May 2, 2022

Some landlords are learning the risks of investing with a negative carry:

In recent years, many mom-and-pop real estate investors in the two cities have been quietly paying more in mortgage and other ownership costs than they receive in rent, trusting they’d eventually sell at a profit thanks to rapidly rising home values, experts say.

But as interest rates shoot up and price growth slows, some highly indebted landlords are beginning to feel the squeeze more acutely. That financial pain could eventually push rents even higher, some experts warn.

It’s not uncommon for homeowners who’ve seen the value of their first home soar in recent years to borrow against their home equity with a HELOC to fund the down payment on an investment property, [Toronto-based mortgage broker] Mr. [Ron] Butler said, speaking about the Ontario market. Borrowers often don’t disclose to their bank they intend to use the HELOC to acquire a second home, he added.

Once they’ve drawn the cash for a down payment from the HELOC, borrowers typically apply for a mortgage to finance the rest of the real estate purchase, Mr. Butler said.

With HELOC rates climbing, many of those highly leveraged investors are now scrambling to convert their line of credit balance into mortgage debt that comes with fixed payments, according to Mr. Butler. The risk is that some may not be able to do so.

That may be because the additional debt they’ve taken on from the investment property means they don’t meet lenders’ requirements. Another obstacle is the fact that climbing interest rates have raised the bar borrowers must clear to pass the federal mortgage stress test, Mr. Butler said. Yet another hitch is that mortgages, unlike HELOCs, require payments of both principal and interest, resulting in bigger monthly outlays for borrowers, he added.

Well, rising rents is one way the situation might be resolved. Another way is for the investors to eat the negative carry for an indefinite period; and the third is for the investors to sell at a loss. As the rental market seems to be priced at all the market can bear, I’ll suggest that the third is the most likely option with the timing set for the deals to close around the time the mortgage (if any) renews. That’s what happened in 1980 and again in 1991.

But amid all this talk of rising prices, some may simply wish to relax:

