文章內容
2013-09-07 01:20:58August 30, 2013
Rate Hikes and Housing: TD Research
rates-mortgagesIn just a few short months, long-term mortgage rates have burst higher by almost ¾ of a percentage point.
People naturally want to know if the hikes are sustainable, and how they’ll affect the overall housing market.
TD Economics weighed in on these points in a report last week. Here’s a quick overview of the implications TD foresees, and some observations of our own…
Future Rates: TD projects a 2.25 percentage point jump in 5-year bond yields by 2017. That would peg 5-year fixed rates at roughly 5.74%. Given economists’ poor forecasting record, this number is a pure shot in the dark. But it’s still a worthwhile number to use when stress testing your mortgage. That aside, one TD assertion that most would agree with is that future rate “increases are expected to be…gradual.”
Securitization: The report notes that, “…The recently-announced changes to the amount of mortgage backed securities that will be guaranteed by CMHC will…lead to somewhat higher costs in funding for financial institutions.” As we wrote on August 6th, this impact won’t be extreme for most lenders (and consumers).
The Variable Advantage: TD concludes that even if one assumes an abnormally high variable rate like prime + 1.00%, a variable-rate mortgage has still “yielded a lower average interest rate over a five year term (than a 5-year fixed) since the late 1990s.”
The Best Rate Forward: According to TD’s analysis and rate projections, “…Locking into a 5-year mortgage rate would yield the lowest average interest rate over the next five years.” But TD analyzes just four other term scenarios including a 5-year variable and five consecutive 1-year terms. TD’s report does not touch on options like the 4+1 strategy (i.e. choosing a 4-year fixed and renewing into a 1-year fixed).
The 4+1 is a decent play today with 4-year fixed terms near 3.09% (i.e., 30 bps below most five-year fixed offers). If you do the math, one-year rates would need to be above 4.80% at renewal for a 5-year fixed to beat the 4+1 strategy. That’s over two points higher than today, which makes it a good gamble given how modest inflation and growth have been (and are projected to be).
screenshot
(Source: TD Economics)
Rate Impact on Housing: TD’s research finds that “every 1 percentage point increase in interest rates leads to an immediate increase in sales of 6 percentage points as buyers rush to take advantage of lower rates, followed by a 7% decline in the months that follow. Hence, the net impact is a 1 percentage point permanent decline in existing home sales due to every 1 percentage point increase in interest rates.” By our calculations that’s about 4,500 lost sales a year per 1 point of rate hikes (based on CMHC’s sales projections). That is not catastrophic by any stretch, and frankly it seems like an underestimate, if anything.
Income Gains: TD expects that 3-4% income growth will “help offset much of the impact of gradually rising rates”
Mortgage Affordability: The report states, “…Affordability using the 5-year posted rate (is) at the worst it has been in almost 13 years. And, if 5-year interest rates were at more normal levels of around 7%, housing would be unaffordable to the average Canadian household.” There’s just one caveat. That statement is based on posted rates (i.e. those rates that no one pays). “Using the 5-year special mortgage rate, housing affordability in this country is actually at its most favourable level since early 2000’s,” TD says. How long it remains that way is another question. Complacency can be devastating to one’s budget, so mortgage stress testing is once again key here.
Here is TD’s full report link if you’d like to read more.
Rate Hikes and Housing: TD Research
rates-mortgagesIn just a few short months, long-term mortgage rates have burst higher by almost ¾ of a percentage point.
People naturally want to know if the hikes are sustainable, and how they’ll affect the overall housing market.
TD Economics weighed in on these points in a report last week. Here’s a quick overview of the implications TD foresees, and some observations of our own…
Future Rates: TD projects a 2.25 percentage point jump in 5-year bond yields by 2017. That would peg 5-year fixed rates at roughly 5.74%. Given economists’ poor forecasting record, this number is a pure shot in the dark. But it’s still a worthwhile number to use when stress testing your mortgage. That aside, one TD assertion that most would agree with is that future rate “increases are expected to be…gradual.”
Securitization: The report notes that, “…The recently-announced changes to the amount of mortgage backed securities that will be guaranteed by CMHC will…lead to somewhat higher costs in funding for financial institutions.” As we wrote on August 6th, this impact won’t be extreme for most lenders (and consumers).
The Variable Advantage: TD concludes that even if one assumes an abnormally high variable rate like prime + 1.00%, a variable-rate mortgage has still “yielded a lower average interest rate over a five year term (than a 5-year fixed) since the late 1990s.”
