Coronavirus Mortgage Update – April 2

4:47 p.m. Update

TD approving most mortgage deferral requests
  • Rubber Stamping: TD’s CEO says the bank is approving “virtually all” mortgage deferral requests. It has approved 60,000 so far. “If this [crisis] continues for a longer period, governments will act [again]…” he said. He also noted that TD is not seeing a “dramatic” increase in HELOC borrowing thus far. That begs the question, how does he define dramatic?
  • Deferral Volumes: We heard a report on Central 1’s market briefing that non-bank lenders (a.k.a., mortgage finance companies) are seeing roughly 1 in 10 of their borrowers request payment deferrals.
  • Monthly Deficit: The average Canadian household spends about $5,300 a month. Canada’s Emergency Response Benefit, which starts accepting applications Monday, provides $2,000 every four weeks, or $4,000 per eligible couple. That plus employment insurance, mortgage deferrals and other government assistance should keep the vast majority of families solvent throughout this crisis. Lenders are now waiting to see how big the minority is.
  • Soaring Housing Crash Searches: Google searches for terms like “housing crash” are at an all-time high. But it’s not a reflection of market-wide sentiment yet…

  • A Fall Rebound?: “The best-case scenario is we see an improvement in [housing] activity in the fall. I don’t think anyone’s really expecting anything before that,” realtor John Pasalis told Bloomberg. Listings remain scarce, he said, but so are buyers. It remains to be seen whether enough marginal desperate sellers panic-drop prices into an illiquid market, thus driving prices lower. RBC is calling for a rebound next year, by the way.
  • Unemployment in Orbit: 10 million Americans applied for unemployment last month. So many applied in New York that its unemployment fund is already approaching insolvency. Desjardins estimates a disproportionately higher three million Canadians got laid off in the same time period.
  • Flat-lining Rates: Desjardins sees near-zero interest rates lasting into 2022 or longer. It writes:
    • “We can expect a long period of stable key rates in North America…”
    • “Bond yields should also remain very low in the coming quarters, reflecting significant quantitative easing on the part of the central banks and weak inflationary pressures.”
      • For financially secure risk-tolerant borrowers, the outlook seems to further reinforce a strategy of choosing the lowest rate available for the service and mortgage features one needs, regardless of term. The one exception being variable rates. Odds of success are materially lower for new borrowers contemplating a variable rate near prime.
    • “The various programs implemented by central banks should help minimize financial strains and gradually shrink credit spreads.”
      • Heightened risk is driving oddly wide credit spreads, and that has boosted mortgage rates. Few expect spreads to remain extreme for more than 3-9 months given the seemingly endless liquidity support pledge by Ottawa.



9 Comments

  • Tee says:

    How are you able to know what google searches are?

  • Leo says:

    “ That plus employment insurance”

    it’s EI or CERB, not both.

  • exDiv says:

    Fortunately searches for “how to file for bankruptcy” are still low.

  • Kim says:

    The one exception being variable rates. Odds of success are materially lower for new borrowers contemplating a variable rate near prime.

    Are they saying that we should be avoiding variable rate mortgages? Or just that variable rates aren’t as attractive with the disappearing discounts from lenders?

    • The Spy says:

      Hi Kim, Variable rates are obviously far less attractive at prime rate with no discount (2.45%) than prime rate with a more normal discounts (like prime – 0.75% or better). The lower your starting rate as a new borrower, other things equal, the better your odds of minimizing borrowing costs over the amortization period. While a variable at prime may not be suitable for most, I can’t say definitively if it’s suitable for you.

  • Kim says:

    Ok, thank you. Thanks to RateSpy updates, I was able to secure a 5 year variable at Prime – 0.90 just before (literally a day before) everything started changing. Reading the above made me question if I had done the right thing. I was leaning towards renewing at a 5 year fixed rate but had difficulty getting a rate hold in time before they jumped up. Hard to complain about getting 1.55% for now though. We’ll see how long it lasts…
    Thank you

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