lose out on monies on my savings accounts. :/ Other than that, all power to the people on mortgages. The decrease in the interest rates is only going to provide another way for the housing marking to increase exponentially more than the actual homes are worth again.

Wow! I didn't notice this scenario as I am now living on debt. For one thing, actual homes can go up as long as there are buyers out there. I doubt it will rise up exponentially as the labor wages and cost of living stays the same.

[iamdogdog]

I dislike interest rate going down because I think low interest rate is one of the reasons that house price went up significantly last few years.

Result: Many of my friends can't afford to own a property (Toronto and Markham area).

When price of house is up that much, I simply think that the only two group that benefits from it are GOVERNMENT and INVESTORS.

[gomyone]

Wow! I didn't notice this scenario as I am now living on debt. For one thing, actual homes can go up as long as there are buyers out there. I doubt it will rise up exponentially as the labor wages and cost of living stays the same.

...can't see home prices going up "exponentially" but they are going well above inflation out west and ahead of inflation in TO. That's not sustainable in the long run - theoretically house prices should only go up by the rate of inflation and capital expenditure (roughly 2%+2.5% = 4.5 to 5%).

I think low interest rates were certainly the catalyst for the bigger price gains we've seen recently, but I think if the Bank of Canada cuts, it will be more a measure to keep liquidity in the system rather than simply "injecting more fuel into the fire."

Lending conditions have become pretty tight compared to the recent past - anybody trying to get a new mortgage today will see higher spreads (ie., bonds yields have fallen dramatically but mortgage rates haven't budged). That's because lenders are very scared. Lower Bank of Canada rates will help them out, and maybe give the overall market more flexibility so that spreads eventually come down sometime next year. So for consumers, I think the only people who will really see tangible benefits from these prospective rate cuts are those with existing variable rate mortgages - thankfully I'm one of them :D

[elty]

...can't see home prices going up "exponentially" but they are going well above inflation out west and ahead of inflation in TO. That's not sustainable in the long run - theoretically house prices should only go up by the rate of inflation and capital expenditure (roughly 2%+2.5% = 4.5 to 5%).

I think low interest rates were certainly the catalyst for the bigger price gains we've seen recently, but I think if the Bank of Canada cuts, it will be more a measure to keep liquidity in the system rather than simply "injecting more fuel into the fire."

Lending conditions have become pretty tight compared to the recent past - anybody trying to get a new mortgage today will see higher spreads (ie., bonds yields have fallen dramatically but mortgage rates haven't budged). That's because lenders are very scared. Lower Bank of Canada rates will help them out, and maybe give the overall market more flexibility so that spreads eventually come down sometime next year. So for consumers, I think the only people who will really see tangible benefits from these prospective rate cuts are those with existing variable rate mortgages - thankfully I'm one of them :D

Well the detach house price has gone up 87% in the last 10 year, which works out to be 6.5% compounding. the condo I live in goes up by 40%, which is 3.5% compounding per year. It is not that extreme yet, but we certainly need some cool down period in order to avoid a melt down in the future.

Another factor to "justify" the increase is, our infrastructure is not keeping up with the housing demand. Over the last 10 year we have one extra subway line and one highway, but our population grow beyond the infrastructure. It used to be living on 16th is considered far, now we are talking about Elgin Mills and up. When infrastructure can't keep up, land will just become more and more expensive because once the good land is gone, you are not getting it back.

[Sandokan]

Bad or deteriorating infrastructure will tend to decrease realestate prices sooner or later.

[gomyone]

Well the detach house price has gone up 87% in the last 10 year, which works out to be 6.5% compounding. the condo I live in goes up by 40%, which is 3.5% compounding per year. It is not that extreme yet, but we certainly need some cool down period in order to avoid a melt down in the future.

Another factor to "justify" the increase is, our infrastructure is not keeping up with the housing demand. Over the last 10 year we have one extra subway line and one highway, but our population grow beyond the infrastructure. It used to be living on 16th is considered far, now we are talking about Elgin Mills and up. When infrastructure can't keep up, land will just become more and more expensive because once the good land is gone, you are not getting it back.

