6. Tight spreads: The difference between lenders' best discounted rates and 5-year fixed funding costs is near a long-term low. That means when bond yields shoot up next, it will likely take less time for the big banks to ratchet up fixed rates.
7. Yields flat for a reason: Bond yields lead mortgage rates, and yields are showing resilience in the face of the third wave’s coming hit to GDP. The market knows that vaccinations are happening fast and furious with almost 40% of adults receiving at least one dose. As summer approaches, people will spend more money (potentially much more). Once the market starts re-anticipating that, rates should levitate further.
8. Back to 2007: A large non-federally regulated lender has launched a new “Declared Income” mortgage. It reminds us of the “old days” (2007) when equity mortgages were a thing at institutional lenders. To get this mortgage, you basically tell the lender how much you make. There’s no proof of income, the lender lets you qualify based on your actual interest rate (i.e., there’s no “stress test”) and you can get a 40-year amortization. The product is designed for the self-employed, contractors and others who have huge write-offs or don’t report all their income in a traditional manner. You need to prove self-employment and must have 35%+ equity. The price for this flexibility is rates in the mid-to-high 6% range, plus fees. Contact a mortgage broker for more info.
9. How far to neutral?: The Bank of Canada projects that its key lending rate will eventually level off at roughly 2.25%, +/- 0.50%. That’s two percentage points higher than today. Not so coincidentally, markets are projecting a roughly 2.40% “terminal rate.” This neutral (or terminal) rate refers to the rate that neither stimulates nor suppresses economic growth. Bond traders are betting that the next rate peak will be higher than prior rate-hike cycles. That's likely because this recovery has far more government support, supply bottlenecks, commodity inflation, consumer savings and other Covid peculiarities.
10. Not enough houses: If you’re waiting for new supply to cool housing, here’s some good news. “…Homes under construction to population growth is at a record high,” says Capital Economics. The bad news is, most people want houses and “90% of the rise in the past year has been due to higher condo construction.”