Prime rate drops 0.15% to 2.85%, smaller cut than Bank of Canada made
(CBC NEWS) The big banks dropped their prime lending rate late Tuesday, almost a week after the Bank of Canada cut its key lending rate. But they're not passing along the entire rate cut the central bank had announced.
Royal Bank was the first of the big banks to cut its prime since last Wednesday's surprise rate cut by the central bank. Other banks later matched Royal's move.
The banks trimmed their primes by 0.15 of a percentage point to 2.85 per cent. The Bank of Canada had cut its key overnight rate by a quarter of a percentage point to 0.75 per cent.
"We believe our announcement is a balanced approach which reflects our actual cost of funds and helps clients save money on products such as variable-rate mortgages, lines of credit and floating-rate loans," RBC said in a statement.
"Our decision was driven by a number of factors, including our wholesale funding costs, the competitive, operating and macroeconomic environments, and the Bank of Canada’s recent rate decision and its impact on other market rates across the yield curve."
When prime rates fall, a whole range of floating interest rate loans like lines of credit and variable-rate mortgages fall in lock-step.
Usually, when the Bank of Canada moves its key rate, prime rates quickly follow. But for six days, the banks didn't move their primes despite pressure from consumers looking for relief on their floating-rate loans.
Fixed-rate mortgages heading down
Fixed mortgage rates have already begun to drop slightly at many banks. But longer-term fixed-rate mortgages depend on the bond market, not the Bank of Canada’s overnight rate. With yields on longer-term bonds steadily falling and now at historic lows, it’s not surprising that fixed mortgages have begun to slide.
A five-year fixed mortgage now carries a posted rate of 4.79 or 4.84 per cent at several banks, down 0.10 or 0.15 of a percentage point over a week ago. Most borrowers will pay considerably less than the posted rates.
TD Bank, for example, on Tuesday lowered its “special fixed-rate offer” for a five-year closed mortgage by a fifth of a point to 3.09 per cent. Many smaller lenders and independent mortgage brokers can offer even lower fixed mortgage rates.
Central bank sees 2015 economic growth of 2.1%, down from earlier forecast of 2.4%
(CBC NEWS) The Bank of Canada shocked markets today by cutting its key overnight lending rate by a quarter of a percentage point, citing the economic threat posed by plunging oil prices.
"The drop in oil prices is unambiguously negative for the Canadian economy," Bank of Canada governor Stephen Poloz said in a morning news conference. "Canada's income from oil exports will be reduced, and investment and employment in the energy sector are already being cut."
The overnight rate, which moves down to 0.75 per cent, had been at one per cent since September 2010. The cut will result in lower interest rates for variable rate mortgages, lines of credit and other loans that float with prime rates.
Virtually no economists had been predicting a rate cut.
"It is a significant move," TD Bank economist Derek Burleton told CBC News. "It does show the Bank of Canada is worried about the big drop in the price of oil ... and what kind of uncertainty that poses in the next few quarters. I don't think they are panicking but I do think they're concerned about some of the uncertainty the recent slump in the price of oil does create for the economy."
"The large decline in oil prices will weigh significantly on the Canadian economy," the Bank of Canada said in its quarterly monetary policy report.
"Given the speed and magnitude of the oil-price decline, there is substantial uncertainty around the likely level for oil prices and their impact on the economic outlook for Canada."
In the wake of the rate cut, the loonie plunged more than 1.7 cents to 80.82 cents US in afternoon trading — its lowest level since late April 2009. It's the biggest one-day drop in the dollar's exchange rate since November 2011.
The benchmark index of the Toronto Stock Exchange jumped 258 points, or 1.8 per cent, to 14,564.
Lowered outlookThe central bank scaled back its forecast for the country's economic growth this year. It now sees 2015 growth of 2.1 per cent, down from 2.4 per cent.
"The negative impact of lower oil prices will gradually be mitigated by a stronger U.S. economy, a weaker Canadian dollar and the Bank [of Canada's] monetary policy response," it said.
The central bank says real GDP growth will be just 1.5 per cent in the first half of this year and will pick up in the second half. For 2015 as a whole, it sees economic growth of 2.1 per cent, rising to 2.4 per cent in 2016.
The bank bases its revised growth forecast on the assumption that oil will average $60 US a barrel over the next two years.
The central bank said the oil price plunge increases downside risks to both inflation and financial stability. It said Wednesday's action was designed "to provide insurance against these risks."
David Madani of Capital Economics says the rate cut shows that the Bank of Canada "is far more worried than before about a severe housing market correction, which in our view is understandable given the recent news that home sales in Alberta have already collapsed."
Several analysts say further rate cuts cannot be ruled out.