..for any of you stats freaks, infrastructure is not necessarily an "explanatory" variable for house prices although it has multi-collinearity with other explanatory variables for housing (ie., population growth). As you noted, the true relevant variable for house prices is "location". Good location, with good access means higher prices all else equal.

As for land prices, history has always shown that its more elastic in the long run. Land prices can go up and down. Also, prime "land" can always be created when prices are spiralling - its called densification. That's why you are seeing so many condos going up these days.

[grant]

Rate holds up? You mean you hate it when it goes down?
I neither hate nor love it!

but i did predict in the spring that rates would end the year higher, and since then, there's only been 1 increase!

[gomyone]

I neither hate nor love it!

but i did predict in the spring that rates would end the year higher, and since then, there's only been 1 increase!

..the year's not over yet and there's a good chance of a rate cut as early as next week....

[pitz]

Bank earnings are coming in a lot better than *anyone* really expected. So I wouldn't automatically assume that a rate cut is 100% certain.

[gomyone]

Bank earnings are coming in a lot better than *anyone* really expected. So I wouldn't automatically assume that a rate cut is 100% certain.

10 year bond yields in Canada are trading below 4% today - with the ON rate at 4.50% markets are certainly still betting on cuts. Maybe not December, but with indicators suggests more credit crunch problems developing - could be January....

[alex_sauvage126]

Well, if interest rate goes up, your friends still can not afford to buy a house, even that real estate prices might decrease: mortgage payment will be ~ the same. They will just pay more as interest rather than principal!


I dislike interest rate going down because I think low interest rate is one of the reasons that house price went up significantly last few years.

Result: Many of my friends can't afford to own a property (Toronto and Markham area).

When price of house is up that much, I simply think that the only two group that benefits from it are GOVERNMENT and INVESTORS.

[poptart77]

I was under the impression that the housing price increase was mostly due to immigration. I don't think that Canadians who have lived here for many years are all of a sudden wanting to pay that much more to live closer to downtown but with the steady infusion of wealthy immigrants, the cost of housing has gone up as they try to purchase houses as close to the city core as possible. I believe that mostly major cities are impacted by this but have no idea if this is true. Does anyone have access to data to point out otherwise or confirm this?

[Thalo]

Bank earnings are coming in a lot better than *anyone* really expected. So I wouldn't automatically assume that a rate cut is 100% certain.

I agree. Good economic news out this morning and the $CAD back at par. No cut on Tuesday.

[pitz]

I agree. Good economic news out this morning and the $CAD back at par. No cut on Tuesday.

Yeah...National Bank raised its dividend, and it's been viewed as the bank in the most distress due to subprime and ABCP issues.

Either they are complete fools, or the Canadian banking sector is in marvelous shape. I mean, when most of the banks managed to hold earnings flat, and, in some instances, grow them, against the backdrop of the events of the past few months is absolutely amazing and shows a real dichotomy between the conservatism of Canadian banks, and the craziness of the US banks.

The BoC's job isn't to manage bank earnings....but $90/barrel oil has re-flated the Alberta economy nicely, and pressure on the dollar has come off substantially in the past week or two.

[grant]

I was under the impression that the housing price increase was mostly due to immigration. I don't think that Canadians who have lived here for many years are all of a sudden wanting to pay that much more to live closer to downtown but with the steady infusion of wealthy immigrants, the cost of housing has gone up as they try to purchase houses as close to the city core as possible. I believe that mostly major cities are impacted by this but have no idea if this is true. Does anyone have access to data to point out otherwise or confirm this?
In Vancouver, immigration is projected to remain the same as the past few years, at ~10,000 people per year. That's not too much compared to a city of 500,000. Construction has topped 7,000 units/year during that time.

Real estate prices have risen sharply ALL OVER the lower mainland, not just downtown vancouver.

This data suggests that prices have risen despite a lack of immigration, not because of it.