Thursday, March 29, 2012

Are Today's Mortgage Rates A Bad Deal for Banks?

Since the start of the 2008 recession, much has been said in the media about Canada's real estate market most of it pertaining to dire threats and claims about the overall housing market being overheated, that properties are over valued and a correction is coming.  Low mortgage rates have often been sited as making money too easily available thus creating the environment where buyers can afford to overpay for properties especially in a market like Toronto.
  I just read an article wherein a senior executive of one of the major banks was complaining that 2.99% mortgages offer "unacceptable" returns for their shareholders. Is he kidding?  I don't hear complaints about their 18% and higher annual interest rates on credit card balances, the 7% to 8% interest charged on car loans or the paltry interest they pay on your savings etc. In looking at the analysts comments today regarding major banks stocks all I see is "buy" and "strong buy" recommendations.  That suggests to me that experts see bank profits and stock values continuing to rise and with mortgage having no place to go but up, you can see why. One of the graphs tracking a particular bank's stock in recent months has a slope with the same pitch as double black diamond ski run the only difference is, it's going uphill not down.
  I somewhat take exception to the notion that consumers are over paying for properties.  Sure, there are no doubt some consumers that may be over extending themselves buying homes they can't necessarily afford if mortgage rates increase or double but that's not to say the property is over valued.  It's more a matter of those consumers taking on more debt than they should.  On the contrary, we have had market conditions in our area at least, for several years where buyers have refused to over pay and frankly they don't have to.
  Today's consumers are much smarter and better informed than they were years ago.  The Internet has afforded everyone the opportunity to gain a wealth of information about almost anything they are looking to buy.  Whether you are shopping for a car, for antique jewellery or for a home, you can fairly quickly get a good sense of values for almost any item you desire.  With all this knowledge it's very difficult for a seller to obtain more for their item that what it's ultimately worth.
  Consumers have that same shopping ability when it comes to mortgages and if today's rate is 2.99% that's a good deal for consumers if used wisely.  Based on amortization schedules and the assorted fees that accompany processing a mortgage I fail to see where today's low mortgage rates can be viewed as providing an unacceptable return to shareholders.  What would the banks rather see, rates increase to the point where more consumers fall into default then we end upo with a foreclosure mess like the U.S.?  If banks were just in the mortgage business they might have a point.  The fact is their revenue stream comes from a variety of sources and for any banker to cry about the return made on mortgages alone for their shareholders is groundless and points more to greed than anything else.

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Rick relocated to Collingwood from Toronto in 1985 through a transfer with Goodyear Canada. In 1987 Rick was recruited by a major client of Goodyear’s, managing their Canadian business based in Barrie before moving to Chicago in 1992 as Vice President of Sales & Marketing. Upon returning to Canada in 1996, Rick ran an industrial products manufacturing company in Stratford, Ontario. In 1998 Rick returned to Collingwood with his two children. Rick is a licensed real estate Broker with Royal LePAGE Locations North in Collingwood and holds his MVA designation (Market Value Appraiser-Residential). He is an active volunteer in the community serving several years on the Board of Directors with the Collingwood Chamber of Commerce as Treasurer, 6 years on the Board of Directors for the Southern Georgian Bay Association of REALTORS® of which he is the Past President (2008) and currently serves on a committee with the Ontario Real Estate Association. Rick is a diverse executive manager with extensive experience in strategic planning, manufacturing, finance, human resources and quality assurance management.