Interest Rate Spread between BoC Rate and 5 year Fixed Mortgage
The chart above shows that in May 2013 the spread between the Bank of Canada rate and the residential 5 year fixed mortgage remained at 4+ year lows thanks to ZIRP and CMHC. Penny pinching 'conservative' Canadian martyrs have been watching their savings evaporate while their fearless brethren have been all in for the big capital gain real estate flip. NOTE to the flash mob: CRA is auditing; make sure you file that gain. The Government policy of urging Canadians to borrow at low rates and spend at high cost (rather than promoting skill acquisition to become productive) has been a tax on savers and an attack on skilled labour. Notice how the TSX RE Index is correlating with the spread between the BoC and the 5 year retail mortgage rate. If this spread widens as it did from April 2007 to Dec 2008, will the TSX Real Estate Index drop?
Here is a case study of what a Vancouver investor is facing when contemplating the purchase of an average condo for the purpose of rental revenue. Interest rates may be low, but the capital cost according to my case study is 25% too high.