Another spring mortgage market is upon us. The snow is melting, the days are getting longer and homebuyers are starting to wake from their winter slumber. So what are some of the key themes bubbling up in advance of the 2014 spring mortgage season?
We see two issues emerging that are worthy of some examination.
How low can we go?
They’re baaaaaaack…the sub 3.0% mortgage campaigns have reemerged in advance of the critical spring market. Two key questions we should ask: are these rates sustainable and how long will they last?
Unlike the spring market of 2013, today’s mortgage rates are not as well supported by the benchmark Government of Canada 5-year bond yields. As illustrated by the graph, there has been a distinct tightening of spreads between the deeply discounted mortgage rates and the benchmark bond from 170 basis points in April 2013 to 125 basis points in April 2014. Obviously, this will have a negative impact to business profits. Is this sustainable? Not likely.
However, the industry is changing. It appears there is more support in the mortgage business to cross-sell other products and services. This could help maintain low rates for customers while keeping a healthy bottom line.
For Better or Worse
Artificially low interest rates beg the fundamental issues of housing affordability and the overall health of the mortgage industry. Although concerns with an overheated mortgage market have generally subsided, certain regional pockets continue to outpace and influence the overall market trends.
With a return to ultra-low interest rates, is there a chance that additional stimulus will be added to a market generally viewed as being over-valued? This is a real possibility as the market could still be in line for correction as opposed to any meaningful progression. As a result, growth will be hard to come by as lenders ramp up their mortgage campaigns with deeply discounted mortgage offerings.
From the perspective of our credit union partners, successfully managing the risk of the spring mortgage market will be to ensure the appropriate interest rate risk (that is, hedging) measures and funding solutions (that is, securitization) are in place to enhance competitiveness and to win market share.
Your Concentra team of experts is here to help you!
Ryan Graham, VP, Residential Markets and Securitization