BMO Advises Potential T.O. Condo Buyers to Rent?!

Is this in-line with BMO mortgage advisers' recommendations? ; )

BMO Capital Markets Economics Senior Economist Mr. Sal Guatieri:
Aug 23, 2013
"For people looking for a place to live, unless you believe prices can keep pace with inflation in
coming years—a dubious prospect given the oncoming supply—you are probably
better off renting"
http://www.bmonesbittburns.com/economics/focus/recent/130823doc.pdf

RBC's "qualifying rate" for now is still 5.14%

Below is the reply from a RBC Mortgage Advisor re: which rate they use as qualifying rate:

============================

FOR HOMELINE PLAN APPLICATION WE ARE 
STILL USING 5.14% TO QUALIFY CLIENT 
TRYING TO CONTROL TDS AT 40ISH%

THIS QUALIFYING RATE GETS UPDATE
EACH DAY BUT NOT NECESSARLY EQUALS
TO THE 5YR FIX POST RATE. 

============================

FOR CONVENTIONAL MTG APPLICATION, 
IF THE RATE PROPOSED ON APPLICATION IS 
1/2/3/4 FIX RATES, RBC IS USING 5.14% TO 
QUALIFY THE CLIENT. YET, FOR 5+YR FIX 
RATE APPLICATIONS WE CAN USE THE ACTUAL 
RATE OFFERED TO THE CLIENTS. 

=============================


SO, IF YOU TRY TO MAX OUT YOUR BORROWING
POWER, YOU SHOULD GO FOR 5YR FIX W/ 
MAX 30 YR AMT'N. 

==============================


INSU OR CONVENTIONAL DEAL DOESN'T MAKE A DIFFERENCE.

Is Bank of Canada Qualifying Rate heading up?

To follow up on my post yesterday on RBC raising 5-year Posted Rate:

Here's an article by CMT:

"August 21, 2013

“If a few more banks follow RBC’s lead, the benchmark qualifying rate will rise accordingly. That would mark the first increase in the benchmark rate in more than 500 days (since April 2012).

A higher benchmark rate makes it tougher to qualify for a variable, HELOC or 1- to 4-year fixed term.”

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/08/higher-rates-dont-mean-panic.html

RBC hiked 5 year Special AND Posted rates (Qualifying rate?)

1. Special Offer Rates*

Four-year closed	3.59 per cent	(increased by 0.20 per cent)
Five-year closed	3.89 per cent	(increased by 0.20 per cent)
Seven-year closed	4.19 per cent	(increased by 0.20 per cent)
Ten-year closed	4.59 per cent	(increased by 0.30 per cent)

2. Fixed Rate Posted Rates

Three-year closed	3.95 per cent	(increased by 0.20 per cent)
Four-year closed	4.74 per cent	(increased by 0.20 per cent)
Five-year closed	5.34 per cent	(increased by 0.20 per cent)

LINK

5 year posted rates = Qualifying rate.
The question is, is Qualifying rate set by Bank of Canada's 5y posted rates, or individual banks' 5y posted rates.
Can impact both fixed and variable rate borrowers.

"Don't time the market" ?

With regards to “Don’t time the market”, I think this “truism” applies more toward the type of investment that allows buying in small quantities over time (dollar cost averaging), i.e. stocks.

In RE however, when pumpers say “Don’t time the market,” it’s akin to your stock broker telling you “anytime is a good time to borrow 5x your annual pre-tax income to invest in a single stock (something like Rona), with a P/E ratio of 40, negative outlook, and $40,000 commission to sell.

Unless you have the means to purchase a few properties every year for the next 10-20 years, you can’t “dollar cost average” property investment (unless you’re looking at REIT, but that’s stocks). 

You have to do your homework and time your “single largest leveraged purchase in your life”.

5 year fixed rates now up almost 1% since the March/April 2013

Current 5y Fixed rates:
BMO:3.59%, TD/RBC: 3.69%.

Back in Apr/13
BMO: 2.69%, TD/RBC: 2.79%

Almost a full percentage point increase in 3-4 months.
We can expect:
- some people with rate-holds (60-120 days) will pull the trigger before they expire.
- more people will go with variable rates, currently at P-0% (big banks)
- however, CMHC MBS rationing will affect rates of both fixed & variable mortgages. I would not be surprised if the P-0% becomes P+?%

August 1-13 Stats

1.
Aug 1-13: 2013 vs 2012:
Sales: +42%
New List: +13%
Inventory: -6%

2.
Aug 1-13 Inventory growth:
2012: 18708->18788 (+0.4%)
2013: 17441->17621 (+1.0%)
Inventory increasing at higher rate than last year

3.
New Listings YoY change
Aug: +13% (vs ’12)
Jul: +11%
Jun: -13%
May: -18%
Interesting to see New Listings picking up pace.
It could mean a few things
A. Sellers trying to catch the end of RE boom.
B. According to some realtors, the main demographic driving Vancouver-proper sales lately are existing home-owners taking advantage of low rate-holds to trade up/down. In order to buy, they have to list first.

If I have to bet, I’ll bet
- Sales noticeably drop off by mid/late September
- Peak inventory occurs in September/October this year.