Canadian 5 Year Fixed Mortgages – Does 9% sound good to you?
Your banker won’t tell you this…….
Because if he did the board would fire his big, fat, hairy mouth right out the back door. And nobody else will hire him afterwards. But I am more than happy to deliver some bad news to you house-horny Canadians gobbling up debt like its wing night at the local bar. You are really in deep doodle this time. And those who don’t wake up quick will be facing a very difficult date when renewal time comes in the summer of 2025. Because that, my dear indebted reader is when your 5 year fixed could be approaching a shocking 9 percent, an ass-kicking rate not seen since 1995, some three decades in the past. So forget the divorce planning from your idiot spouse.
You can’t afford it anymore.
So how can I be so sure? Well its right on the chart. The long term resistance level on the closely linked 10 year US treasury bond is up in the 7 percent range, almost double where it sits today. To find your Canadian 5 year rate you just mix a scotch, add some ice, say a quick Hail Mary and add 2 points on top. Or something like that. Its bank science doncha know.
And its going break some of you people in pieces. I warned about this recently. I told close friends to lock in long or get the hell out because the Banks were going to eat the entire economy. And guess what? They will. The chart says so. No arguments please. So have a close look at my chart and note the gaping hole between where the 10 Year yield sits today and the future resistance line. That’s where we are really going no matter what the Fed magicians and J. Powell tell you. Actually, we are going over that line but it’s a little bank secret I can’t give away.
So the future is murder. House prices will drop relentlessly while this little nightmare unfolds.
Your retirement plans will wither. Your kids will never leave home.
And just wait till you see the coming credit card rates. Smoking!
LOLOLOL Sir Farmer
Well Researched and extremely well delivered message
You rascal
You are living in a Mud Hut….maybe you can buy a Village and we can all move there.
Sell the mud huts for a 10 bagger and you can be Mayor !
LOL…funny stuff. Yes I live in a mud hut (No I don’t!).
Jokes aside, this is a really disturbing development. Typical monthly mortgages could be a third higher. Stress is going to be high to extreme and consumption numbers will crater. If all your discretionary money ends up going into monthly payments on your home, how in hell are you going to afford new ski boots? Or Wing Nights with that luscious he/she/whatever date you got hooked up with last boozathon? I can tell you how this ends. With a lot less overseas travel, a lot fewer new car purchases and a lot more competition for extra gigs on the side. All while AI and robots eat the juiciest parts of the employment market. Like medical and accounting for starters. So jobs lost, expenses rising, the consumption economy withering and naturally war on the horizon. Ok, now we are in a mood to fight!
So yeah, it won’t end well.
This is brilliant analysis …all kidding aside…You are making TOO much sense Farmer.
Thank you kindly Gary. It’s not just me saying this by the way. Today, St. Louis Fed President James Bullard stated that the Fed Rate should rise to between 5 and 5.25% so we can be certain the future is going to be more costly for money. He is talking up a 50 basis point move coming. But Bullard is not telling the whole story. As usual with Fed Presidents they will just slowly adjust our expectations in stages. If he came right out and stated the FFR was going to 6 or 7 it would crash markets overnight. That is what we have charts for. Guidance is available if you know where to look and we do know how technical charts function so there won’t be any disagreement from technical analysts. Here is the Bullard quote from Reuters:
https://www.reuters.com/markets/us/feds-bullard-even-dovish-policy-assumptions-require-further-rate-increases-2022-11-17/
Tom Luongo has been saying 50 bp raise next and going to 7% …Like YOu are saying
His angle is that with the EU in trouble this will bankrupt then and leave the Fed ( Wall Street and NY banks) in control of the US Monetary system with Davos and friends starved of capital.
Seriously? I am liking that Luongo guy better all the time. Would love to see that video if you have it. But yes, the rate increases are going to cause a flood of money coming back into the US as returns on offer (on the Reserve Currency) are marching higher. Europe will bankrupt. Actually its already bankrupt. Global growth will slow and it is certainly possible a serious recession will appear as Fed policy rates hit hard in developing markets. I have already noted I think this hiking cycle is going to tip China over into outright recession, even blow up some of its banks. They are so much more leveraged that they face dangerous exposure to rate increases that will lead to defaults and their much vaunted housing market there facing its day of reckoning. But no matter how many times we predict an end to the China miracle it seems to keep coming up roses. Maybe this is the lass hurrah. For us however there is money to be made in Eurodollars and interest rate trades. If its your cup of tee. The moves are dramatic. All the serious action is in rates lately and going by that chart there is a lot more action coming. What it does to debt servicing is another story. But WOW.
