Coronavirus Mortgage Update – April 3

3:14 p.m. Update

canadian banks receive 500,000 mortgage deferral requests
  • A Half Million Mortgage Deferrals: That’s what banks are up to now, says the Canadian Bankers Association. And that doesn’t include non-bank lenders. More than 10% of Big 6 bank borrowers are now skipping/deferring mortgage payments, a number the CBA says will “increase over the coming weeks.” All told, deferrals have freed up $663 million of monthly cash flow for Canadian families, it adds.
  • Lenders Breathing Easier: Bank funding costs got extreme there for a while. But thanks to government intervention, they improved further today—as measured by things like deposit note spreads, banker’s acceptance yields and Canada Mortgage Bond yields, among others. Don’t pay attention to that jargon, just know this: less upward pressure on funding costs means less upward pressure on mortgage rates. In fact, we’ve now seen a few fixed-rate reductions in the last few days. Had the government instead followed its 2008 financial crisis playbook and been late with liquidity support, we’d be writing a very different story right now. Fortunately for borrowers, Ottawa’s foresight has kept this a crisis, and not a tragedy.
  • motusbank hikes: For much of the last year, motus has jockeyed for top spot among lenders for the lowest national rate on various uninsured mortgage terms. But recently it’s stepped way back. Today, motusbank fixed rates all jumped another 15 bps, from 2.79% to 2.94%.
  • Bank of Canada Rate Outlook: Here’s what Canada’s trusty top economists are saying now.
  • Short-term Strain: “We know every property on the market right now is in a critical situation to sell,” says Christan Bosley, COO of Bosley Real Estate. TRREB says demand could return to Toronto housing “throughout the fall and into the winter” if “we see a peak in COVID-19 infections in the spring followed by a loosening of social distancing measures starting in the mid-to-late summer.” (Toronto Star story)
  • Watching Prices: Like many Canadians, mortgage pros are waiting to see if COVID-19 knocks down home prices. April data will give us good clues on that, but we have to wait until early May for it. The Toronto Regional Real Estate Board offered some early insight today into what’s happening in the GTA. It writes, “The average selling price for sales reported between March 15 and March 31, was $862,563 – down from the first half of March 2020…”
  • Duplicate Submissions: Many mortgage brokers have been sending the same customer applications to multiple lenders. They’re doing that to lock in rate holds and protect their clients from lenders who may not issue approvals for unforeseen COVID-related reasons, or decide to not close a client’s mortgage as expected. None of these concerns are playing out on any wide scale at the moment, and all these duplicate submissions are causing 300%+ year-over-year spikes in application volumes at some lenders—slowing down the approval and closing system for all borrowers.
  • A Price to Pay: The price of government COVID-19 relief efforts could be above-target inflation, says former BoC Governor David Dodge. He supports the government’s response, but has two valid concerns, noting that:
    1. “We’re printing a lot of money to provide liquidity in the system. Every country has issues when they print money.”
    2. “You’ve cranked up domestic demand [via stimulus] without supply to meet it…”
      Here’s the full Globe story (sorry, it’s paywalled).


6 Comments

  • exDiv says:

    I was thinking the same thing as Dodge. People are still ordering goods online. A lot of manufacturers are shut down. Continued demand + dwindling supply = inflation. It makes me wonder if interest rates will be higher than some think in a year or so.

  • David64 says:

    @exDiv
    I understand your point and his point. However, the demand that we see right now (the same as shortage of supply) are also a panic response to the the situation. I am afraid that this demand is temporarily (so the continued demand in your equation will not be there). Looking at long term and after panic, that is a time when people will watch their wallet and carefully spend their money considering all these lay offs and people’s worry about future.
    What do you think about this?
    I myself spent over my budget in March and probably will do the same in April to stock up (this is an unconscious response to a panic), but I am sure after that and for a while I will not spent as much as I used to before virus since things will be uncertain for a year or two (economy, jobs and etc).

  • David64 says:

    @exDiv
    Looking at the unemployment rate and debt to income ratio for people, demand will stall and go down as buying power declines, and fear will last for a while. All being said, it is true that they added liquidity, but that doesn’t mean that regular people will see it and start spending it. (Emergency package for many people is fraction of their used to be income and doesn’t create extra liquidity for them)

  • exDiv says:

    David64,

    I definitely don’t expect long-term inflation but the Bank of Canada acts when they think inflation may be close to 3% or more within 18 or 24 months. If Dodge’s theory pans out and we get a short term burst of inflation due to supply shortages, that could be enough for rates to rise sooner than expected. In truth I have no idea what will happen and a lot depends on how long this all lasts. It will be interesting to watch.

  • Patrick McMullen says:

    The rates are not going anywhere for the next 3 years.

  • exDiv says:

    @Patrick

    Are you psychic?

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