Prices for recreational and medicinal cannabis have dropped by 8.3 per cent and 10.2 per cent, respectively, over the past year, and by roughly 25 per cent in both categories since the end of 2018, according to Statistics Canada. The annual inflation rate hit 6.7 per cent in March, the highest since 1991.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 3.76 % 4.43 % 24,500 18.60 1 1.7045 % 2,549.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.8850 % 4,814.0
Floater 4.29 % 4.32 % 53,245 16.75 3 -0.8850 % 2,774.3
OpRet 0.00 % 0.00 % 0 0.00 0 -0.2158 % 3,554.3
SplitShare 4.79 % 4.97 % 35,142 3.32 8 -0.2158 % 4,244.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2158 % 3,311.8
Perpetual-Premium 5.90 % 5.93 % 62,822 14.00 1 -0.2394 % 2,958.2
Perpetual-Discount 5.77 % 5.86 % 64,992 14.08 35 -0.0194 % 3,218.7
FixedReset Disc 4.66 % 5.98 % 142,848 13.86 59 -0.4797 % 2,491.8
Insurance Straight 5.72 % 5.80 % 106,055 14.18 20 -1.1551 % 3,135.3
FloatingReset 4.72 % 5.05 % 69,770 15.40 2 2.7273 % 2,659.8
FixedReset Prem 5.04 % 4.69 % 145,635 2.11 9 -0.2505 % 2,616.2
FixedReset Bank Non 0.00 % 0.00 % 0 0.00 0 -0.4797 % 2,547.1
FixedReset Ins Non 4.62 % 6.15 % 85,164 13.76 15 0.5149 % 2,596.6
Performance Highlights
Issue Index Change Notes
TRP.PR.G FixedReset Disc -39.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 12.29
Evaluated at bid price : 12.29
Bid-YTW : 10.29 %
CCS.PR.C Insurance Straight -5.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 22.03
Evaluated at bid price : 22.26
Bid-YTW : 5.67 %
MFC.PR.B Insurance Straight -4.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 20.41
Evaluated at bid price : 20.41
Bid-YTW : 5.78 %
BAM.PR.T FixedReset Disc -2.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 17.40
Evaluated at bid price : 17.40
Bid-YTW : 6.88 %
BAM.PR.C Floater -2.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 13.07
Evaluated at bid price : 13.07
Bid-YTW : 4.32 %
MFC.PR.C Insurance Straight -2.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 20.30
Evaluated at bid price : 20.30
Bid-YTW : 5.63 %
SLF.PR.D Insurance Straight -2.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 19.96
Evaluated at bid price : 19.96
Bid-YTW : 5.65 %
PWF.PR.S Perpetual-Discount -1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 20.65
Evaluated at bid price : 20.65
Bid-YTW : 5.86 %
PWF.PF.A Perpetual-Discount -1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 19.67
Evaluated at bid price : 19.67
Bid-YTW : 5.76 %
BMO.PR.S FixedReset Disc -1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 21.01
Evaluated at bid price : 21.01
Bid-YTW : 5.98 %
TRP.PR.A FixedReset Disc -1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 16.92
Evaluated at bid price : 16.92
Bid-YTW : 6.80 %
GWO.PR.G Insurance Straight -1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 22.03
Evaluated at bid price : 22.26
Bid-YTW : 5.91 %
CM.PR.P FixedReset Disc -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 20.52
Evaluated at bid price : 20.52
Bid-YTW : 5.98 %
SLF.PR.E Insurance Straight -1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 20.11
Evaluated at bid price : 20.11
Bid-YTW : 5.67 %
PVS.PR.J SplitShare -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2028-02-29
Maturity Price : 25.00
Evaluated at bid price : 24.21
Bid-YTW : 5.20 %
CU.PR.F Perpetual-Discount -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 19.71
Evaluated at bid price : 19.71
Bid-YTW : 5.82 %
PVS.PR.K SplitShare -1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2029-05-31
Maturity Price : 25.00
Evaluated at bid price : 23.80
Bid-YTW : 5.37 %
GWO.PR.R Insurance Straight -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 20.69
Evaluated at bid price : 20.69
Bid-YTW : 5.88 %
GWO.PR.L Insurance Straight -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 23.69
Evaluated at bid price : 24.00
Bid-YTW : 5.95 %
BIP.PR.F FixedReset Prem -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 23.58
Evaluated at bid price : 24.75
Bid-YTW : 5.77 %
IAF.PR.B Insurance Straight -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 5.55 %
ELF.PR.F Perpetual-Discount -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 22.34
Evaluated at bid price : 22.61
Bid-YTW : 5.91 %
GWO.PR.T Insurance Straight -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 21.68
Evaluated at bid price : 22.00
Bid-YTW : 5.91 %
PWF.PR.E Perpetual-Discount -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 23.09
Evaluated at bid price : 23.35
Bid-YTW : 5.92 %
RY.PR.S FixedReset Disc -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 23.13
Evaluated at bid price : 23.50
Bid-YTW : 5.50 %
TD.PF.C FixedReset Disc 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 20.85
Evaluated at bid price : 20.85
Bid-YTW : 5.89 %
TD.PF.B FixedReset Disc 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 20.76
Evaluated at bid price : 20.76
Bid-YTW : 5.94 %
CU.PR.D Perpetual-Discount 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 21.27
Evaluated at bid price : 21.54
Bid-YTW : 5.78 %
BAM.PF.I FixedReset Disc 1.13 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2027-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 5.44 %
MFC.PR.L FixedReset Ins Non 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 19.55
Evaluated at bid price : 19.55
Bid-YTW : 6.28 %
TRP.PR.C FixedReset Disc 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 13.86
Evaluated at bid price : 13.86
Bid-YTW : 6.90 %
RY.PR.H FixedReset Disc 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 5.79 %
CU.PR.H Perpetual-Discount 1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 22.84
Evaluated at bid price : 23.10
Bid-YTW : 5.78 %
IFC.PR.A FixedReset Ins Non 1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 18.62
Evaluated at bid price : 18.62
Bid-YTW : 6.15 %
BIP.PR.A FixedReset Disc 1.49 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2025-06-30
Maturity Price : 25.00
Evaluated at bid price : 23.90
Bid-YTW : 5.66 %
BAM.PR.E Ratchet 1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 25.00
Evaluated at bid price : 17.90
Bid-YTW : 4.43 %
PWF.PR.Z Perpetual-Discount 1.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 21.97
Evaluated at bid price : 22.25
Bid-YTW : 5.81 %
MFC.PR.N FixedReset Ins Non 2.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 19.79
Evaluated at bid price : 19.79
Bid-YTW : 6.25 %
RY.PR.N Perpetual-Discount 2.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 23.30
Evaluated at bid price : 23.76
Bid-YTW : 5.14 %
BAM.PR.M Perpetual-Discount 2.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 20.60
Evaluated at bid price : 20.60
Bid-YTW : 5.84 %
TRP.PR.B FixedReset Disc 2.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 13.05
Evaluated at bid price : 13.05
Bid-YTW : 7.00 %
SLF.PR.J FloatingReset 5.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 4.48 %
MFC.PR.F FixedReset Ins Non 6.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 15.29
Evaluated at bid price : 15.29
Bid-YTW : 6.24 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.H FixedReset Disc 56,368 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 5.79 %
TD.PF.C FixedReset Disc 54,300 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 20.85
Evaluated at bid price : 20.85
Bid-YTW : 5.89 %
BAM.PR.X FixedReset Disc 51,300 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 17.70
Evaluated at bid price : 17.70
Bid-YTW : 6.65 %
TRP.PR.D FixedReset Disc 43,874 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 18.90
Evaluated at bid price : 18.90
Bid-YTW : 6.74 %
BMO.PR.S FixedReset Disc 43,163 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 21.01
Evaluated at bid price : 21.01
Bid-YTW : 5.98 %
BMO.PR.D FixedReset Disc 39,915 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-08-25
Maturity Price : 25.00
Evaluated at bid price : 25.02
Bid-YTW : 3.27 %
There were 18 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.G FixedReset Disc Quote: 12.29 – 20.90
Spot Rate : 8.6100
Average : 4.9456

