The contest to entice every last warm body to reach for the most over-valued real estate in the world has reached a new fevered pitch in Canada. Here is a direct video link.
A little appreciation of math goes a long way here. As shown in this Bank of Canada chart the average 5 year mortgage rate has never been less than 4% and on average has been in the 8% range since 1951. So pushing 5 year mortgage rates to 2.99% is a desperate effort by banks to push more borrowing on to Canadians who are already struggling under the highest debt levels in the history of the country; and significantly higher than the US faced at the peak of their credit bubble in 2006.
When rates finally begin to normalize, they can only trend higher as borrowing costs revert back toward the long term mean. The chart below gives a glimpse of what that will look like for the current average Canadian home price of $406,000 with a 5% down payment. A monthly payment at a rate of 2.99% becomes 29% more expensive at 6% and 50% higher at 8%.
On top of that, the coldest winter in 25 years has now locked in natural gas rates 40% higher for households beginning April 1. See: Enbridge’s 40% gas hike approved by regulators.
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A little appreciation of math goes a long way here. As shown in this Bank of Canada chart the average 5 year mortgage rate has never been less than 4% and on average has been in the 8% range since 1951. So pushing 5 year mortgage rates to 2.99% is a desperate effort by banks to push more borrowing on to Canadians who are already struggling under the highest debt levels in the history of the country; and significantly higher than the US faced at the peak of their credit bubble in 2006.
When rates finally begin to normalize, they can only trend higher as borrowing costs revert back toward the long term mean. The chart below gives a glimpse of what that will look like for the current average Canadian home price of $406,000 with a 5% down payment. A monthly payment at a rate of 2.99% becomes 29% more expensive at 6% and 50% higher at 8%.
On top of that, the coldest winter in 25 years has now locked in natural gas rates 40% higher for households beginning April 1. See: Enbridge’s 40% gas hike approved by regulators.
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