Bond yields soared this week.  They have been steadily rising actually for 6-8 weeks, but this week saw the biggest two-day rise in eight months.

The spread the banks enjoyed last month at 2.00% (difference between five year advertised rate, and the five year bond) is now at 1.39%.  This is starting to get very close to what normal spreads were during the good old days (1.10% to 1.20%).  Many lenders are nervous to jump rates at the risk of losing market share, but soon they will have no choice as it appears the bond yields are continuing to move higher.

Interesting new website out there called Fit To Sell.  I like it for two reason’s;

1. Obviously first because it is a great resource and service for people
2. More importantly it is embracing the new web 3.0 techniques of using video.

People want to consume their information more and more by video. On that note stay tuned for our upcoming VIP section with professional advice on all areas of Mortgage and real estate, as well as our live seminars and live TV.

Congratulations Remax

To follow up from my video analysis posted earlier about the April analysis of the Calgary Real Estate market the Mid-May stats are showing that we are continuing on a great turnaround.  In the video I suggested to people that we are likely at the bottom of the market, and that Interest rates were at levels we may never see again.  If you need a further push to consider getting into the market check these numbers out…

May 1 to May 15 2009 versus the same period in 2008

New Listings added 1,025 versus 1594 (55% drop)

This is important as you recall that the main reason we are seeing the recovery in the market that we are is that the level of inventory has dropped futher then anyone probably predicted it would.  This is welcome news that during what would be the middle of the traditionally most active period of the market we continue to see new listings coming on the market at a reduced pace.

Sales are 619 versus 585.

This is obviously welcome news.  We are for the first time in 12 months seeing year over year sales higher.  a 6% increase is sales is modest, and the pessimists out there will want to say “comparing to May 2008 is not an accurate representation of the health of today’s market because the market was already starting to slide in May 2008.  It would be better to compare to the historical average”

My answer of course would be that I have been trying to say this for months as the media and all the pessimistic bloggers were comparing year over year and reporting sales were down 35% etc. It is true that May 2008 was the statistical height of the market and was the beginning of the slide we are now in, but none the less, in the current market, make no mistake this is further evidence of the beginning of the recovery.

Sales to new listing ratio jumps to 62% versus 37% in 2008

Calling all pessimists!!! this is incredible evidence that the market is chewing up inventory.  If 60% of all new listings added are being sold then inventory is not increasing, when inventory is not increasing what happens to price?  Right, it goes up.  (cue: loud clapping and cheering).  In fact inventory month to date is flat.  Inventory from March until now is FLAT in the busiest time of the year.

Interest rates are set to rise.

I have been reporting that the banks since the credit crunch took hold have increased their spreads on money by as much as 2.5 times “normal”.  Well in the past month, but more specifically the past two weeks, the bond market has been rallying and bond yields specifically have risen steadily.  Friday they sat at 2.15% so if you look at a discounted five year rate at say 3.69% that puts the spread at 1.54%.  In normal times the spread was around 1.2% to 1.3%.

What does all this mean.  If we see next week that bond yields continue to rise, and we do think that will happen, count on fixed mortgage rates rising.  Better lock those rates in, my gut tells me once they start rising, and it will be slow, they will not come back to this level.

So, what to do?  Either take variable which means that none of this means anything to you because variable rates will not start rising for a year, or grab these five year rates you have now, and imagine a time in the future when you are rocking in your chair telling your grandchildren about the unbelievable rates you locked in for in 2009 before they rose to “normal” levels.

Another month of the data has come and once again we see many positive signs that are of course ignored by mainstream media.  Are we at the bottom of the Calgary real estate market?  Watch and see….

CREB April Analysis from Greg Williamson on Vimeo.

Easily the most consistent question I get is “should I buy a home now”.  I understand that in uncertain times like we have had it can be unsettling to consider buying a home right now. If you are going to, what do you need to know before you get started.

