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I had to laugh when I read an article titled BoC’s interest rate warnings drove homeowners to lock in mortgages: Carney. Thanks for the lip service Mr. Carney!
“Mr. Carney said there is already evidence that Canadian consumers, who have one of the highest debt-to-income ratios in the world, are taking warnings of looming rate hikes seriously. As evidence, he pointed to the mortgage market, in which he says the share of fixed-rate mortgages in Canada has almost doubled to 90% this year, while variable-rate mortgages have seen a corresponding decline. Consumers tend to hover toward variable-rate mortgages when they expect interest rates to be low for a very long time.”
Mr. Carney is right about one thing, Canadians do carry a high amount of debt. While Mr. Carney speaks of Canadians getting the hint resulting in slower growth in the mortgage market, TransUnion’s (one of Canada’s cedit reporting agencies) quarterly analysis shows that consumer non-mortgage related debt jumped 4.6% year-over-year to $26,768. “It’s almost been two years and it’s the largest year-over-year increase we’ve had and I think it’s the largest quarterly increase we’ve had during that time period as well,” said Thomas Higgins, TransUnion’s vice-president of analytics and decision services.
How about the fact that the mortgage policy changes of the past, as it pertains to qualifying, is forcing a large number of consumers into fixed rate terms 5 years or greater. Oh, and Mr. Carney didn’t mention the fact that the deep discounts offered on the variable/adjustable rate products were significantly cut back in April of 2011 due to the crisis in the Euro zone and the US debt ceiling issue know today as the “Fiscal Cliff“. With an average variable/adjustable rate of Prime minus .10% or 2.90% today vs. a 5 year fixed rate of 2.99%, the spread of .09% is so small leaving more risk than reward.
While Mr. Carney would like to appear as Canada’s savor, I really think he needs to speak with sources closer to the front lines. Any changes in Canadian mortgage borrowing habits are as a direct result of changes in mortgage lending policy, not continuous rambling of the obvious. That said, I’d like to give Mr. Carney some credit, after all, he is a politicain.