CategoryRate forecast

Posted April 30, 20113 Comments Interest rates

Economic and Real Estate Outlook from Annual Mortgage Broker’s conference.

On April 14, I attended the annual Independent Mortgage Brokers Association (IMBA) annual conference. We were fortunate to have Canada Mortgage and Housing Corporation’s (CMHC) Regional Economist, Ted Tsiakopoulos, share his outlook on the economy, real estate and interest rates.

Click here for the entire presentation. This is a summary of CMHC’s outlook:

No evidence of housing bubble.
housing market is stabilizing in Ontario.
we won’t see the growth in prices as in years past.
this outlook is still uncertain given all the global events, both political and economic.
credit growth is slowing.
Interest rates will rise as economy improves.

The good news is that there doesn’t seem to be a housing bubble. Interest rates will gradually return to normal. And we don’t seem to be taking on as much personal debt as the government and media has led up to believe in the recent months.

Posted April 28, 20114 Comments Mortgage News

NDP polls up and Variable rate mortgages more costly… coincidence?

This week, we saw two major mortgage lenders raise their Variable rate pricing from Prime less 0.75% to Prime less 0.65% and Prime less 0.50%…

This is really quite unexpected…. We cannot ignore what is happening… The explanation given for the prices changes is ‘profitability concerns’. But the cost of Variable Rate funds hasn’t really changed. We believe there are a few other possible explanations.

First, we are seeing more borrowers flock to Variable rate mortgages again…. With a 2.20% difference between a 5 year fixed rate and a Variable rate, it’s been much easier to choose to Variable. Banks make more money on 5 year fixed rate mortgages and would rather push you into these products…. And yet another reason is the possible gains in the recent polls by the NDP.

According to this article in the Globe and Mail, we should brace ourselves for more costly mortgages if the NDP keeps moving in the polls. Here’s a quote from the article that says it well, “This interest rate premium on social democratic governments is unfair and tragic. But dismissing it is unrealistic.”

Posted March 24, 2011 Interest rates

Inflation rate drops in February and rate hikes pulled back.

It may seem hard to believe but Canada’s core inflation rate is down in February to lowest level since 1984 as reported by CBC. It’s now 0.90%.

Filling up my car at the gas pumps or buying groceries is certainly costing me more… So how can the inflation rate be lower be lower?

The Core inflation rate strips away food and energy costs resulting in a lower rate of inflation.

The Bank of Canada has a Target inflation rate of 2%. The Target range is 1% to 3%. When you combine a high Canadian $dollar that is at par with the $US dollar and this low inflation rate, the Bank of Canada less likely to raise the Target Rate….for now.

Here are a few forecasts… Citigroup says a rate hike will not take place in April but instead, July. And retired RBC Chief Economist, Patricia Croft says to watch the Bank of Canada 2 year bond yields for an indication of where the market thinks rates are headed. The yields have dropped from 1.90% to 1.68%. She says the market thinks rates won’t go up til October and only by 35bps. But she thinks we should be ready for summer rate hikes. The next few inflation reports will play a big part in the Bank of Canada’s future decisions.

I tend to agree with both forecasts… Summer rate hikes are likely…. but I’m not sure how high and how quickly these rate hikes will happen. We’ll be watching and reporting.

Posted March 7, 2011 Mortgage Trends

Scotiabank says Bank of Canada won’t move till October

Last week, the Bank of Canada (BOC) kept it’s Target Rate unchanged for the 4th consecutive meeting. That’s means Bank Prime is still 3.00%. Many Experts and Economists think the next rate hike will come as early as April or as late as June….

But not all Economists agree. Scotiabank’s economists say the rate will remain unchanged til October. They give a detailed explanation as outlined in this National Post article... but the main reasons are:

high $Canadian Dollar (an increase by BOC usually increases the $CAD)
global uncertainty… the middle east turmoil and European debt worries
tougher financing rules including the new mortgage rules
U.S. Fed not expected to raise their rate til next year…any increase by the BOC would push the $CAD even higher and make our exports even more expensive
possible Federal election in Canada coming soon.. and provincial elections this year… history tells us that rates are usually flat during election time.

The Scotiabank economist make a good argument. I like the political reason… History shows us politics play a big role in the BOC actions…. Enjoy the low rates… They seem to be here for a while.

Posted February 25, 2011 Mortgage News

Bond yields fall after Middle East turmoil

Earlier this month, we saw Fixed mortgage rates go up and the forecasts were calling for rates to continue to go up over the next 2 years. It’s important to remember that all forecasts make certain assumptions and don’t allow for the unexpected… These forecasts may still be accurate but of course, no one was expecting the uprising in Egypt, now Libya and possibly other Middle East countries…

The Canada Bond yield has dropped around 22bps to 2.58% from a 10 month high of 2.80%. This takes some of the pressure off to raise fixed rates… and we might even start to see some Fixed rate decreases if the Bond yields fall further…(or course, the Banks are famous for raising rates immediately but lowering them slowly and this was even identified by the most recent Bank of Canada quarterly review)

I can’t help but to reflect on Professor Moshe Milevsky’s article from a few weeks about how to deal with rising interest rates…. In this article he cautioned us about overreacting to warnings of huge rate hikes or calls to lock in your mortgage… Wow, the timing of his article couldn’t be more perfect. I recommend you take a moment and read what the Professor has to say.