Weekly Digest

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October 6th, 2023

After a week off last week to run the Berlin Marathon, we are back with our weekly newsletter.

If you have any questions, do not hesitate to reach out.

Prost!

Fixed vs Variable Rates – Up for Debate

Have you heard this before? Fixed rates are on the rise. The Canada 5 year government bond continues to surge, with no immediate end insight. We are at levels we have not seen since 2006.

The spread between a 5 yr fixed and variable rates is the narrowest we have seen in many months. Based on short term projections, taking a 5 year variable now becomes a popular strategy again.

5 yr variable rates are sitting in the high 6% range for conventional funding. That same 1 or 2 year rate is in the low 7% range. If the strategy is to wait out rates for the next 24 months, 5 variable looks has an advantage to gain immediate lower payment relief, and longer term flexibility.

The below chart shows the two top points of said 5 year bond. The first circle is 2006 and the second circle is today.

The average cost of a Toronto detached home in 2006? $367,000.00
The average cost of a Toronto detached home in 2023? $1,120,000.00

Affordability

Wondering why there are less transactions? Take a look at the below affordability constraints for new borrowers.

Each time fixed rates jump, affordability is constrained. The stress tests remains at +2.00% over the end rate for the borrower, which brings us well into the 8% range (sometimes higher than 9%). This example was making its way around twitter this week, and it speaks to just how hard it is to purchase (and qualify) for a home is in the major urban markets in Canada.

Lets use the example of Mrs. Connolly. She makes $100,000/year and has 20% down. No other debt and takes a 30-year amortization

• In September 2016 = qualify for a $796,000 mortgage at 2.34%

• In February 2022 = qualify for a $598,000 mortgage at 5.25%

• Today = $466,000 mortgage at 8.14%

Even at $200,000 of household income, that is only a $932,000 mortgage. This would get you into an entry level free hold home in Toronto.

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 6.44%

• 3 year fixed, 30 yr amortization – 6.81%

• 5 year variable, 30 yr amortization – Prime – 0.20% = 7.00%

• 5 year fixed, 25 yr amortization – 6.34%

• 3 year fixed, 25 yr amortization – 6.71%

• 5 year variable, 25 yr amortization – Prime – 0.30% = 6.90%

INSURED

• 5 year fixed, 25 yr amortization – 5.94%

• 4 year fixed, 25 yr amortization – 6.04%

• 3 year fixed, 25 yr amortization – 6.49%

• 5 year variable, 25 yr amortization – Prime – .90% = 6.30%

Fast Facts

• 184,400. The number of people Alberta added to its population since last year, a jump of ~4%. It’s the highest annual net interprovincial gain ever recorded.

• 636 kg – The estimated weight of Bear 747, the defending champion at Fat Bear Week, Alaska’s annual tournament celebrating bear heft in preparation for winter hibernation. Its bulking season.

• 200 years – That’s the approximate age of a famous tree at the Roman landmark Hadrian’s Wall that was ripped up in an act of vandalism. A 16-year-old boy has been arrested.