"Today’s BoC rate cut smacks of being a one-time 'insurance' move but in his presser, Governor Poloz indicated that if the world changes again (adversely for Canada) the Bank could take out more insurance," noted BMO deputy chief economist Michael Gregory.
Oil prices have plunged to less than $50 US a barrel from more than $105 US in June last year.
DEREK PENNER (VANCOUVER SUN) - Metro Vancouver homeowners have grown accustomed to healthy increases on their annual B.C. Assessment notices, which are now landing in mailboxes.
What’s new this year is that condo values are also rising in the region, after a few flat years that saw condo construction outpace homebuyer demand.
“Condominiums, that’s apartments and townhouses, up until 2014 had been relatively flat over three years,” said Cameron Muir, chief economist of the B.C. Real Estate Association.
Over 2014, however, Muir said condo sale prices have risen in step with inflation. Condo prices in Vancouver and its nearer suburbs were up about two per cent as of July, when B.C. Assessment sets its values for the next year’s assessment roll.
Single-family home values were up a more substantial 6.5 per cent, Muir said, but some of the condo valuations were a departure from the previous year.
“We’re probably looking, in Vancouver, at sales (increases) of 16 to 17 per cent in 2014,” Muir said, “so, there’s much stronger demand, and we’re also seeing inventory levels steadily decline.”
B.C. Assessment doesn’t produce average assessment values for property types in Lower Mainland markets but does highlight representative examples.
In Vancouver, a typical east-side two-bedroom apartment increased 4.7 per cent to $381,000, from $364,000 a year earlier.
On Vancouver’s west side, values for a typical two-bedroom apartment rose 7.5 per cent (to $616,000), in line with the growth in value of a detached home on a 33-foot lot (up 7.5 per cent to $1.575 million).
In its real estate assessments a year ago, B.C. Assessment had highlighted decreasing condominium values in the range of four to five per cent — the second consecutive year that condo prices declined or offered minimal increases.
“Changes within a plus or minus five per cent range, that’s what we categorize as stable,” said Dharmesh Sisodraker, B.C. Assessment’s deputy assessor for the Vancouver Sea to Sky region, which takes in Vancouver and the North Shore all the way to Whistler.
Assessments, which are used by municipalities to set property taxes, tend to lag the overall market by the time they are released.
In east Vancouver, a typical detached house on a 33-foot lot saw an increase of 11.3 per cent, to $993,000.
In Vancouver Heights, typical detached home prices rose five per cent to $955,000.
“(Condominium) prices are still under pressure versus detached homes, mostly because there is so much (condominium) product on the market,” explained Ray Harris, president of the Real Estate Board of Greater Vancouver, and the increases in condo prices are “sporadic.”
In Metro Vancouver, demand for new condos has been in high-growth areas linked to rapid transit, such as the Marine Gateway development at Cambie and Marine in Vancouver or the Metrotown and Brentwood town centres in Burnaby.
“If a complex is in demand and there are not a lot of units in the market, you can get more of a lift,” Harris said.
Suburbs such as Burnaby, Coquitlam and Port Moody — communities either on SkyTrain, or where SkyTrain is being built — are among those that have seen modest increases in the range of two to three per cent.
However, the gains weren’t shared equally and some spots still showed decreasing assessment values. B.C. Assessment cited an example at Simon Fraser University’s UniverCity development, where the assessed value of a two-bedroom highrise unit declined 2.5 per cent from 2014.
“There are a few pockets where values decreased slightly,” said Zina Weston, a deputy assessor for B.C. Assessment in its North Fraser region, which takes in the eastern suburbs closest to Vancouver.
“If there is a lot of building that comes on in a short period of time in a finite area, there might be some (downward) pressure on pricing,” Weston said.
Harris added that condo owners trying to re-sell are having a tougher time because developers are selling new units at lower prices than they would be if the market were stronger.
Condo values also declined in Fraser Valley suburbs from Langley to Chilliwack, where single-family home prices are in the reach of more buyers.
Dan Scarrow, a vice-president at Macdonald Realty in Vancouver, added that some municipalities are more encouraging to condo developers and “as a result of that, maybe some areas tend to get overbuilt.”
“Then, in some municipalities, say Vancouver, it is more difficult to get a project off the ground, but demand is actually quite high,” Scarrow added.
Markets that rely on recreational property sales — such as Whistler, the Okanagan and Kootenays, where sales collapsed and values declined following the 2008 recession — also took part in some of the rebound in 2015 assessments.
B.C. Assessment cited examples in Kelowna where assessments were up from four to seven per cent. In Whistler, a typical home in the White Gold area increased in value 7.4 per cent, to $1.06 million.
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