MLN NewsStream

In the week ended August 2, the U.S. 10-year yield plunged 41 bps. That's a 9.8% drop in percentage terms, as measured against the yield the week before.

How often does the 10-year Treasury yield belly flop 9.8%+ and 41 bps in a single week?

How about only three other times since 1962?!

This statistic should have eyebrows hitting hairlines. In MLN's latest Mortgage Minute, we break down why this seismic shift matters for Canadian mortgagors.
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What we're staring at above is Canada's 5-year yield, which cascaded 72 bps in just 29 days. It's the first time we've closed under 3% since May 2023.

Yield drops like this are as common as a one-handed economist, and multiple factors are fueling the tailspin:

Effective today, 30-year amortizations are back for high-ratio borrowers. It's their first sighting since going extinct in 2012.

Given that 30-year insured ams. are exclusive to newbie buyers purchasing freshly-built homes, many mortgage originators are wondering, "How can I effectively promote this program?"

Below are eight tactics to help do just that—and fire up your insured purchase business:

The purpose of higher policy interest rates is to lower inflation. But when the Bank of Canada hikes rates, it also pumps up the single biggest driver of inflation: mortgage interest costs.

Essentially, the Bank is keeping inflation 'inflated' because of its very own actions. If Alanis Morissette wrote a song about this, it would probably be called 'Ironic.'

Unlike most of its global peers, the Bank of Canada lets mortgage interest costs directly influence the consumer price index it targets. And those costs just rose at their fastest clip ever in the latest hiking cycle.

Even with today's lowest "A" lender rates, getting positive cash flow out of most new rentals is like milking a stone. And, it gets that much harder when you borrow at non-prime rates north of 6%.

That's partly why elevated rates are hammering investor-heavy pockets of Canadian real estate (case in point: Toronto condos).

The bad news is that people are starting to dump Toronto condos like stolen goods. The good news is that opportunities will come of it. History shows that when Canadian housing markets with high net migration get battered, they typically (not always) bounce back strong, often with V-shaped bottoms.

Zero in on the GTA, for example, where fear of a condo market crash is being stoked by:

• Plummeting condo sales
• Record condo resale listings
• Soaring rental listings
• 81% of mortgaged investors bleeding cash in the first half of 2024, according to an Urbanation-CIBC report last week.
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When people say GTA condo sentiment is bearish, they don't mean Winnie the Pooh bearish; they mean ferocious Kodiak bear on a bad day bearish.

And that's precisely what you want to see as a new investor playing the long game, because rates won't always be this high.
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Calculating well-capitalized investors look past short-term drama to long-term fundamentals. They know that with:

• Dipping rates
• Sturdy, albeit slowing, population growth
• A future crimp in supply thanks to today's slack in condo projects, and
• Solid rents...
  
  ...the market will bottom out—thus setting up a potential once-in-a-decade entry point for well-prepared buyers ready to pounce in the right places.

Who knows when it'll happen (perhaps by sometime next year?), but real estate investors will ultimately spot the tell-tale signs of a turnaround: stabilizing prices, rebounding sales volume, decreasing inventory, and the media easing off apocalyptic reporting.

When that shift happens, investors will want to have financing lined up. Bargains are easier to snag if you're fast and buy without conditions.

For the cream-of-the-crop borrowers (e.g., those with less than a 44% #TDS#, 20% down from their own savings, etc.), that's no concern.

But imagine sauntering into a Big 5 bank, then asking that bank to finance a rental in a company name at 80% LTV, with salaried income, a 60% TDS and a gifted down payment.

You might as well ask for a map to Blackbeard's Treasure while you're at it.

The question: Where do salaried investors, constrained by traditional underwriting limits, turn for rental financing?

The solution: One option is to pay a tad more and snag a deal with an alternative lender. Both Home Trust and Equitable entertain rental deals for salaried borrowers who need underwriting flexibility. Here's how their programs stack up and when they make sense: