HSBC Leads Nation (Again) on 5-Year Refis + Rate Nuggets

HSBC Chops 5-Year Rates

Canada’s biggest mortgage industry disrupter is at it again. HSBC dropped its bank-leading 5-year fixed rates today by another 10 basis points.

Among its latest 5-year fixed offers:

• 2.49% for high-ratio mortgages
  • The lowest nationally advertised insured rate available directly from a lender
  • Rate Details
• 2.59% for uninsured purchases, switches and refinances (from another lender)
  • Canada’s lowest advertised refinance rate in over two years
  • Rate Details

Note: For 30-year amortizations and rental properties, add 10 bps to that 2.59% rate.

Bond Yields Tank Again

Mortgage rate watchers have their eyes glued to U.S. rates. Among the reasons:

• The U.S. 30-year yield broke its record low today
• The U.S. 10-year – 2-year yield spread (a key recession indicator) just went negative for the first time since 2007.

      Canada’s 5-year Bond Yield

Given our economic dependence on the Americans, today’s historic moves hammered Canadian rates. The mortgage industry’s all-important 5-year yield ended the day at 1.19%, down 6 bps. That’s just a stone’s throw from the two-year low. As for the overnight rate, markets are now pricing in two Bank of Canada cuts by the end of next year.

Some of Canada’s most competitive lenders have already trimmed their deep-discount fixed rates this week. And at this pace, there’s likely more to come.

Meanwhile, the benchmark 5-year posted rate (the minimum rate used in mortgage stress testing) remains stubbornly high at 5.19%. That’s stymieing untold thousands of Canadians from refinancing.

If you’re wondering what it will take for big banks to drop posted rates, you’re not alone. The Big 6 have kept their posted fives inflated far longer than virtually anyone guessed. Bankers we talk to think more cuts are coming, but they don’t expect major reductions near-term.

Big 5 banks cough up mortgage share

Since 2012, the Big 5’s slice of the Ontario mortgage market is down from 63.2% to 60.6%, according to Teranet.

Meanwhile, credit unions are up from 5.2% to 7.8%. Their share jumped 110 bps in 2018, following the launch of the uninsured stress test. While share gains aren’t completely attributed to the stress test, it’s definitely a contributor. Provincially regulated credit unions remain the most cost-effective alternative for prime borrowers who can’t pass the federal mortgage stress test.

Note: Teranet reports on Ontario data only, but as the most populous province the numbers are reasonably representative.

Banks Ratchet up Competitiveness

There are just two and a half months left in the fiscal year for banks to hit their annual mortgage targets. And we’re still hearing some banks are behind on those targets.

Given that and bank’s market share losses, it wouldn’t be surprising to see them get more aggressive. And, based on anecdotal cases, that’s exactly what’s happening. We’re aware of three big banks that have increased mortgage sales incentives. They’re offering both better rates and compensation. They’re also keeping the pot sweet for consumers by extending big cash rebates (up to $2000+), as they have been for weeks.

Rate Nuggets: Miscellaneous Mortgage & Housing Reads

• North American rates could have another 40-65 bps to fall, say analysts
• Half of Canadians don’t trust professionals to bail them out of debt
• The wind-down of the petrol era has deflationary implications (which could weigh on rates long-term)
• Fed cuts during 3.7% unemployment are almost unprecedented.

Quotable: “I asked officials from the Department of Finance how they reached the 100,000 number [for estimated First Time Home Buyer Incentive adoption]. They told me that the CMHC gave it to them. When I asked Evan Siddall [CMHC’s CEO] where he got the number from, he said the Department of Finance provided it.”—MP Tom Kmiec (More on that story…)