Depression starts in 2025 and should last at least 3 years.
This will wipe out most of what is left of the middle classes.
There is one last hurrah coming from mid 2023 to late 2024. Last chance to exit, before the big drawdown.
The upside is that the depression will kill funding of wars and destroy the likes of Blackrock.
Excellent point. And it will ruin the prospects of quite a number of the billionaires who are in the process of running a coup against global governments and the people. The faster we ruin the big shots the quicker we will see an end to their sick agenda. Even fat cats can run out of cash. And as most of their wealth is tied to equity markets, real estate and so forth, a sharp downturn in the economy will flatten the wealth curve for most of them. The green agenda runs on a gusher of money and bribery. Take away the punch bowl and its dead in the water. God help us all.
THIS IS LIKE 1980 ON STEROIDS …WILL CASH BE KING AND GOLD BE EMPEROR ?
MANY WERE WIPED OUT IN THE 80S…BUT THOSE WITHOUT LEVERAGE DID GREAT…EVEN MANY OF OUR PEERS JUST WORKED HARDER AND SPENT LESS AND MADE IT THROUGH 16% RATES…I KNOW I WAS THERE
THE MIDDLE CLASS WON’T BT WIPED OUT COMPLETELY …SOME WILL THRIVE AND BRING THE REST ALONG WITH THEM
Hmm. So it’s going to happen only in Canada…..not happening anywhere else in the world. Interesting.
No GMG, the chart is about US Treasury Rates but those reflect directly on Canadian rate setting and the impact then feeds directly to mortgages. The rise in interest rates is global. The Federal Reserve is the rate setting body for pretty much the entire planet. It directly impacts US deniminated debt abroad but also there is the fact that other Central Banks follow the Feds lead.
But I have framed this story in a domestic perspective to make it more meaningful. I don’t live in Canada but this is a Canadian site so I am applying US numbers to your market. Yes you will be impacted. If you have a home there you face a couple of hard choices. You can doubt me and wait until the higher rates come (a bad idea because they inevitably will be much higher) or you can seriously consider selling while this market still has some heat remaining. Your major concern is getting trapped under a pile of debt that starts incurring a higher monthly payment and being unable to get out for what you figured your pile of lumber is really worth.
There seems to be a consensus that Canadian Real Estate is facing a 30% average decline. That is certainly a realistic number and its already been achieved in parts of the country. Which means the estimate of 30% is probably on the low side should the 5 Year Fixed actually go from 6 to 9 percent. Give that some thought. Your payments will rise substantially. Anyone who has bought in the recent past will be living a life of dread as their 400K loan spirals into into an extra thousand bucks per month payment. Scary times indeed.
Debt servicing to income (monthly gross) ratio of 35-40% is considered healthy but is usually much, much higher due to the rapid rise in the underlying property value. Source an online mortgage calculator and start inputting numbers and it gets scary rather quickly.
A first time buyer without a 20% down payment is priced out.
Alternate lending, non-bank, is around 8%. if you don’t have a great credit score for a five year. Or not available.
It was truly amazing what 2% rates did to house prices.
Indeed Columbia. I hope my short article serves as a healthy wake up call. By the time this is all over housing may be among the most hated assets in the country. I already mentioned that rates are actually going to exceed that resistance line. They will but I can’t get into those details just yet. But homeowners carrying high loan values are heading into debt enslavement for years to come. Its not a pretty picture. And not many will be bragging about how house rich they are anymore. The joke is on people who don’t know how money works. Canadians have factually lost more than 30% of their wealth in real terms since 2011 when its expressed in exchange rates to USD. Of course housing went up that much or more in the same time period. But you are not really better off. Even worse, the Canadian dollar has much more downside ahead. I am estimating another 25% loss in buying power with CAD below .60 so the trouble is just in the early innings yet.
Hey, FGC, a new sidebar voting poll for Canadians: are you going to put your house up for sale within the next 2 months, before its value drops dramatically?
Possible choices:
-no, I have no mortgage to worry about and I have to live somewhere
-no, I don’t think prices will drop that much where I live
-yes, I won’t be able to afford my payments
-yes, I have no payments to worry about but I’ll cash out then rent a place
-I don’t own a house so I’m fine
-??(FGC is great at coming up with other choices)