As European debt concerns continue to hang around, Greece is seemingly meeting new hurdles at every turn as they try to get more debt relief.   Like the boy that cried wolf, nobody really believes that Greece will be able to keep the austerity promises since their record on fiscal responsibility has been dubious at best.  Italy and Spain saw slightly increased bond yields, although not yet in the extreme danger zone, as the markets are once again showing concern that the debt crisis will spread further.

The increasing tensions about Iran is causing oil prices to increase as markets worry about potential supply shocks.  Although Iran produces around 5% of the world’s oil, the greater concern may lie in the chance of any conflicts spreading throughout the Middle East and disrupting supply channels.    Higher oil prices will cause a barrier to economic recovery as it represents a major cost for most industries.    Although this would initially keep interest rates low, any prolonged increase in oil prices would eventually result in higher inflation as the increased cost makes it way to the consumers of the end products.  Increasing inflation would lead to higher interest rates as the Bank of Canada would try to keep inflation in check by tightening the availability of cheap money. This situation with Iran is worth watching for the foreseeable future.

Some lenders began raising rates last week.  Most of the remaining lenders are increasing rates slightly this week.  Fixed rates are still extremely low and the current environment represents an excellent time to lock in borrowing costs for the long term.   

Since Monday is President’s Day for the US, please remember that for qualified US clients, financing is available at up to 80% (for the first $750k) at excellent rates.    The last few days have seen an increased volatility in the value of the Canadian dollar.  These movements in the dollar will provide opportunities for non-residents to purchase Canadian dollars at good value if the currency rates are watched closely.

Variable rates are still available at around Prime less 0.20% but for most clients, fixed rates are a much better choice since the spread between fixed and variable is so small.

 Jason McLean BSc, AMP
jason@garibaldimortgage.com 

Comment (4)

The Greek weeble continues to wobble but does not want to fall down.  Greece finally agreed to undertake even more austerity measures to satisfy the conditions of the most recent bailout terms.  The financial markets were unmoved by this seemingly positive move and  Germany even stated that the measures may not be enough.  In other European news, the Bank of England will spend $50 billion in a new wave of quantitative easing.  Although inflation seems to be waning in the UK, measures like this will eventually bring inflation to the forefront.  As with all the industrialized nations, the governments are walking a fine line between austerity that may improve short term cash flows but hurt economic growth, and stimulus to improve economic growth.    

US job numbers were up this week and slightly positive US economic growth has some people predicting an earlier end to the current economic doldrums.  The US is still in a huge deficit hole but any positive US is always good for Canada since the US is our largest trading partner and the largest customer for all that we sell.  Despite the trend to diversification of our global trading partners, we will be somewhat chained to the US markets for a long time to come.   The Canadian dollar improved slightly this week on this positive US economic news. 

This positive news from the US has also caused Canadian bond yields to increase this week and we may see a few banks remove their super low “special” rates for the time being.  However, fixed rates remain at historical lows and should stay in the current neighborhood for quite a while.  

Variable rates are still available at around Prime less 0.20% but for most clients, fixed rates are a much better choice since the spread between fixed and variable is so small.

Jason McLean   BSc, AMP
jason@garibaldimortgage.com  

Comment (3)

Increasing bond yields over the past week have led a couple of lenders to remove a couple of the super low rate products that were available last week.  However, there are still a number of tremendous rate deals available at the moment.   We may see relatively low rates hang around for a couple of years based on continuing negative projections for the global economy.  Wednesday, the US Federal Reserve indicated that they will not increase rates until the end of 2014 based on a lack of confidence in the US economy improving significantly before that date.   The markets showed that investors think that the Central Bank of Canada will raise rates prior to the end of 2014.   This was seen in the rise of the Canadian dollar which briefly went above par this morning.    Although the comments from the Federal Reserve are just projections, it does show that global markets have greater confidence in the future of the Canadian economy than the US economy.

The Federal Reserve also stated that additional stimulus measures may be required to improve growth prospects.  Since 2008, there have been large stimulus packages implemented worldwide as various countries tried to mitigate the economic consequences of the 2008 crash and subsequent credit crunch.  If stimulus measures continue to be implemented on a large scale, we may eventually see economic growth turn positive faster than without stimulus, but it come with the risk of rapid inflation.    With inflation we will see increases to interest rates.  This may not happen for 3 to 5 years but when it does, we may see rapid increases to interest rates.   This is the main reason that I am recommending a 10 year term to a number of clients that expect to hold their properties for the long term.

In Europe, Italy saw some improvement in the yields for their most recent bond sale.  Italy still has a tough road ahead but this is a step in the right direction.  Greece seems to be the weeble-wobble of the EU economy, just about falling over at every turn.   I think that it is just a matter of time before Greece defaults and goes belly up but just like the weeble-wobble, Greece seems to delay the inevitable at every turn.  Until something more concrete happens in Europe, starting with Greece, the uncertainty will prevent the solid policy change and that is required to move out of this mess.

Jason McLean   BSc, AMP
jason@garibaldimortgage.com 

Comment (11)

Last Friday, the credit ratings agency Standard & Poor, downgraded nine European nations.  This basically means that these countries, or borrowers, are “officially” no longer considered to be as reliable as they were previously.  Although there was a lot of hullaballoo in the media about the downgrades, the markets were really only affected for a day or two.  This is because the various ratings agencies had been warning of potential downgrades across Europe for the past few  months.   Therefore, the markets had already priced this action into their projections and although further downgrades may occur in the future, the current actions should not have surprised anyone.

Yesterday Spain held a successful bond auction that saw bond yields drop to just under 5.5%, a dramatic improvement from over a month ago when yields were over 7%.  However, Greece remains problematic and is still teetering on the brink of default.  Overall, Europe continues to stumble along with bits of good news popping up here and there.

On Tuesday, the Bank of Canada left the Prime rate untouched and expressed concern about the European debt crisis slowing economic growth in Canada for the next year or longer.  Despite recent positive growth numbers, some pundits are predicting cuts of 0.5% to the Prime rate over the next six months.  I think that the Bank of Canada will remain on the sidelines through 2012, saving their few remaining bullets in case the villain that is negative growth rears its ugly head. 

After one lender announced a 5 year fixed term at 2.99% last week, many other lenders have decreased fixed rates and there are a number of appealing options available.  Two lenders have 10 year fixed terms at 3.89% and 3.99% respectively.  If I was to purchase property now, with the expectation of holding the property for at least 5 years, I would jump all over these 10 year terms.  This is a once in a lifetime opportunity for purchasers to lock in tremendously low rates for a decade.   These lenders are not lending on all Whistler properties but there are attractive options for all buyers at this time.

Jason McLean  BSc, AMP
jason@garibaldimortgage.com 

Comment (11)

Another US long weekend is upon us with Martin Luther King Day falling on Monday, January 16^th.   After an unusually busy holiday period for real estate and mortgages, we may see some decent activity from US clients this weekend.  Please remember that for qualifying US residents, financing is available at up to 80% on the first $750k (and 60% of the remaining balance)at very good rates.

In Europe this week, successful bond auctions in Italy & Spain saw significant decreases in yields which will result in more manageable debt servicing costs for both countries.  This positive development may be tempered by new concerns about negative economic indicators coming out of Germany.   Possible recessionary signs in the EU’s strongest economy will make the markets continue to be nervous until more sustained positive news comes out of the region.  To that end the European Central Bank did not move interest  today but many pundits are calling for the lowering of rates at their next announcement.

In Canada, a couple of the big banks are warning of potential decreasing house prices in Toronto and Vancouver.   As I see it, the good news in this is that Whistler has already seen price decreases and should be a good place for long term capital appreciation when compared to most markets in Canada.  Some of the major lenders have started to further decrease fixed rates.  This may become relatively short term rate war with consumers winning if they are able to take advantage within the applicable time period.  Variable rates remain relatively high when compared to fixed rates and are currently not a good option for most clients.  Canadian dollar  is still hovering around $0.98 but despite recent signs of stability, expect to see volatility return over the next few months.

Jason McLean  AMP
jason@garibaldimortgage.com

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