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July 26, 2017 | No illusions

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

In the last three days alone at least 89 mortgage lenders or brokers have raised their rates. On Monday 58 announced increases within the industry. Another thirty or so followed suit yesterday. The hikes are in some cases substantial – about four-tenths of a point. The big banks have now established five-year loan costs at just a wisp below 3%, while HSBC has been forced to abandon the predatory rate it announced just weeks ago, for which it was dissed on this very blog.

And then there’s poor Tangerine (owned by the richer-than-you-think bank). Last week the virtual elves at The Fruit People sent out this message:

It’s a great time to apply for a Tangerine Mortgage!
Apply between July 19, 2017 and October 31, 2017 to take advantage of our special offer on a 5 year fixed rate closed Mortgage of at least $250,000:
A fantastic rate of 2.49% / 2.50% APR*
A $700 cash Bonus* to help cover your closing costs

On Wednesday they sent out this one:

Dear Aws,
On July 19, 2017, we sent you an email in error. This message was regarding a special offer on a Tangerine mortgage. We’ve cancelled this promotional offer, and it’s no no longer available.

Please note that if you already submitted a Mortgage application, the offer will be honoured for you.

We are sorry for any inconvenience this may have caused.

Sincerely,

Client Services
Tangerine

So that 2.49% mortgage is now a 2.89% loan. If you had any illusions about where the cost of money is going, best lose them now. The punch bowl has been removed from the party. This is a taste of what’s to come – virtually every lender changing rates on a monthly or even weekly basis, without fanfare or media release.

As you were told here days ago, the bond market is massively aroused. The Canada five-year rate passed 1.6% today (before closing lower), and everybody I talk to on Bay Street says 2% lies ahead (you can tell the kind of firecrackers I hang with). That may not sound like much, but it will push 3% five-year mortgages to 3.5%, and after Christmas likely into the 4% range. Combined with the new stress test for all borrowers (forcing them to quality at 200 basis points above a lender’s offered rate) it changes the dynamics of the marketplace abruptly.

Anyway, let’s move on to the rest of Today’s Bad News.

 Yes, things suck for homeowners when even the boy scouts at CMHC get spooked. On Wednesday the federal housing agency (which many hold responsible for the fact average people can’t afford average homes) said there’s “strong evidence of overall problematic conditions” in the real estate market, citing these area: “Toronto, Vancouver, Hamilton, Victoria and Canada.”

Seriously. It said that. In a news release.

And what are those problematic conditions? First, “slow growth in the young adult population” which means impoverished Millennials are not forming families and popping children. Second, “a decrease in disposal income” (I think they meant “disposable”, but it could be a waste management thing). Third, “imbalances” due to “overbuilding, overvaluation, overheating and price acceleration” which are outside of historical averages.

In short, real estate is pretty much screwed. In Vancouver the problem is excessive demand for entry-level condos, leading to overheated prices while the rest of the market goes limp. In Toronto, “economic fundamentals like income and population growth cannot fully explain the rapid growth in house prices.” There’s even an overbuilding situation in Quebec, CMHC says, and the Prairies, for goodness sake. Like, who wants to live there?

 And speaking of Vancouver, did you catch the latest Zolo market trend numbers? I have no idea how much veracity lies here, but it sure makes you wonder about the comments posted here daily on how YVR is ‘on fire.’ Seems it’s growing colder than Andrew Scheer.

 

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July 26th, 2017

Posted In: The Greater Fool

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