Vancouver Peak

[attachment=5]

Here is the Renewal Gap graph I used to make; updated to the present.

I take the 5-yr average mortgage rate (CANSIM v122497. This is the average rate, not the posted rate.) I then compare this month's data point with the data point from 5 years ago. I then plot this difference. Going forward into 2013, I project the path of this gap under the assumption that the 5-yr rate doesn't change, just to see what will happen under that assumption.

The Renewal Gap is useful because it shows us an indicator of demand for the 'move up' market. If the gap is negative, people who signed a 5-yr mortgage five years ago will be able to afford a bigger mortgage with the same monthly payment.

Looking at the renewal gap, it is striking that there was a substantial 250bps gap developing during 2012, while the market was losing steam. That is, people who had their 5-yr come up for renewal should have been able to take more mortgage with the same monthly payment. Yet, the market still started tanking. This tells me that the downward trend of the market went forward even with this stiff positive demand shock blowing in its face.

For 2013, we will stay around -200 to -250bps for the year. This means a lot of people who are looking to move-up potentially could take a much bigger mortgage for the same payment. On the other hand, in 2014, the 5yr renewal gap shrinks a bunch, reflecting the fact the 5-yr rate in 2009 was pretty cheap.

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Here are the data:
<pre>
Year-month Lagged Today Gap
2000M01 10.60 8.34 -2.26
2000M02 10.48 8.43 -2.05
2000M03 9.93 8.24 -1.69
2000M04 9.66 8.23 -1.43
2000M05 8.98 8.50 -0.48
2000M06 8.67 8.34 -0.33
2000M07 8.54 8.18 -0.36
2000M08 8.94 8.08 -0.86
2000M09 8.95 8.08 -0.87
2000M10 8.75 8.08 -0.67
2000M11 8.66 8.04 -0.62
2000M12 8.46 7.81 -0.65
2001M01 8.02 7.58 -0.44
2001M02 7.79 7.52 -0.27
2001M03 8.16 7.19 -0.97
2001M04 8.48 7.22 -1.26
2001M05 8.47 7.38 -1.09
2001M06 8.48 7.47 -1.01
2001M07 8.48 7.46 -1.02
2001M08 8.01 7.39 -0.62
2001M09 7.94 7.03 -0.91
2001M10 7.50 6.74 -0.76
2001M11 7.01 6.51 -0.50
2001M12 6.94 6.64 -0.30
2002M01 7.14 6.62 -0.52
2002M02 7.12 6.59 -0.53
2002M03 7.06 6.80 -0.26
2002M04 7.56 7.00 -0.56
2002M05 7.46 7.00 -0.46
2002M06 7.22 6.98 -0.24
2002M07 6.98 6.90 -0.08
2002M08 7.00 6.61 -0.39
2002M09 6.96 6.49 -0.47
2002M10 6.73 6.50 -0.23
2002M11 6.69 6.47 -0.22
2002M12 6.90 6.39 -0.51
2003M01 6.90 6.26 -0.64
2003M02 6.84 6.29 -0.55
2003M03 6.84 6.33 -0.51
2003M04 6.79 6.44 -0.35
2003M05 6.92 6.10 -0.82
2003M06 6.90 5.62 -1.28
