The “News is Getting Better” Edition

Daily Mortgage Report – May 8

  • Unemployment Surprise: Unemployment is a key determinant of home prices. And while it may seem hard to put a record 2 million lost jobs (StatsCan’s estimate for April) in a positive light, when economists were predicting double that amount, it’s a relief. Canada’s unemployment rate surged to 13%, near the highest in modern data going back to the 1960s (it was ~30% during the depression). And while 2 million was less than we and others feared, “more than one-third (36.7%) of the potential labour force did not work or worked less than half of their usual hours,” said StatsCan.
  • Record Government Support: 7.6 million Canadians have applied for the $2,000/month Canada Emergency Response Benefit (CREB). The government’s hope is that CREB, combined with mortgage/rent deferrals and other extraordinary government subsidies, might get Canada through double-digit unemployment better than in 1982, an era with 20%+ interest rates— albeit far smaller debt loads.


5 Comments

  • Del says:

    Hello,
    My current mortgage is due to be matured on June 26. Current lender’s renewal offer is at 2.59%, 5 year fixed. Whereas a broker offered 2.35%, 5 year fixed, and 2.10%, 5 year variable. Broker doesn’t have HELOC option. I’m okay with that.
    I’m not sure if should chose variable over fixed. Any advice. Much appreciated.

    • The Spy says:

      Hi Del, There are lots more considerations so here’s some reading on fixed vs variable: https://www.ratespy.com/fixed-or-variable-rate-the-decision-checklist-02223752

      Unlike the person I responded to earlier today who had a 74 bp lower variable rate on offer, this case is tougher because the fixed-variable spread is tighter and not as variable-advantageous.

      Regarding 5yr fixed rates, there are lenders at 2.44% (with HELOCs) if that’s of interest. Most people would not give up their HELOC for just a 9 bps savings because unforeseeable needs or opportunities come up that make HELOCs valuable. But if (for example):

      * the broker’s 2.35% 5yr fixed is a full-featured flexible mortgage
      * it has a much better penalty policy
      * the borrower definitely doesn’t need a HELOC
      * there’s a chance the mortgage might need to be refinanced or discharged before five years…

      …then the 2.35% might be worthwhile.

  • Dan says:

    Do you think we see mortgage rates rise with hyperinflation caused by the collapse of the dollar? Smart people seem to believe hyperinflation is an inevitable consequence of the economic bubble that is bursting. Makes me think about locking in to a fixed rate for the first time in 20 yrs. Thanks.

    • The Spy says:

      Hi Dan, The future is a long time so I’ll limit the response to the next five years, which matches the typical mortgage term.

      Post-COVID there will be spurts of high inflation in some sectors, thanks mainly to supply disruptions. But high inflation and hyperinflation are different. Hyperinflation is extreme inflation that is accelerating — often out of control. While a small number of economists may be forecasting high inflation, no reputable economist that I’m aware of expects hyperinflation in Canada in the next five years. With demand being vaporized, most fear deflation far more than hyperinflation.

      The Peter Schiffs of the world may make headlines, and some of their concerns (e.g., runaway deficits) are valid. And *if* the U.S. and Canada were 2nd/3rd world countries without reserve currencies, the market would be a lot more worried. As it stands, if we get above-target inflation at all in the next five years it will very likely be only moderately higher inflation.

  • John says:

    I just got a 3.05% 10 year fixed rate from Scotia…The most likely way for Government to get out of all the debt they are printing is through inflation…

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