Prime rate is going down....

[dwb]

Prime is going from 5.25% where it currently stands all the way down to 3.75% according to TD Economists and RBC Economists. The forecast is that Prime will be cut by 50 basis points at each of the next three meetings.

Seeing as you can still get a mortgage of Prime minus .50% to .75% or even .85%, then that means in the near future one can be getting the variable rate mortgage at around 3.00%!

That`s insanely low... what does it mean for property investors?

Here`s my take:

1) Those currently renting will become enticed by such a low rate and buy, thus driving up prices
2) More competition for quality renting tenants as per point #1 above since there will be less of them (they will be converted to home buyers)
3) Those currently invested in property will see breakeven cashflow become cashflow positive when they go to renew their mortgage (and significantly cashflow positive if they re-stretch out their amortization back to 25 years or even 30 years).

That`s my take.. what is yours? Will low rates refuel the real estate market?

 

[Bill]

QUOTE (dwb @ Mar 24 2008, 05:41 PM) Prime is going from 5.25% where it currently stands all the way down to 3.75% according to TD Economists and RBC Economists. The forecast is that Prime will be cut by 50 basis points at each of the next three meetings.

Seeing as you can still get a mortgage of Prime minus .50% to .75% or even .85%, then that means in the near future one can be getting the variable rate mortgage at around 3.00%!

That`s insanely low... what does it mean for property investors?

Here`s my take:

1) Those currently renting will become enticed by such a low rate and buy, thus driving up prices
2) More competition for quality renting tenants as per point #1 above since there will be less of them (they will be converted to home buyers)
3) Those currently invested in property will see breakeven cashflow become cashflow positive when they go to renew their mortgage (and significantly cashflow positive if they re-stretch out their amortization back to 25 years or even 30 years).

That`s my take.. what is yours? Will low rates refuel the real estate market?


You might be jumping the gun on that aggressive of cuts. Most of the reports are showing possibly a 75 basis point drop over the next year. Our economy is chugging along and inflation though on the high side isn`t out of control. We are not in the need of a jumpstart as the US is.

Also as interest rates do lower, the banks will be more hesitent about the bigger discounts. Even now they are reducing the discounts as they are becoming more risk cautious as they sit back and watch how the US market will affect Canada. the .75 off prime may end up becoming only prime or .10 off, especially due to the lower prime rate which leaves a smaller risk gap.

I believe the current and pending lower rates will help stimulate the market, but the combination of that with longer amortization periods will be the true boost. This will help make properties more affordable due to lower costs and thus allow more buyers into the market. It will also depend on which market and areas you are talking about.

Manufacturing areas are being hit hard by the dollar, pulp and paper towns are shutting down left and right, even with more affordable payments, it doesn`t make much difference. Areas with high in-migration and steady economies are going to benefit the most. It will make for an interesting year, but 2009 will be even more interesting as it will be the year after the latest boogeyman we lovingly call sub-prime.

 

[dwb]

I don`t know Bill, because of the US dollar and many other reasons, rate cuts are coming.

Whether or not the Banks alter their pricing, expect Prime to be significantly lower. Even if they do the worst possible and keep variable mortgages at Prime without going "Prime Minus", 3.75% is very, very low:

QUOTE Inflation is likely to stay weak for the next few quarters, bottoming out at just over 1 per cent by the middle of the year, said Jacqui Douglas, economics strategist at TD Securities, who expects “a string of further 50 basis-point rate cuts over the next three meetings.”

http://www.globeinvestor.com/servlet/story...on0318/GIStory/

Prime is currently 5.25%. 3 cuts at 50 basis points brings it to 3.75%.

 

[JesseLee]

QUOTE (dwb @ Mar 24 2008, 07:41 PM) 2) More competition for quality renting tenants as per point #1 above since there will be less of them (they will be converted to home buyers)

Thats true. Low interest will refuel real estate market, but for sale only, not for lease, we will see more and more difficult to get tenants.

... there are too many wolves out there, while only too little meat left.

 

[dwb]

QUOTE (JesseLee @ Mar 25 2008, 01:12 PM) Thats true. Low interest will refuel real estate market, but for sale only, not for lease
And thus, higher Real Estate prices with the refuel. Maybe those wolves all searching for scarce meat will survive.

Just to suggestion to add to Bill`s insightful reply... Right now, today, might be the time to lock into a three to five year variable Prime minus at least SOMETHING.

Doing this now will protect you for when Prime heads much lower in the near future & the spread between the variable rates and the fixed rates get too far apart. Because, as Bill suggested earlier, the banks may become very reluctant to undercut Prime for their variable mortgages if Prime gets too low.

So now might be the time to set yourself up for a home-run by getting into a long term Prime MINUS term...

 

[PeterKinchMortgageTeam]

QUOTE (dwb @ Mar 28 2008, 08:38 AM) And thus, higher Real Estate prices with the refuel. Maybe those wolves all searching for scarce meat will survive.
Just to suggestion to add to Bill`s insightful reply... Right now, today, might be the time to lock into a three to five year variable Prime minus at least SOMETHING.

Doing this now will protect you for when Prime heads much lower in the near future & the spread between the variable rates and the fixed rates get too far apart. Because, as Bill suggested earlier, the banks may become very reluctant to undercut Prime for their variable mortgages if Prime gets too low.

So now might be the time to set yourself up for a home-run by getting into a long term Prime MINUS term...

We used to be able to routinely offer prime - .9% on closed variables. For a while, most of the banks had cut it bakc to prime - .25%. Now the best discount offered by most of the banks is prime - .5% or prime - .6% so those in the prime - .9%`s are laughing.......

The front end load is another great alternative. With a much steeper discount off of prime when its higher, when the discount reduces (ideally, prime has dropped by now), you may not even feel the payment shock. Its a very popular product right now.

 

[syoung]

I have a prime -.6% on an open mortgage we did in January. The latest quote for another property is prime -.4% on an open or prime -.6% on a closed. There is definitely a tightening as the process was much more stringent this time around.