2003M07 6.90 5.71 -1.19
2003M08 7.08 5.87 -1.21
2003M09 7.32 5.97 -1.35
2003M10 6.73 5.83 -0.90
2003M11 6.94 6.02 -0.92
2003M12 6.69 6.00 -0.69
2004M01 6.72 5.78 -0.94
2004M02 6.79 5.51 -1.28
2004M03 7.03 5.31 -1.72
2004M04 6.71 5.56 -1.15
2004M05 6.99 5.82 -1.17
2004M06 7.35 6.06 -1.29
2004M07 7.42 6.10 -1.32
2004M08 7.80 5.97 -1.83
2004M09 7.67 5.94 -1.73
2004M10 7.90 5.95 -1.95
2004M11 8.13 5.87 -2.26
2004M12 8.13 5.69 -2.44
2005M01 8.34 5.60 -2.74
2005M02 8.43 5.59 -2.84
2005M03 8.24 5.60 -2.64
2005M04 8.23 5.67 -2.56
2005M05 8.50 5.55 -2.95
2005M06 8.34 5.31 -3.03
2005M07 8.18 5.26 -2.92
2005M08 8.08 5.32 -2.76
2005M09 8.08 5.30 -2.78
2005M10 8.08 5.39 -2.69
2005M11 8.04 5.56 -2.48
2005M12 7.81 5.60 -2.21
2006M01 7.58 5.65 -1.93
2006M02 7.52 5.75 -1.77
2006M03 7.19 5.78 -1.41
2006M04 7.22 5.88 -1.34
2006M05 7.38 6.05 -1.33
2006M06 7.47 6.12 -1.35
2006M07 7.46 6.26 -1.20
2006M08 7.39 6.24 -1.15
2006M09 7.03 6.13 -0.90
2006M10 6.74 6.01 -0.73
2006M11 6.51 5.99 -0.52
2006M12 6.64 5.89 -0.75
2007M01 6.62 5.91 -0.71
2007M02 6.59 6.00 -0.59
2007M03 6.80 5.91 -0.89
2007M04 7.00 5.92 -1.08
2007M05 7.00 6.01 -0.99
2007M06 6.98 6.51 -0.47
2007M07 6.90 6.60 -0.30
2007M08 6.61 6.62 0.01
2007M09 6.49 6.61 0.12
2007M10 6.50 6.69 0.19
2007M11 6.47 6.73 0.26
2007M12 6.39 6.75 0.36
2008M01 6.26 6.81 0.55
2008M02 6.29 6.72 0.43
2008M03 6.33 6.60 0.27
2008M04 6.44 6.40 -0.04
2008M05 6.10 6.21 0.11
2008M06 5.62 6.20 0.58
2008M07 5.71 6.37 0.66
2008M08 5.87 6.25 0.38
2008M09 5.97 6.16 0.19
2008M10 5.83 6.46 0.63
2008M11 6.02 6.51 0.49
2008M12 6.00 6.17 0.17
2009M01 5.78 5.78 0.00
2009M02 5.51 5.28 -0.23
2009M03 5.31 5.14 -0.17
2009M04 5.56 4.79 -0.77
2009M05 5.82 4.62 -1.20
2009M06 6.06 4.90 -1.16
2009M07 6.10 5.14 -0.96
2009M08 5.97 5.13 -0.84
2009M09 5.94 4.97 -0.97
2009M10 5.95 5.00 -0.95
2009M11 5.87 5.06 -0.81
2009M12 5.69 4.83 -0.86
2010M01 5.60 4.80 -0.80
2010M02 5.59 4.73 -0.86
2010M03 5.60 4.71 -0.89
2010M04 5.67 5.15 -0.52
2010M05 5.55 5.30 -0.25
2010M06 5.31 5.18 -0.13
2010M07 5.26 5.02 -0.24
2010M08 5.32 4.82 -0.50
2010M09 5.30 4.60 -0.70
2010M10 5.39 4.52 -0.87
2010M11 5.56 4.45 -1.11
2010M12 5.60 4.50 -1.10
2011M01 5.65 4.55 -1.10
2011M02 5.75 4.68 -1.07
2011M03 5.78 4.70 -1.08
2011M04 5.88 4.87 -1.01
2011M05 6.05 4.83 -1.22
2011M06 6.12 4.60 -1.52
2011M07 6.26 4.57 -1.69
2011M08 6.24 4.52 -1.72
2011M09 6.13 4.42 -1.71
2011M10 6.01 4.35 -1.66
2011M11 5.99 4.38 -1.61
2011M12 5.89 4.36 -1.53
2012M01 5.91 4.31 -1.60
2012M02 6.00 4.23 -1.77
2012M03 5.91 4.21 -1.70
2012M04 5.92 4.36 -1.56
2012M05 6.01 4.35 -1.66
2012M06 6.51 4.25 -2.26
