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CategoryRate forecast

Posted 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 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 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.

Posted Interest rates

Bank of Canada action not always prudent or correct…

Have to share this article giving us some history on the accuracy of the Bank of Canada (BOC)  interest rate forecasts…   This should get you thinking a little the next time you hear the  BOC forecasts…. Take a look at this Historical Rates chart.. look at the Bank Prime section…   You will notice some trends of rates hikes followed by rate drops…

We aren’t saying BOC rates will fall anytime soon… it’s clear the rate will go up…. but there is no straight line increase if you look back in history… Increases are followed by decreases…

-1992.. the BOC erred and raised rates thinking the economy was strong but they quickly retreated and reversed those increases after realizing it was too much, too soon.

-1995…the Quebec referendum year… remember that?  I do.. I bought a house that year… and interest rates went up 1.00% overnight after fears of a Quebec ‘YES’ vote was more than possible… but then rates dropped like a rock and remained low for several years…

-2000….another recession… the dot.com, dot.bomb error of hi-tech stock greed…  rates had climbed in 1998 and 1999 but dropped in 2001 and remained low once again…

-2008…the U.S. mortgage crisis… the worst Global recession since the Great Depression of the ’30s…. we saw BOC drop the rate to a modern-day record low…Bank Prime was 2.25%…

-2010…the BOC kept it’s promise to raise rates and increased the rate by 0.75% over a 3 month span to 3.00%….

-2011…. ?????  the BOC is expected to raise rates by as much as 1.00% this year, and another 1.50% next year, according to the RBC Economist…. Did the BOC raise rates too quickly?  Can our economy absorb these increases?   Questions that won’t be answered for a while…

It doesn’t mean you have to sit and do nothing

But this doesn’t mean you have to stand by and be a spectator.   By keeping informed with historical trends and understanding your own personal situation, you can be in control…. Understand where you fit in… Is Fixed rate better for you now?  Does Variable Rate still make sense for you?   Can you handle the potential increases that are coming?    A good Mortgage Broker can help guide you to the right answer… Remember, it’s your mortgage, your payment…your decision.

Posted Interest rates

Fixed rates are heading up

Fixed mortgage rates are going up.   Already, TD Canada Trust has announced they are hiking rates by 0.25%.  Their new ‘best advertised rate’ is 4.39%.   They are also increasing their 5 year posted rate by 0.25% to 5.44%.  This posted rate is important if you are buying with less 20% down.   All Banks must qualify borrowers with the posted 5 year fixed rate, or the prescribed rate.

The bond market has climbed steadily over the past few weeks… 5 year Canadian Bond yield is at 2.74% today.  That’s an 8 month high.   The last time the bond was this high, the best 5 year fixed rate was 4.29%.

If you’re thinking of buying or refinancing, contact your mortgage broker and get a rate held.   Most Lenders offer a 120 day rate hold…. You can still get a 5 year fixed rate mortgage for under 4.00%.

On the bright side, these rate increases are a direct result of positive economic data that’s been coming out of Canada.  So although we don’t want to pay higher rates, we don’t want to have a weak economy either.