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 12.29
Evaluated at bid price : 12.29
Bid-YTW : 10.29 %

MFC.PR.L FixedReset Ins Non Quote: 19.55 – 23.50
Spot Rate : 3.9500
Average : 2.3592

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 19.55
Evaluated at bid price : 19.55
Bid-YTW : 6.28 %

PVS.PR.I SplitShare Quote: 25.10 – 30.00
Spot Rate : 4.9000
Average : 3.4335

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 4.88 %

CU.PR.J Perpetual-Discount Quote: 20.65 – 24.11
Spot Rate : 3.4600
Average : 2.0268

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 20.65
Evaluated at bid price : 20.65
Bid-YTW : 5.86 %

PWF.PF.A Perpetual-Discount Quote: 19.67 – 22.30
Spot Rate : 2.6300
Average : 1.8146

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 19.67
Evaluated at bid price : 19.67
Bid-YTW : 5.76 %

CCS.PR.C Insurance Straight Quote: 22.26 – 23.80
Spot Rate : 1.5400
Average : 1.0237

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2052-05-02
Maturity Price : 22.03
Evaluated at bid price : 22.26
Bid-YTW : 5.67 %

One Response to “May 2, 2022”

  1. skeptical says:

    For those bemoaning the fall in CPD other preferred ETFs, XRE(REIT ETF) has joined the party. Falling by a whopping 4.5% today. Who could have guessed that rising rates are bad for REITs.
    So while CPD has a way out by the way of rate resets, XRE will have to rely on cost efficiencies as well as rising rents.
    If the trend of rising rates continues, I’d wager on CPD than on XRE.
    There’s a lot of pain ahead for investors of all kinds if inflation is not tamed. That’s what the 70s taught us.

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