1. Carefully interview your mortgage professional. This one is really important but often overlooked.  Understand that today all mortgage originators including the banks branches ultimately have the same rates available to them.  Certainly one challenge is that they don’t all offer you their best rate.  This does unfortunately shift the focus often to you thinking the most important thing is to negotiate the rate.  Honestly it is not.  The most important thing is to interview the mortgage originator that you will plan to work with.  With something as important as your largest debt and monthly financial commitment you should buy the mortgage from a PERSON not an institution.  Sadly, if you buy a mortgage from a bank you will not have a relationship with that person.  Your subsequent inquiries and requests for information and/or advice will be handled by a call centre or the person who did your mortgage will have been moved to another branch.  If you buy from a trusted and PROVEN mortgage broker, then you will have someone who will know you and advise you through various market turns for the life of your mortgage.   This is incredibly valuable.
2. Allow your Mortgage Broker to advise you on who the other players of your Real Estate team should be. I have seen that when buying real estate the transaction goes much smoother when all players involved have experience working together.  It makes sense when problems arise and they often do, the players can work together to resolve it, most often without stressing you along the way.
3. Allow your mortgage broker to advise you on your strategy. You may buy/sell a home four or five times in your lifetime.  Today’s top Mortgage Brokers will do it over 500 times per year, and some, like me, have been at it for over 15 years or more.  Mortgage brokers have a vested interest in making sure their advice is more then; “you should take a five year, because at our morning meeting my branch manager told me that we were having a rate sale on five year”.  Many Mortgage originators don’t have a strategy and could not explain to you articulately why you should take a certain mortgage product or term.  If they can’t, why would you gamble a $400,000 plus debt in their hands?
4. Get pre-approved. This is a no brainer I know, but be careful.  many pre-approvals today are nothing more then a rate hold.  If your mortgage originator does not ask you for paperwork to support your claims on your application at the pre-approval stage you should really be careful, unless you are absolutely certain you will qualify.  If you are any of these; (self-employed, recently changed jobs, have a relatively high debt load, missed or had any late payments in the last year, in a sector that has some risk of job losses or has already had many job losses, your down payment is not coming from you) then you need to have a full analysis of all your supporting paperwork BEFORE you buy.  The mortgage market is incredibly tight right now and we have wound the clock back 7 years or more in terms of the paperwork required and the due dilegence performed on loans.  Don’t assume anything.
5. Understand we are in EMERGENCY interest rate times. The interest rates we see today are as a result of monetary response from our central bank to battle the nasty recession we have been in since mid 2008.  These rates will go away, and maybe forever.  Take advantage now.  Recently I did a real world analysis on an average priced home in Calgary that was bought and sold within one year, from March 2008 to March 2009.  The price dropped 15% but when you combine how much the interest rates had dropped, mortgage payments had decreased 48% in one year.  Everyone is focused on how much prices have dropped and are waiting for more drops (in Calgary, Median prices have been stable since January) but are missing the real opportunity to capture these unbelievably low interest rates.

I get many of my regular readers and people I speak to at meetings etc. ask me about buying recreational real estate down south.  I have been consistently saying that you should be holding off.  Even when people were buying when the dollar was at par with the US they have seen their property value drop significantly since then.

Well, according to M. Anthony Carr in March 2009 sales in Phoenix are up 78% over March of 2008.  Another piece of great news is that there listings are down 17% and consequently prices are lower then they have been in over 5 years.

YOY sales are up for the 10th straight month in a row.

Some sobering news is that 75% of the sales in March 2009 were foreclosures!!! Yikes!

So is it the bottom, should I buy?  the answer…it depends

If you are a buy and hold then I think it could be ok except for the value of the dollar? I am told that in the Phoenix popular areas, and popular retirement communities they are seeing normal to increased sales activity.

If the bottom is not here, I would say it is near.  As well by years end you may see the Canadian Dollar rise in relation to the US dollar, mostly due to the devaluing of the US currency.  Once the Canadian dollar edges over .90 cents to the US dollar and given this information about the improving real estate market in Phoenix, it may be time to pull the trigger.

Bank of Canada governor Mark Carney was on CBC TV today and was again letting us know what some of the signs we are headed for recovery.  I have recently blogged about this here, here, here and here but since my quest is to always show the other side of the story that the media shy’s away from here we go:

1) Fiscal policy around the globe has been easing, because there are clear signs that the measures have been taking hold, not the least of which is when global central banks start easing their monetary and fiscal policies they are signaling they are responding to the market improving.

2) He mentions there has been a sharp increase in business and consumer confidence, he also referred to a stabilized real estate market, yes folks it’s true the real estate market has stabilized, better get off the fence.

3) He mentioned sharply dropping business inventories a lot, which I reported from Benjamin Tal’s presentation last week.  This is not often talked about but is incredibly important for a recovery, once businesses shed their over inflated inventories left over from the lack of sales brought on by the recession, they will have to start producing more which equals increased productivity and jobs etc, which spells r-e-c-o-v-e-r-y.

In fact in the US although their economy dropped by 6% in the first quarter, which is of course bad, but it is largely due to the massive dropping of inventories to the tune of $103 Billion.  It is really akin to the US economy ripping off the band-aid and thank God they are doing it.  The faster we shed these inventories the faster we get to recovery.  I would rather see a real, real bad quarter, in fact Benjamin Tal correctly called the first quarter of 2009 the darkest hour of this recession and probably the darkest hour since 1945.  But it’s over.  This was painful but necessary to get us to the recovery point sooner.

4) The most pessimistic analysts and economists are forecasting recovery in lockstep with the Governor.  In fact one of the most outspoken negative economists was Warren Jestin from Scotiabank who said on Friday “the worst is over for the Canadian economy and that a sluggish recovery is underway”.  You know when the pessimists are saying something is positive, you better believe it.

One side note I thought was interesting, was when the Governor did a reversal from his last interest rate cut announcement, not even a month ago, when he said then that he absolutely would hold the bank rate at it’s current level until June 2010.  Today he said “the rate promise is an ‘absolutely conditional promise’ based on inflation remaining tepid.

Thanks Mark, we know your primary job is controlling inflation and you will increase rates to do so.  What is telling foreshadowing is that the bank is concerned inflation may come back sooner then many people expect.  It will.

Recently I read a blog where the writer said that in 12 months we will be concerned about deflation, not inflation, due to excess inventories as a result of reduced demand, excess labour supply, etc.  He is not paying attention.  He is speaking about recessionary symptons.  As almost every expert says 12 months from now we will not be in a recession, and for many reasons you can read here we will be battling inflation hard.