2012M07 6.60 4.23 -2.37
2012M08 6.62 4.23 -2.39
2012M09 6.61 4.20 -2.41
2012M10 6.69 4.17 -2.52
2012M11 6.73 4.15 -2.58
2012M12 6.75 4.15 -2.60
2013M01 6.81 4.15 -2.66
2013M02 6.72 4.15 -2.57
2013M03 6.60 4.15 -2.45
2013M04 6.40 4.15 -2.25
2013M05 6.21 4.15 -2.06
2013M06 6.20 4.15 -2.05
2013M07 6.37 4.15 -2.22
2013M08 6.25 4.15 -2.10
2013M09 6.16 4.15 -2.01
2013M10 6.46 4.15 -2.31
2013M11 6.51 4.15 -2.36
2013M12 6.17 4.15 -2.02
2014M01 5.78 4.15 -1.63
2014M02 5.28 4.15 -1.13
2014M03 5.14 4.15 -0.99
2014M04 4.79 4.15 -0.64
2014M05 4.62 4.15 -0.47
2014M06 4.90 4.15 -0.75
2014M07 5.14 4.15 -0.99
2014M08 5.13 4.15 -0.98
2014M09 4.97 4.15 -0.82
2014M10 5.00 4.15 -0.85
2014M11 5.06 4.15 -0.91
2014M12 4.83 4.15 -0.68
2015M01 4.80 4.15 -0.65
2015M02 4.73 4.15 -0.58
2015M03 4.71 4.15 -0.56
2015M04 5.15 4.15 -1.00
2015M05 5.30 4.15 -1.15
2015M06 5.18 4.15 -1.03
2015M07 5.02 4.15 -0.87
2015M08 4.82 4.15 -0.67
2015M09 4.60 4.15 -0.45
2015M10 4.52 4.15 -0.37
2015M11 4.45 4.15 -0.30
2015M12 4.50 4.15 -0.35
2016M01 4.55 4.15 -0.40
2016M02 4.68 4.15 -0.53
2016M03 4.70 4.15 -0.55
2016M04 4.87 4.15 -0.72
2016M05 4.83 4.15 -0.68
2016M06 4.60 4.15 -0.45
2016M07 4.57 4.15 -0.42
2016M08 4.52 4.15 -0.37
2016M09 4.42 4.15 -0.27
2016M10 4.35 4.15 -0.20
2016M11 4.38 4.15 -0.23
2016M12 4.36 4.15 -0.21
2017M01 4.31 4.15 -0.16
2017M02 4.23 4.15 -0.08
2017M03 4.21 4.15 -0.06
2017M04 4.36 4.15 -0.21
2017M05 4.35 4.15 -0.20
2017M06 4.25 4.15 -0.10
2017M07 4.23 4.15 -0.08
2017M08 4.23 4.15 -0.08
2017M09 4.20 4.15 -0.05
2017M10 4.17 4.15 -0.02
2017M11 4.15 4.15 0.00
2017M12 4.15 4.15 0.00
2018M01 4.15 4.15 0.00
2018M02 4.15 4.15 0.00
2018M03 4.15 4.15 0.00
2018M04 4.15 4.15 0.00
2018M05 4.15 4.15 0.00
2018M06 4.15 4.15 0.00
2018M07 4.15 4.15 0.00
2018M08 4.15 4.15 0.00
2018M09 4.15 4.15 0.00
2018M10 4.15 4.15 0.00
2018M11 4.15 4.15 0.00
2018M12 4.15 4.15 0.00
</pre>

VHB, here is the renewal gap for 1,3, and 5 years taken from the data sources you have used on the past (over at mohican's blog).



You can see that 2012 saw the 3 year renewal gap return to around 0. The 5 year, as you mentioned, is going to have large negative IRD for most of 2013, assuming rates remain at current levels.

[attachment=386]

Here's the long run renewal gap over the last 57 years.

Positive until 1979 when it spike up huge. Then another spike positive in 1991. then negative for the last 22 years (except for one blip in 2008).

Basically, pretty much no one under 50 knows the stress of waiting to hear from your bank how much your 5-year mortgage payment is going to go *up*. That is real stress, actually.