The Best Rate Forward: According to TD’s analysis and rate projections, “…Locking into a 5-year mortgage rate would yield the lowest average interest rate over the next five years.” But TD analyzes just four other term scenarios including a 5-year variable and five consecutive 1-year terms. TD’s report does not touch on options like the 4+1 strategy (i.e. choosing a 4-year fixed and renewing into a 1-year fixed).
The 4+1 is a decent play today with 4-year fixed terms near 3.09% (i.e., 30 bps below most five-year fixed offers). If you do the math, one-year rates would need to be above 4.80% at renewal for a 5-year fixed to beat the 4+1 strategy. That’s over two points higher than today, which makes it a good gamble given how modest inflation and growth have been (and are projected to be).
screenshot
(Source: TD Economics)
Rate Impact on Housing: TD’s research finds that “every 1 percentage point increase in interest rates leads to an immediate increase in sales of 6 percentage points as buyers rush to take advantage of lower rates, followed by a 7% decline in the months that follow. Hence, the net impact is a 1 percentage point permanent decline in existing home sales due to every 1 percentage point increase in interest rates.” By our calculations that’s about 4,500 lost sales a year per 1 point of rate hikes (based on CMHC’s sales projections). That is not catastrophic by any stretch, and frankly it seems like an underestimate, if anything.
Income Gains: TD expects that 3-4% income growth will “help offset much of the impact of gradually rising rates”
Mortgage Affordability: The report states, “…Affordability using the 5-year posted rate (is) at the worst it has been in almost 13 years. And, if 5-year interest rates were at more normal levels of around 7%, housing would be unaffordable to the average Canadian household.” There’s just one caveat. That statement is based on posted rates (i.e. those rates that no one pays). “Using the 5-year special mortgage rate, housing affordability in this country is actually at its most favourable level since early 2000’s,” TD says. How long it remains that way is another question. Complacency can be devastating to one’s budget, so mortgage stress testing is once again key here.
Here is TD’s full report link if you’d like to read more.
RBCJASONWANG 說道: 無題
2013-09-07 01:21:17
www.td.com/document/PD...Canada.pdf
RBCJASONWANG 說道: 無題
2013-09-07 01:22:06
浮動利率 。
RBCJASONWANG 說道: 無題
2013-09-07 01:24:39
就是習慣性的參考數據而已。 考慮看看4+1 也是OK. 的。
commonsense 說道: Re: rate hikes and housing - td research
2013-09-07 02:21:02
Rate Hikes and Housing: TD Research
rates-mortgagesIn just a few short months, long-term mortgage rates have burst higher by almost ¾ of a percentage point.
People naturally want to know if the hikes are sustainable, and how they’ll affect the overall housing market.
TD Economics weighed in on these points in a report last week. Here’s a quick overview of the implications TD foresees, and some observations of our own…
Future Rates: TD projects a 2.25 percentage point jump in 5-year bond yields by 2017. That would peg 5-year fixed rates at roughly 5.74%. Given economists’ poor forecasting record, this number is a pure shot in the dark. But it’s still a worthwhile number to use when stress testing your mortgage. That aside, one TD assertion that most would agree with is that future rate “increases are expected to be…gradual.”
Securitization: The report notes that, “…The recently-announced changes to the amount of mortgage backed securities that will be guaranteed by CMHC will…lead to somewhat higher costs in funding for financial institutions.” As we wrote on August 6th, this impact won’t be extreme for most lenders (and consumers).
The Variable Advantage: TD concludes that even if one assumes an abnormally high variable rate like prime + 1.00%, a variable-rate mortgage has still “yielded a lower average interest rate over a five year term (than a 5-year fixed) since the late 1990s.”
The Best Rate Forward: According to TD’s analysis and rate projections, “…Locking into a 5-year mortgage rate would yield the lowest average interest rate over the next five years.” But TD analyzes just four other term scenarios including a 5-year variable and five consecutive 1-year terms. TD’s report does not touch on options like the 4+1 strategy (i.e. choosing a 4-year fixed and renewing into a 1-year fixed).
The 4+1 is a decent play today with 4-year fixed terms near 3.09% (i.e., 30 bps below most five-year fixed offers). If you do the math, one-year rates would need to be above 4.80% at renewal for a 5-year fixed to beat the 4+1 strategy. That’s over two points higher than today, which makes it a good gamble given how modest inflation and growth have been (and are projected to be).
screenshot
(Source: TD Economics)
Rate Impact on Housing: TD’s research finds that “every 1 percentage point increase in interest rates leads to an immediate increase in sales of 6 percentage points as buyers rush to take advantage of lower rates, followed by a 7% decline in the months that follow. Hence, the net impact is a 1 percentage point permanent decline in existing home sales due to every 1 percentage point increase in interest rates.” By our calculations that’s about 4,500 lost sales a year per 1 point of rate hikes (based on CMHC’s sales projections). That is not catastrophic by any stretch, and frankly it seems like an underestimate, if anything.
