There is no direct connection between housing market and ratings of Canadian banks. There can be indirect connections between those two.
Record high personal debt and falling housing prices will dilute the net worth of many Canadian families. Mortgages and Line of Credits are two major sources of investments made by the banks. Both of them rely on the housing prices as their backstop beside the loan insurers. Once the housing prices start to fall the strength of the loan security will erode which will then increase the risk exposures of the loans.
Moody’s downgraded rating of six Canadian banks – including heavy weights like RBC, TD, BMO, Scotia and CIBC – pointing towards the raising risk from Canadian personal debt situation.
Teranet – in its recent data showed that Canadian housing prices fell in December, month over month. Tighter regulation along with fear of further housing price correction will continue to keep perspective buyers at the sideline till the situation stabilizes.
As an effect despite of higher bond yields, mortgage rates continue to stay at the lower levels. Competition in the market was already fierce and the recent situation in not helping either. Bond yields are raising as optimism is slowly returning in the market and once it starts to pull fixed interest rates up – we shall probably witness even worst correction.
Hi Sudip,
I would like to get your opinion regarding my plan of buying a house(1st time home buyer). I live in ***** On, We are earning around 90K family gross income and I can afford to put 100K (50K from RRSP)down payment. I can get a townhouse or semi for below 300K and a decent detached for around 370K. The first choice would be comfortable for me because I would have a lesser mortgage and probably could still save money every month. The latter would be a different situation, paying higher mortgage and no savings every month. With the current interest rate of 3% sounds like even the 2nd choice is very much possible but the question is how long would 3% interest will stay? considering that mortgage usually last up to 25 years. I am not sure if it is the right time to buy a house now or wait a little bit later. Would really appreciate your advise regarding this matter.
Thanks,
A***e
Edited By CMA: Name of the commenter withheld for privacy reason.
Thanks for your comment. I like it. At the same time it is hard to say what to do.
The question is more self evaluating type than anything else.
There are many small pieces to find before we can solve the grand puzzle. I can simply take the math route and give you some quick calculation showing that your second option absolutely makes sense and end of the discussion write a 10 page disclaimer about the risks and stuff to save my back.
Instead of doing that, let us find the logic set in the decision making process. That will help us to slowly overcome the emotion involved in the process and make the logical choice.
Now you probably got where I am going to. It is your turn to write the questions specific to your case. Once you find a satisfactory list then look at all of them and give each of them a weightage point based on your analysis and emotional feelings.
Then read this –
Taking a mortgage – big or small is not the real question. A lender will give you loan as long as you can carry them. It is your job to strike the right balance. You do not want a shelter which you cannot call a home and at the same time you do not want decorate your windows with paper curtains for ever.
We all have need and want. We should first try to satisfy the need. Then put all your wants together – say, an expensive car, a fabulous home, greatest vacation every year, …. Then judge based on your current income (current because no one knows the future) and mortgage payment – how much extra you should spend on the house. We Canadians move from one house to another frequently. Does it really make sense to become house poor – which we may never cash in?