I pre-apologize for the coming alarm bells in this newsletter but sadly we need to talk about the elephant in the room. Tis the season to discuss the seriousness of consumer debt which has hit all time high of 176% debt-to-income. The third quarter numbers are high and unfortunately Equifax has also reported that delinquency rates are on the rise on the unsecured debt up 10% – this doesn’t include mortgages however, consumer spending is up and is tempting to go further down the rabbit hole during Christmas/Boxing sales season.  
Here are two unfortunately alarming statistics:  

If you or anyone you know has let on that they are getting behind or having a bit of trouble they really must action immediately (by way of Mortgage Refinance ideally to avoid sale) so they don’t get behind on their mortgage. A missed credit card is not the end of the world. A missed mortgage payment is though and needs to be treated that way. Let’s also discuss the potential of lower rates as some consumers are still paying in the high 3% close to 4% mortgage rates that were around a couple years ago. Happy to help out, this is nothing to be embarrassed about or avoided. Life happens and debt pay down must again be a focus as we enter what looks like a slowing economic market heading in the new year. More details below….. 

Part Two

It’s lengthy – but important as we chat 2020 market for housing and interest rates. There are opposing forces at work as globally we are seeing major slowdowns happening again in major cities real estate markets but here in the major Canadian market cities – Vancouver/Toronto – we are seeing prices back on the rise and inventory levels shrinking. Many media channels are using language like “surging markets” “slowdown seems to be over”. All nice news of course, and I have seen this since around June this year. We’re very fortunate to be in an isolated in BC and let’s be honest – savings rates if I’m to put my money in the bank are TERRIBLE. Real estate, now back on the upswing, is still providing great returns for the average Vancouverite/Lower Mainlander. But…. 
There are key indicators coming out of the US that are causing my cautious tale of 2020 only because of looming words like “US recession coming next year”. The US trade wars results are reporting to drop GDP by 0.8% this year and up to 1.4% next. The rippling cause and effect is a further slow down in their housing sector and harder emphasis on their fading job growth statistics. They are calling for a flat/declining in some cities housing market even with a lack of inventory. Globally, 29 countries have gone into negative interest rates if you factor in subtracting their average inflation rate. Alberta and Saskatchewan, accordingly to a number of lenders we work with, is “a mess” right now with the abundance of new construction properties on the market sitting empty and unable to sell. There has been a surging investor flight to gold, probably the single biggest indication that caution is in the wind.  
So. While we are optimistic here in GVR & Fraser Valley, and are expecting a strong market in 2020, just, please be cautious, do not stretch. Not even over stretch. Like I mean don’t stretch at all. Pay debts down as fast as humanly possible in 2020 – try as hard as you can to save money and make wise decisions with taxes/corporate structures/write offs etc – it’s not the year for big risks. We are at unprecedented levels of Government/Corporate/Personal debt levels and the scary thing is because we’ve been at these levels for years now many people/institutions are starting to pop (referencing above delinquency rates) It’s like debt from government, corporate and personal has been normalized. If and when we see another recession happen in the coming year or two (12-13 years after 2008, typically recessions are every decade or so) there will be carnage. 

Rates are expected to remain flat through the year and if Bank of Canada needs to step in and lower rates, they have created the room to do so with their three increases from a year ago. For now, they are fighting tooth and nail to hold steady.  
Flip side!! We could very well see a strong market in 2020 due to one major. It’s election year in the US and you absolutely know that Trump, as part of his re-election campaign, is going to “save the world” with a trade deal with China. He’s set the stage for a phase 1 deal, and that alone could make markets rally. He is going to do something; you just know his ego can’t avoid it! If that happens, my worries of a recession will dissipate. There will be opportunities to scoop up properties and there are great buys out there right now, especially if you’re ok with a bit of a commute to Vancouver. Save money, pay down mortgages, and get ready to buy up some properties if the opportunity arises. Feel free to forward this to colleagues/friends/family and if you would like to discuss your mortgage(s) and real estate goals directly please reply! We have the capacity for more mortgages under management.  

Happy Holidays, speak to you next year. 

For the past few weeks since Bank of Canada’s recent rate increase our office has been inundated with questions surrounding where rates are expected to be headed. A large portion of our book is Variable rate mortgages because of their proven savings advantages over the past decade, no doubt left wondering what they should do especially in the face of another interest rate increase expected January 2019 pending release of Q3 & Q4 economic data.

The numbers out of October are showing unemployment has improved year of year down to 5.8% vs 6.2% in October 2017 which is great but while we have a healthy labour market we see big stalls in wage growth which is down 1.9% from 3.9% earlier this year. Retail sales are declining, and housing starts across Canada are down close to 8%. This number is especially disheartening because a huge contributor to affordable housing is an increase is housing supply that we just aren’t seeing. The CPI inflation has dropped to 2.2% from a higher 2.8% in August. Exports and Imports are also down. The only industry showing what look like large record gains is the auto industry, which seems concerning given their true “value” to consumers.

