Weekly Digest

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August 6th, 2024

Partner Trip for 2025

April (Spring) 2025, our annual realtor trip will be held in Nashville, Tennessee.

Qualifying is easy. Send $1,500,000 in total closed mortgage business to automatically qualify.

To date, we have 3 realtors who have already qualified.

A Weekend Whirlwind

Timeline of Events:

1.     US job report released on Friday.

2.     Recession fears realized, causing radical repricing of the Fed interest rate cut expectations.

3.     Wall street’s fear gauge caused investors to sell off stocks, and shift to safer investments.

4.     This triggered panic buying of bonds.

• Aggressive bond purchase —> higher bond prices —> lower bond yields

(1) U.S Job Data

Bad economic news is usually good for mortgage rates. On Friday, the US Unemployment rate rose to 4.3% on a market consensus of 4.1%.  Non-farm Payroll Numbers came in 61,000 light of market expectations and revisions from the prior 2 months lost a further 29,000 jobs.

(2) Stock Market

Stock markets are in turmoil and bond yields have plunged as fears about a US recession have taken hold. While Canadians were enjoying a day off work yesterday, the sentiment damage is done. Now markets wait for the next shoe to drop.

There’s been a radical re-pricing of Fed rate cut expectations. Funds futures are now pricing in about 125 BpS of cuts this year, up from closer to 75 bps after the Fed’s meeting on Wednesday.

The US Fed’s response will be determined by two factors

• A. the extent to which downside risks to the real economy materialize

• B. whether the sharp sell-off in financial markets causes something to break.

Looking back four decades, two-year U.S. yields have never been so far below the policy rate. It’s a big neon warning sign flashing “Fed cuts incoming.” The market is signaling that the U.S. economy is in trouble, which means the Canadian economy is also in trouble.

Traders are now pricing in a cut in Canada at each of our next 3 meetings.

How quickly things change!

(3) / (4) Yields Make History

The week ending August 2nd the US 10-year yield dropped 41 BpS (9.80%). This is only the 3rd time since 1962 we have seen this large of a drop in a single week over week comparison. The other 2 events were the Global Financial Crisis and 1987 stock market crash.

Bond traders are piling into bets that the US economy is on the verge of deteriorating so quickly that the Federal Reserve will need to start easing monetary policy aggressively. This could occur before their next scheduled meeting to help head off a recession.

Previous worries about the risk of elevated inflation have virtually disappeared. Traders now see a roughly 60% chance of an emergency 0.25% cut within one week.

U.S Yields

US 10 Year Treasury Yields

• July 29th Open = 4.194%

• August 4th = 3.728% (New 52 Week Low)

• August 6th = 3.822%

Canada Bond Yields

5 Year Government of Canada Bond Yields

• July 29th Open = 3.241%

• August 2nd Close = 2.893% (52 Week Low)

• August 6th = 2.939%

Fixed Rates

Fixed rates will most certainly be dropping over the coming weeks. Having said this, banks do not rush to lower their rates as soon as the bond yields go down.

Banks aren’t known for haste during market upheavals and widening bank credit spreads (typical in shaky markets) often postpone rate improvements. This is especially true in the uninsured/conventional sector and will be the case this week.

Bank spreads are now the highest they have been all year.

Variable Rates

Taking a variable rate seams like the obvious answer moving forward.

1. Wait for banks to lower fixed rates and lock in at a later date.

2. Aggressive cutting scheduled in 2024 and into 2025 in both Canada and the US. which will help ease both sides of the balance sheet.

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 4.89%

• 3 year fixed, 30 yr amortization – 5.09%

• 2 year fixed, 30 yr amortization – 6.00%

• 5 year variable, 30 yr amortization – Prime – 0.90% = 5.80%

• 5 year fixed, 25 yr amortization – 4.79%

• 3 year fixed, 25 yr amortization – 4.99%

• 2 year fixed, 25 yr amortization – 5.95%

• 5 year variable, 25 yr amortization – Prime – 0.95% = 5.75%

INSURED

• 5 year fixed, 25 yr amortization – 4.49%

• 4 year fixed, 25 yr amortization – 4.54%

• 3 year fixed, 25 yr amortization – 4.64%

• 5 year variable, 25 yr amortization – Prime – .95% = 5.75%

Fast Facts

• 25 years – The shelf life of freeze-dried food sold at Costco known as the “apocalypse” emergency dinner kit that has gone viral online.

• 3,200 – The number of new words added in the Cambridge Dictionary this year. They include words like “the ick”