Unexpected job loss report and effect on mortgage rates.

 Last week’s Employment Stats shocked everyone when we didn’t see the expected 14,000 new jobs created as Economists were expecting.  Instead, we got hit with a reported 46,000 jobs lost in December.    Economists aren’t always accurate with their forecasts (news flash) but they usually aren’t this far off either. We won’t look at why they miscalculated here, but I do want to look at the effects of this bad news on your mortgage.

EFFECT ON FIXED MORTGAGE RATES

Higher unemployment and job loss is never a good thing.  We’re not celebrating here.   But we need to understand how it affects our mortgage rates.     When it comes to rates, bad economic news is good news.    And we saw the effects almost immediately.  Bond yields dropped by around 0.15% to 1.73%, taking the pressure off Lenders to raise rates (fixed mortgage rates are priced closely to Govt of Cda bond yields).   This means fixed mortgages won’t go up anytime soon and could even fall should the bond yields remain at this level.

Don’t forget, this is just one month’s worth of data reporting.   No need to panic.   But I can’t help but think about the timing.  It was just a few days earlier that the Federal Minister of Finance, Jim Flaherty, stepped outside the boundaries of his role and said he thinks rates will and should go up.   A bit of a slap in the face to our Bank of Canada Governor, Stephen Poloz.     This was almost like ‘good karma’ in a way for Poloz as he didn’t deserve to have his toes stepped on by Flaherty.  Especially when he is so new to his position as BoC Governor.

The new BoC Governor made headlines late last year when he said interest rates will probably remain low throughout 2014 due to economic uncertainty in Canada and the rest of the world.  Those comments were a big change over the previous BoC Governor’s unrealized projections of pending rate hikes for 2 years.   Remember all those calls for imminent rate hikes?   We had report after report about pending rate hikes that never materialized.    Interest rates didn’t go up because the economy could not produce enough consistent, positive data to justify rate hikes.

PRODUCT OF CHOICE IS VARIABLE RATE…AGAIN

Sounds like a broken record but when taking all this data into account, we find ourselves choosing Variable Rate as the mortgage product of choice, once again.   This isn’t a knee jerk reaction.   I wouldn’t make a mortgage recommendation based on this data, alone.    But long term studies prove that Variable rate is a clear winner if you want to pay less interest on your mortgage and you are willing to handle some rate fluctuations.   Fixed rates have only proven to be a good choice twice in the past 10 years. 

We should also be reminded that the Bank Prime rate has remained unchanged at 3.00% since Sept 2010.  It is bound to change, but not anytime soon… and now we are hearing this rate could actually go down before it goes up.  What a ride…stay tuned…    

Hey, I’m wondering where are all those BANKERS and so-called EXPERTS disappeared to?   You know, the ones that have been recommending 5 year Fixed Rate?   Don’t forget, BANKS make the most profit on Fixed Rates.   For some of us, in certain situations, a fixed rate mortgage could be the right choice.    If you are negotiating a mortgage, do yourself a favour and speak with an unbiased advisor.  Speak with an experienced mortgage broker.   For qualified applicants, it’s FREE and you can shop up to 50 different Lenders with one phone call.  

Your best interest is my only interest.    Buying, refinancing or renewing your mortgage?  Contact me for the best rates and terms.

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca