As the housing market in Canada continues to show signs of cooling off, mortgage lenders try to heat things up by dropping fixed rates some.  Now available on 5 year fixed terms as quick close specials or with limited prepayment options : 3.79% and 3.84%.   So rates are again near the historic lows of 2009!   Variable and adjustable rate mortgages continue to hover just over 2% with Bank of Canada meeting in early Sept. for next rate announcment.   Speculation in market is for Mark Carney to hold rates steady as opposed to raising another 1/4 point as was expeceted only a few weeks ago.  Housing market concerns and continued slow down of US economy main factors. 

Contact www.Buyingblock.com with any mortgage or housing questions. 

Michael Pezzack

Forecast for rate hikes and currency strength in Canada trimmed as economic growth outlook dampens abroad

CIBC World Markets Inc. trims forecast for rate hikes and currency strength in Canada as economic growth outlook dampens abroad

TORONTO, Aug. 18 /CNW/ - Continuing weakness in the U.S. economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc.

“North America’s story is again darkening,” says CIBC’s Chief economist in the latest Global Positioning Strategy report. “We were looking for a material second-half slowdown for the U.S. but as it turns out, it’s already happened.”

Economic growth stateside from April to June is being revised downward, Mr. Shenfeld notes, and key indicators are pointing to growth that will be slower than anticipated by U.S. monetary policy makers.

And still ahead is a “further fiscal belt tightening in 2011 that will have to be softened, and accompanied by quantitative easing, if the U.S. is to stay out of recession in early 2011 and get back to potential growth by the end of that year.

“Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest.”

While Canada is in much better economic shape - it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job - it “cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold,” Mr. Shenfeld contends.

For starters, an interest rate differential of 300-400 basis points would take the loonie “substantially stronger” creating additional headwinds for Canadian economic growth, says Mr. Shenfeld.

Furthermore, the “external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline.”

Mr. Shenfeld doubts that the Bank of Canada “has been shocked enough to forestall a rate hike in September” but his forecast that Canadian growth in Q2 and Q3 will fall below the BoC’s outlook will likely warrant a rethinking in the October Monetary Policy Report and in the months to follow.

The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are “lessons learned, we hope,” says Mr. Shenfeld.

“Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening.”

As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.

A less hawkish monetary policy combined with a mixed outlook for commodity prices affected by slow global growth will also likely see the Canadian dollar roughly two cents weaker than earlier forecast over the same horizon, adds Mr. Shenfeld. The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/gps_aug10.pdf

As summer weather heats up again in the East with temperatures in the high 30’s, the real estate market is doing the opposite with a heavy cooling off of sales.   This has forced lenders into a competitive race for  what buyers are left in the market.  Rates are again below 4% on the popular 5 yr. fixed product, with specials as low 3.89%.  This after rising to the mid 4% range during spring market. 

Adjustable / Variable rate mortgages have risen with the Bank of Canada’s two recent jumps in prime rate.  Though the discounts below prime have increased ( as low as .70% below prime ) so net effect is rates are around the same spot, at just over 2%.   Prime rate currently 2.75%. 

Some speculation that Bank of Canada may sit on sidelines as well with any further increases letting the .50% rise over the last few months digest.  Debt concerns in Europe, continued lack of growth in USA’s economy and possible slowdown in China may force Mark Carney to postpone his projected rises. 

Questions linger whether economy is on rebound or are we in for a W shaped double recession.  As such, stock markets having a rocky ride of late and interest rates have dipped again.  Can now get a 5 year fixed rate mortgage around the 4% range and the variable/adjustable rate mortgage is as low as 1.7%, or prime minus .70%.  Discounts below prime are almost back to where those products were before credit crisis.  Special on a 4 yr. fixed term at 3.99% and preapproval 5 yr. fixed rate which can be held for 120 days is as low as 4.15%.   Rate hold on firm deals good for up to 90 days at 4.09%!

It had to happen.  Economic #s too good.  So a bit of bad news for variable rate mortgage holders and home shoppers.    Rates on variable and adjustable rate mortgages climbing a ¼ point with today’s announcement by Bank of Canada that prime rate going up.  Move was expected but with recent troubles in Europe and on stock market was some thought it may be delayed til July announcement which Bank of Canada had been hinting at over the last year and a half.   

On side note fixed rates have dropped a little this week.  As reference, five year fixed rates in the 4.25-4.5% range.  Variable / Adjustable rates still mainly below 2%.   Still a healthy gap.  Feel free to contact to discuss individual circumstances.   

Summary:

The Bank of Canada raised its benchmark interest rate for the first time since 2007, saying inflation is unfolding as expected and that spillover from the European debt crisis has been limited, while stressing there remains “considerable uncertainty” about an “increasing uneven” global recovery.

With his much anticipated decision to lift the central bank’s overnight rate by one-quarter of a percentage point to 0.5 per cent after more than a year at a record low level, Governor Mark Carney has become the first central banker in the Group of Seven to tighten since the financial crisis and recession began in 2008.

In a statement on the move, however, Mr. Carney and his rate-setting panel sought to emphasize that investors should not necessarily interpret the increase as the first in an uninterrupted series.

In depth:

Bank of Canada increases overnight rate target to 1/2 per cent and re-establishes normal functioning of the overnight market

OTTAWA – The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to

1/2 per cent. The Bank Rate is correspondingly raised to 3/4 per cent and the deposit rate is kept at 1/4 per cent, thus re-establishing the normal operating band of 50 basis points for the overnight rate.

The global economic recovery is proceeding but is increasingly uneven across countries, with strong momentum in emerging market economies, some consolidation of the recovery in the United States, Japan and other industrialized economies, and the possibility of renewed weakness in Europe. The required rebalancing of global growth has not yet materialized.

In most advanced economies, the recovery remains heavily dependent on monetary and fiscal stimulus. In general, broad forces of household, bank, and sovereign deleveraging will add to the variability, and temper the pace, of global growth. Recent tensions in Europe are likely to result in higher borrowing costs and more rapid tightening of fiscal policy in some countries – an important downside risk identified in the April Monetary Policy Report (MPR). Thus far, the spillover into Canada from events in Europe has been limited to a modest fall in commodity prices and some tightening of financial conditions.

Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent in the first quarter, led by housing and consumer spending. Employment growth has resumed. Going forward, household spending is expected to decelerate to a pace more consistent with income growth. The anticipated pickup in business investment will be important for a more balanced recovery.

CPI inflation has been in line with the Bank’s April projections. The outlook for inflation reflects the combined influences of strong domestic demand, slowing wage growth, and overall excess supply.

In this context, the Bank has decided to raise the target for the overnight rate to 1/2 per cent and to re-establish the normal functioning of the overnight market <http://www.bankofcanada.ca/en/press/2010/pr010610.html> .

This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery.

Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.

Information note:

The next scheduled date for announcing the overnight rate target is 20 July 2010. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 22 July 2010.

http://www.bankofcanada.ca/en/fixed-dates/fad_update.php

New special in the broker channel from one of lenders.  Five year fixed rate of 4.19%.  Limited prepayment options of 5% per year.  Not available for preapproval.  Firm deals only with closing within 30 days. 

If interested contact www.buyingblock.com and mention the IA Special. 

Gloom hanging over global economy has lessened odds of Bank of Canada raising prime rate next week as was anticipated.  Inflation #s still a little high so possible but experts suggesting Mark Carney will hold off until at least July as per original dateline mentioned last year. 

Fixed rates at major banks dropped .10% last week.  So five year fixed rate mortgage now as low 4.35% and variable rates still below 2%, with lowest offer at prime minus .55% or 1.70%. 

Contact Buyingblock.com if you need any mortgage assistance. 

Some smaller lenders have chosen not to follow big banks lead with higher fixed rates.  So special available for 90 day rate hold at a rate of 4.35% for 5 year fixed.  

Some new special variable rates as well, as low as .55% below prime or 1.7%.

Spring is in the air.  Great time to buy since a lot more properties out there on the market. 

Contact www.Buyingblock.com for real estate and mortgage assistance. 

Folks could be another small fixed rate jump on horizon.  See below.  Strange days indeed. 

Inflation #s for March were lower than Feb. ( which many say were skewed by Olympics ) which may give Bank of Canada and Mark Carney opportunity to not raise prime rate until July as forecasted instead of bumping up a month early which was expected based on last week’s buzz.   Meanwhile, TD & RBC have raised their fixed rates another .15% to 4.85% range.  Few other lenders followed suit today.  Not all though.  So in broker channel specials as low as 4.39% for a 5 year fixed rate 30 day rate hold to 4.50% for 120 day rate hold. 

Recent rule changes by government mandating that anyone wishing a variable rate mortgage or fixed term less than 5 year must now qualify at 5 year posted rate ( currently 6.1% !!! )  have some suggesting that recent fixed rate jumps is means for lenders to gouge homebuyers since many cannot qualify at this much higher rate.   Sort of forcing them into the five year fixed term and little choice.

Rate analyser for one of Trust companies says five term should only be around 4.30%.   That being said some major lenders such as ING have not raised their fixed rates to equal RBC and TD.  And BMO special on front page of business page yesterday was stating 4.20% with some strings attached. 

Will keep you up to date.  Variables below prime as low as 1.75% are still looking attractive but need to brace yourself for jumps on horizon.  

RBC and Scotia surprisingly raised fixed rates further today, a mere two weeks since last spike.  Suspect others may follow.  Was a 1/4 point increase lifting popular 5 yr. fixed rate to 4.7% range with these lenders.  Still others available as low as 4.19% for same product in broker channel. 

Variable still a super low 1.75% on with 3 year term and some experts suggesting US difficulties may keep prime rate low for years to come since large jumps in Canadian Prime Rate would further strengthen Cdn $.   Will depend a lot on inflation. 

Contact Buyingblock for additional information and a personal mortgage analysis.