Are You Making Assumptions

Optimistic News

Ali Jamal, a Mortgage Broker, from Dominion Lending Centers, sent over a nicely packaged news letter a part of which discusses ‘Canadian Mortgage Optimisim.’

Quoting liberally from the Canadian Association of Accredited Mortgage Professional’s ‘Annual State of the Residential Mortgage Market’s’ 5th edition survey, released in November, Mr. Jamal in his letter has these things to say:

• Canadians are positive about house prices, and attitudes about whether this is a good time to buy a home have never been higher in the three years that CAAMP has surveyed on that question. The overwhelming majority of those surveyed (40%) expect house prices to go up, which is more than double the opinion of those surveyed in spring 2009 (18%).
• Most Canadians are optimistic and believe now is a good time to purchase a home, setting a record-high national average of 6.56 out of 10, up almost a full point from 5.58 last fall. Ontarians are most positive at 6.82, while Saskatchewan residents, who have seen house prices increase rapidly, are most negative at 6.05.

Good News

Significant Things

• Overall, Canadians remain very satisfied with their current mortgage, with 77% either completely satisfied or satisfied. The top reason cited is the mortgage rate, which averaged 4.55% this past year – a dramatic decline from 5.41% last year.
• Canadians in provinces that have felt the greatest effect of the recession are also the most optimistic about the increase in house prices – 42% of people in Ontario, 43% of people in Alberta and 47% of people in British Columbia feel that house prices will increase in the next year.
• Two-thirds of all mortgages are fixed for terms of four or more years, with five-year terms remaining the most popular at 56%. But many people who took out a mortgage in the past year chose a shorter term, with 20% at one year or less.
• 68% of mortgage holders have fixed-rate mortgages, while 27% have variable- and adjustable-rate mortgages. Fixed-rate mortgages are the most popular among people between the ages of 18 and 34, while those in the 55+ age group are more likely to opt for variable-rate mortgages.

Reading the above from the survey, suggest that almost everybody surveyed (about 2000), have drunk from the cup of cheap interest rates.

Bothersome Assumption

“The survey data allows for a simulation of the impact of future renewals. Based on current market interest rates, at their next renewals most borrowers (69%) will see reductions in their mortgage interest rates; 28% would see increases and 2% would see no change. If rates remain at current levels, the net outcome would be a reduction of $480 million per month in interest costs, or about $5.75 billion per year, once all mortgages are renewed.”

The Odds

On Oct. 22, 2009, Mark Carney, the main man at the Bank of Canada lead the pack of every major bank saying in effect, that interest rates will increase by Q3 of 2010. The question then is, why would this cabal of mortgage experts posture an assumption that future renewals should be based on current market interest rates? Isn’t it clear that in virtual unison, those who actually lend the money, have clearly said ‘rates will be higher’? If you were rolling the dice how optimistic would you be? What’s the percentage that your assumption would be correct?

*Disclaimer: Information courtesy of Ali Jamal – Dominion Lending Center, Canadian Association of Accredited Mortgage Professionals. Infomation referenced while believed to be accurate is not guaranteed.

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