Fueled by declining stock markets, and universal fear regarding global debt, bond yields are decreasing which is providing downward pressure on fixed interest rates. The best 5 year fixed rate today August, 5th, 2011 is currently 3.49% for purchases that are closing within 45 days of application. The lender that provides this rate offers 20% prepayment privileges each year and does not limit the prepayment to just once per calendar year. You are allowed up to 20% of the original amount borrowed in increments throughout the year.

The lowest 5 year fixed rate in recent history occurred in December 2010 at 3.45%, so we are not far from the absolute lowest historical bottom.

Based on a mortgage of $300,000, at 3.49%, 30 year amortization, the monthly payment = $1,341.26.

Please do not hesitate to contact one of our brokers for more information: http://www.garibaldimortgage.com/contact.

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The markets' reaction to the latest inflation figures is causing an upward pocket of pressure on interest rates. Influenced by gas prices, the latest inflation figures are coming in at 3.7% for the month of May. However, core inflation which strips out the more volatile prices of food and energy, was only up 1.8% in May from a 1.6% increase in April. This is still in line with the Bank of Canada's target rate of 2%. Additionally, the Canadian dollar gained in value with the latest inflation figures...a stronger dollar usually acts as a counter measure against inflation.

With so many mixed economic news, it is hard to really know what is happening in the world. One minute you hear a report that everything is tanking and the next minute you hear a report that house sales figures are not as bad as anticipated. The economists' predictions and opinions seem to change like our weather!! Anyone else experiencing winter conditions when it is supposed to be summer?? The financial state of the world seems to mirror our global weather patterns...and we are getting more than our fair share of financial hurricanes!!

From all this instability, one thing the market leaders do know, is that consumer confidence is fragile and key for any kind of recovery to be maintained. I wonder more and more these days, how much our economic news are manipulated in such a way to influence consumer thinking? Funny thing though, the truth is the truth and like cream, eventually rises to the surface. I think this is why we experience the rapid downward swings when fixed rates decide they are heading south. It's like there is a brief moment of truth until there are signs (however weak) that there is economic growth and then once again, the cycle repeats.

Is this an over reaction and manipulation by the markets or is there really enough guts in the world's economic recovery to warrant interest rate increases?

My vote is on the over reaction.

View article CBC News.

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While the global economy is showing signs of recovery, clearly there are flags that indicate that we are not out of the woods yet. Keeping the bank rate unchanged while positive growth figures are reported, indicates caution on the part of the bank.

The next Bank of Canada rate policy meeting is set for July 19th.

View entire article at CBC News.

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Following a 0.10% decline in February, Canada's GDP was up by 0.30% for March.  Manufacturing and, to a much lesser extent, construction and transportation were the main areas of growth.

Here is the breakdown by sector:

     - Manufacturing + 1.80%
     - Construction + 0.70%
     - Transportation + 0.70% 
     - Wholesale trade + 0.40%
     - Retail trade - 1.00%
     - Finance & insurance - 0.90%
     - Mining and Oil & Gas extraction + 0.10%  

The increases in the manufacturing sector are interesting taking into account the high Canadian dollar...and then maybe make sense when taking into account the cost of energy. As per recent blog post from Jeff Rubin, the added costs of shipping when producing goods overseas, make domestic production more appealing.

What does this mean for interest rates? Well...I think for now, we are in a pocket of stable rate pressure...our higher dollar with more purchasing power is a counterbalance for inflationary pressure from ecomonic growth...the question is...how long until the scales tip? 

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The world as we know it has changed. Many of the rules that we used to base our predictions and forecasts on, now hold as much water as a sinking ship. Fundamentally, previous assumptions were based on the availability of huge oil reserves and also that oil was relatively inexpensive to drill, refine, ship. Earlier days saw high level manipulation from various Governments for the simple sake of profit taking. People accepted the price fluctuations as cyclical changes. So how does our current global oil situation affect mortgage rates?

Interest rate performances have been driven by some basic guidelines…the economy expands…inflation is a concern…so upward pressure on rates…the economy contracts, inflation retreats, and there is downward pressure on rates… But alas now, the influencing factors are so much greater…the world is so much bigger than mere elections and droughts…those were the good ‘ole days.

Jeff Rubin, author of “Why Your World Is About To Get A Whole Lot Smaller,” is an energy specialist, and previously a high level economist with CIBC. His recent blog post on China’s demand for oil and how it could affect the US is an eye opening piece. The following are excerpts:

• Currently, almost 2/3 of the People’s Bank of China $2.85 trillion foreign reserves, are in US dollar assets. In a world of cheap oil, China’s central bank felt compelled to become the largest holder of US Treasury bonds to keep the Yuan from rising and to undermine the competitiveness of Chinese exports in the US marketplace.
• The world is different now.  Not only will triple digit oil prices sever those trans-oceanic trade links through soaring transportation costs but they will throw the U.S. economy back into recession. Contracting economies, particularly those also burdened with huge fiscal deficits, don’t make great trading partners.
• Without access to the huge pool of Chinese savings, the U.S. is no more capable of financing its fiscal deficit than the PIGS (Portugal, Ireland, Greece or Spain) are capable of financing theirs. If China stops funding the Treasury market, Treasury yields will soar, pulling mortgage rates with them.

So, what does this mean for Canada? Will our rates be pulled northward by the influence of the situation in the US? Canada is standing on a little more solid ground than the US, but how much more solid? Our GDP in the last 12 months has shown marginal increases, largely due to our own Mining, and Oil & Natural Gas extraction and processing. Will our natural resources be enough to sustain us through the ever more volatile economic climate?

It seems impossible to answer these questions because the world as we knew it now seems to change on a daily basis. And apart from the numbers that seem to continually dominate discussion, what about non-numerical impacts? Anyone into discussing the global human and environmental outcomes of our new world?

View Jeff Rubin’s blog post here.

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