I say all of this to show, based on economic numbers, that Canada is not quite yet out of the woods economically. I’ve continued to hear people and news media pound the panic button about where rates are headed, some citing 6 increases in the short term. I just don’t see it. While we may see moderate increases in to 2019 many economists are of the mindset that BOC is punting up rates in case they need to bring them right back down as a reaction to a slower market. We/They (BOC) do not want to see themselves in a position where we are going in to negative interest rates. A few years ago I posted about a potential downturn in 2019/2020 after rates started to increase a little bit. I’m not calling back on my crystal ball just yet but I caution anyone to lock in to an automatically higher 5 Year Fixed when such amazing discounts are available like Prime – 1.05% on Variable. These rate discounts made it possible for some of my past clients to enjoy paying their mortgages as low as 1.85% a few years ago when government had to react to a stalling economy. Keep hammering down the mortgage is my motto.

I’m personally hanging tight in my Variable however I have many clients, including close friends, who do not enjoy surfing rates and have sought the security of a 5 Year of even 7 Year Fixed which are the same price with a couple lenders now. If you are a person who has found it more compelling to crave security let’s chat about your personal file. Anyone else too of course : ) Always happy to chat further about each individuals needs. Next Bank of Canada Announcement is December 5th when you can expect our final sign off for the year. Speak to you soon!

David Ford
Sparo Mortgage Partners
For Nests & Nest Eggs

We find ourselves in a similar economic and rate environment to 2016 where we saw 5 Year Fixed rates at the lowest hit 2.24%. We had under 4 weeks to react and submit files at this price point so if reading this entices you to consider a low Fixed rate then please reach out right away to have your file built and submission ready. My last newsletter in May we were at 3.20% on a 5 Year Fixed. We now have some as low as 2.64% and still ‘no end in sight’. 
I’m presently in a 3.20% Variable rate and have the 2.49% Fixed and lower as a target where I’ll be looking to lock in. My team and I are presently running analysis on our clients mortgages to see what impact a 2.49% rate would have on their mortgages. For me, switching from 3.20% to 2.49% but keeping the same payment would save 27 months of payments. A HUGE savings. 
Many clients have already approached us to: 

We are excited about the possibility of deleting years off people’s mortgages due to this current environment. Especially when we saw rates clip near 4% just 8 months ago. 
Eg. $550,000 mortgage (our average) on a 25 year Amortization and having a 3.20% interest rate is a payment of $2665/month 
That same payment and mortgage size but on a 2.49% rate is 22 Years 7 Months amortization. 29 Months difference! 
$2665 x 29 months = $77,285 savings! 
You can see our motivation to get these analysis completed and reach out 🙂 
Please reach out to me directly at 604-329-9971 or david@sparomortgage.ca to have an analysis completed at the top of the list. For now we are still parking in Variable but it looks like a fall switch may be happening

I’ll address rates right out of the gate because I’ve had dozens of inquiries lately with the sharp drop in Fixed rates since December 2018. I’d like to make mention my Variable rate mortgage is at 3.20% now and Fixed rates have dropped below my rate too. 
Above is a link to the Canada Savings Bonds that have matured since 1999 
As you can see 2015/2016 were low points at around 1.00 – this was the time when we saw 5 year Fixed rates around 2.49% – some as low as 2.24% 
We see the bonds rose in 2017 (marginally) and during that period we saw 5 Year Fixed rates rise to 4.00% at their peak last year around Oct/November and then have steadily dropped to presently around 3.00%. This year lenders have been offering brokers a bonus to lock people in to Fixed rates. Banks are making a BIG push for Fixed rates as I’m sure you’ve all received calls or pushes through your banker/tellers. BUT as you can see 0.80 are the yields. So, one really can expect, based on these yields, to see rates drop to the same level they were a couple years ago. Possibly lower. 
We’re not in a rush, and past clients are on our list of reach out to as soon as we see Fixed rates hovering around 2.49% or at least have an indication they may rise. Currently zero indication whatsoever that rates will rise, and Bank of Canada is saying they will not be touching Prime (Variable) until in to 2020 / until we see an economic turn around. Banks/Lenders have been bonusing compensation for Fixed rates all year – a clear indication there is room for them to discount further. 
Park in Variable for the time being because you can always lock in to a Fixed anytime, no penalty or fuss, not the other way around.

Major Market news is coming out of the trade war developments between USA & China. 

China is in a weak position for negotiations and as such are at risk of a full-blown recession which will cause devaluation of their currency. Capital flight is expected to increase in the coming months with signals that the Yuan will depreciate due to this looming recession. 

The above chart shows the jump in imports when capital flight was at it’s peak in 2015/2016 when mainland companies were using inflated invoices to take money out of the country. It would be naïve to believe our government has implemented rules strict enough to pose a threat to wealthy buyers overseas parking money in Canadian real estate (Commercially or Residentially) 
In speaking to our West Vancouver/Vancouver real estate partners we are learning market activity in the past 3 weeks has had a dramatic increase. The combination of low interest rates and a sudden spike back up in property values could result in an exceptionally busy market again. We’ve started seeing multiple offers on many product types (condo/townhouse/detached) in many different cities. 
Just wait until the media takes hold of some of these stats. 
Goooood night! I’ll try get some sleep now while I can. 
Any questions about your specific mortgage, what to do with your equity in picking up rental properties (another big question from past clients lately) or measures to take advantage of lower rates consolidating debts please let us know! Happy to help