Real Estate

British QE = Lower Global Yields = Lower Mortgage Rates = Brace for Higher RE Prices

  • Last Updated:
  • Aug 5th, 2016 4:34 pm
[OP]
Member
Sep 1, 2013
402 posts
95 upvotes

British QE = Lower Global Yields = Lower Mortgage Rates = Brace for Higher RE Prices

The Bank of England, led by none other than our own Mr Carney, has just restarted its QE program. For all practical purposes, the global and US rates aren't going anywhere anymore.
http://www.cnbc.com/2016/08/04/bank-of- ... -year.html

Global yields are now benchmarked to zero for the foreseeable future. Everyone is chasing whatever little yields we are left with. Expect a whole lot more investor money to flow into mortgages, pushing those mortgage rates even lower.

The oil market has failed to stage any turnaround, and now that the global rates aren't going up, Canada can safely lower its own rates or - at the very least - keep'em unchanged.

Two things of note for RE:

1. Expect home and broader RE prices to set new highs going forward. (Excluding GVR in the short-term due to the foreign tax issues, but that will clear out soon.)
2. Try not to lock into a fixed rate yet, as the rates are going lower.

:)
8 replies
Deal Fanatic
Dec 5, 2009
5073 posts
2847 upvotes
Luckyinfil wrote:
Aug 5th, 2016 9:51 am
Actually US just crushed job creation so they are going to raise rates, dragging Canadian rates up as well unless Poloz wants currency suicide.

http://www.cnbc.com/2016/08/05/nonfarm- ... -2016.html
Poor Canada job report and crashing CDN dollar today would suggest the market doesn't see a rate hike any time soon.
Penalty Box
User avatar
Aug 11, 2005
3965 posts
1273 upvotes
fdl wrote:
Aug 5th, 2016 2:20 pm
Luckyinfil wrote:
Aug 5th, 2016 9:51 am
Actually US just crushed job creation so they are going to raise rates, dragging Canadian rates up as well unless Poloz wants currency suicide.

http://www.cnbc.com/2016/08/05/nonfarm- ... -2016.html
Poor Canada job report and crashing CDN dollar today would suggest the market doesn't see a rate hike any time soon.
Which is why they will have to raise rates when US raise rates. They could try to devalue currency further, but it hasn't brought any manufacturing jobs back thus far so it likely won't work.
google NotDoug
Deal Addict
User avatar
Sep 19, 2002
2803 posts
1382 upvotes
Vancouver
Luckyinfil wrote:
Aug 5th, 2016 9:51 am
Actually US just crushed job creation so they are going to raise rates, dragging Canadian rates up as well unless Poloz wants currency suicide.

http://www.cnbc.com/2016/08/05/nonfarm- ... -2016.html
There was never a link between U.S. and Canadian rates, otherwise we would have followed when U.S. raised its rates in December.
Penalty Box
User avatar
Aug 11, 2005
3965 posts
1273 upvotes
Spinner wrote:
Aug 5th, 2016 3:03 pm
Luckyinfil wrote:
Aug 5th, 2016 9:51 am
Actually US just crushed job creation so they are going to raise rates, dragging Canadian rates up as well unless Poloz wants currency suicide.

http://www.cnbc.com/2016/08/05/nonfarm- ... -2016.html
There was never a link between U.S. and Canadian rates, otherwise we would have followed when U.S. raised its rates in December.
Where did I say there was a link?
google NotDoug
[OP]
Member
Sep 1, 2013
402 posts
95 upvotes
S&P500 is going to make a record high today which essentially tells you that the market feels that even with this US jobs report, the Feds aren't going to make a move.

But, here is the important undertone. Expect more investment flows into mortgages. Mortgages are yielding a very healthy 2%-2.5% if you compare with the sovereign near-/sub-zero yields. The risk/reward looks pretty attractive to the institutional investors, as a lot of governments are standing by to help protect their housing markets. Consider CMHC. Almost 75% of risky mortgages by regulated lenders - i.e. mortgages with low equity - are underwritten by CMHC, which is a crown corporation. CMHC defaulting on its insurance obligations is essentially the sovereign default risk. For which you can get a 2%-2.5% yield. Not bad.

If the benchmark rates don't change, expect a larger discount off the prime rate - effectively bringing the mortgage rates down. The best discount off 5-year prime was 55 (basis points) back when the 2.7% prime rate was first put into place. This has now climbed to 75 (or more). If more money starts chasing these mortgages, this discount could climb to 100 by late fall/early next year.
Penalty Box
User avatar
Aug 11, 2005
3965 posts
1273 upvotes
Ironcat wrote:
Aug 5th, 2016 3:53 pm
S&P500 is going to make a record high today which essentially tells you that the market feels that even with this US jobs report, the Feds aren't going to make a move.

But, here is the important undertone. Expect more investment flows into mortgages. Mortgages are yielding a very healthy 2%-2.5% if you compare with the sovereign near-/sub-zero yields. The risk/reward looks pretty attractive to the institutional investors, as a lot of governments are standing by to help protect their housing markets. Consider CMHC. Almost 75% of risky mortgages by regulated lenders - i.e. mortgages with low equity - are underwritten by CMHC, which is a crown corporation. CMHC defaulting on its insurance obligations is essentially the sovereign default risk. For which you can get a 2%-2.5% yield. Not bad.

If the benchmark rates don't change, expect a larger discount off the prime rate - effectively bringing the mortgage rates down. The best discount off 5-year prime was 55 (basis points) back when the 2.7% prime rate was first put into place. This has now climbed to 75 (or more). If more money starts chasing these mortgages, this discount could climb to 100 by late fall/early next year.
Lololol
google NotDoug

Top