Income Gains: TD expects that 3-4% income growth will “help offset much of the impact of gradually rising rates”
Mortgage Affordability: The report states, “…Affordability using the 5-year posted rate (is) at the worst it has been in almost 13 years. And, if 5-year interest rates were at more normal levels of around 7%, housing would be unaffordable to the average Canadian household.” There’s just one caveat. That statement is based on posted rates (i.e. those rates that no one pays). “Using the 5-year special mortgage rate, housing affordability in this country is actually at its most favourable level since early 2000’s,” TD says. How long it remains that way is another question. Complacency can be devastating to one’s budget, so mortgage stress testing is once again key here.
Here is TD’s full report link if you’d like to read more.
看完TD的報告,重點是以下兩句:
5-year VIRM Current 3.0 2015 4.0
預測,5-year VIRM Rate Discount 在2015比現在高。
Conclusion:2 年fixed, Thereafter 5-year VIRM 可能最佳。
老莊 說道: 無題
2013-09-07 09:56:50
www.td.com/document/PD...Canada.pdf
報告解釋不通80年代按揭上升到17-19厘,房價才倒吧?
Jason你經歷過80年代嗎?我相信TD的分析師也沒經歷過,所以說報告是一派胡言。
老莊 說道: Re: rate hikes and housing - td research
2013-09-07 10:03:39
你們銀行也沒有提高存款利率,只是借口Bond Market的波動,提高按揭的利率,賺取更大的回報。你們這樣做不可恥嗎?你們並不是都用Bond Market的錢fund
按揭,還有很大部分來自於居民存款。
Buswell牙牙 說道: 無題
2013-09-07 10:52:53
RBCJASONWANG 說道: 無題
2013-09-07 15:10:57
And how do you choose whether to go short or long term on your mortgage when it comes up for renewal?
By Alberta Cefis and Roberta Hague, authors of "The Truth About Mortgages", a guide to help Canadians become better borrowers.
=============================
Variable rates are tied to your bank's prime rate, which is based directly on the Bank of Canada rate. The Bank of Canada is our central bank, operating at arm's length from the federal government. The central bank uses its rate as a tool to achieve the goals of "Low and stable inflation, a safe and secure currency, financial stability, and the efficient management of government funds and public debt." Our central bank sets the trend for short-term interest rates and has a direct impact on short-term rates for mortgages and lines of credit, as well as rates paid on deposits and investment certificates.
Fixed-term rates, such as long-term mortgage rates, by contrast, are based on the bond market. Generally, a bond is a debt with a promise to repay the principal of that debt, along with interest. Bonds are issued by governments and large businesses. We've all heard of Canada Savings Bonds, right? And they are just one type of bond. The "yield" of the bond is the annual rate of return, expressed as a percentage. Bond yields can be volatile and fluctuate in response to various political and economic factors, such as inflation and unemployment figures, and developments in the stock markets. They are increasingly affected by global forces. Long-term mortgage rates (3 years and longer) are based on bond yields, but are less volatile because financial institutions absorb the daily market fluctuations in order to create a more stable rate environment for their customers. Generally speaking, higher bond yields increase funding costs for banks, which in turn leads to increased long-term fixed rates. Conversely, lower bond yields lower banks' funding costs and lead to lower long-term mortgage rates.
So, short-term rates move with the Bank of Canada's needs, while longer-term rates are tied to the bond market. The Bank of Canada can influence long-term rates, but it has no direct control over them. This difference in how rates are set is the reason we sometimes see short-term and long-term rates moving in unison, while at other times they diverge.
If it seems difficult to choose between a fixed and variable or long and short mortgage, you don't necessarily have to choose. Perhaps the easiest and best solution is to break your mortgage into pieces and diversify your borrowing across short and long terms. This is mortgage "laddering," a concept Canadians know and use to stagger their GIC maturities for diversification, but which surprisingly few of us use for our mortgages. Diversification is an important principal that applies as much for borrowing as it does for investing. By blending different types of mortgages and staggering maturities, you can diversify your interest rate risk, and perhaps minimize your interest costs.
RBCJASONWANG 說道: 無題
2013-09-07 15:16:17
這個是事實不用爭辯。
VAR RATE 才和央行PRIME RATE
掛鉤。
兩回事。
銀行貸款加息不是一個
讓股東興奮的好消息。
主要是成本增加,
水漲船高。 利潤空間
還是差不多。
老莊 說道: Re: rate hikes and housing - td research
2013-09-07 17:13:40