The European Central Bank cut its main rate by 0.25% today in an effort to provide additional stimulus to the troubled European economy.    This should cause the Euro to weaken slightly against other currencies which will assist exports by making European products less expensive.   However, most analysts consider this move to be too little, too late.    Banks in Europe already have substantial access to very low cost loans but there is minimal demand for loans at this time so this rate cut will be of minimal benefit.

In the US, the Federal Reserve has stated that it will keep rates low and continue the existing bond-buying stimulus measures as long as needed.   With the markets showing concern over weaker than expected spring numbers, this news should encourage markets that the Federal Reserve is committed to ensuring job creation and economic growth reach sustainable levels.   This will definitely be beneficial to Canada as the US is the largest purchaser of our exports.

In Japan, efforts by the central bank to stimulate the world’s fourth largest economy seem to be gaining momentum.   A plan to double the money supply is causing the yen to drop against other currencies, the stock market to gain momentum and consumer confidence to rise.  The goal of 2% inflation in the next few years now seems possible and would be a dramatic change to the decades of economic malaise that Japan has suffered.

The Canadian dollar almost reached parity this week as GDP numbers for February were higher than expected.  Although the Canadian economy is still in need of some stimulus, the positive GDP news, along with increased trade surplus figures, provide hope that the economy is moving in the right direction.

Canadian bond yields continue to creep downwards which  is consistent with the projection that fixed-term mortgage rates should remain at historic lows for the short to medium term.

Please remember that 80% financing is available for qualified US residents at great rates!

Jason McLean
jason@garibaldimortgage.com

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Lower than expected growth in China caused markets to reduce positions in commodity heavy countries, such as Canada, earlier this week.    While the latest numbers showed growth in China at 7.7%, which is still very high compared to most industrialized nations, this is a lower number than expected for a country that is one of the global economic drivers.  

The US economy remains on track with positive growth in many sectors.  Recent negative job numbers have worried some that current growth is not sustainable but it is more likely that the latest numbers are just a bump in a road to recovery.   This road to recovery will have a few ups and downs but it still seems headed in the direction of strong economic growth and the return of the US to the position of a global economic leader.

This week the Bank of Canada kept the Prime rate unchanged and indicated that the Canadian economy will take longer to improve than previously expected.    Many analysts are now extending the timeline for the next interest increase to the end of 2014 or even the middle of 2015.    This is the 22^nd consecutive time, over 31 months, that the key interest rate has been left unchanged.   Household debt levels remain a concern  but this problem has subsided slightly in the past few months.   Inflation, which is one of the main factors that influences decision by the Bank of Canada, remains quite low and early 2013 numbers showed core inflation below 1% for the first two months of the year.    If the Canadian economic growth turns negative, the Bank of Canada may be forced to actually reduce the Prime rate slightly to provide additional economic stimulus but the household debt concerns means that GDP would have to worsen significantly for this to happen.

Canadian bond yields continue to creep downwards and this will keep mortgage rates extremely low for the foreseeable future. 

The Canadian dollar decreased against both the US dollar and the Euro over the past week.   The disappointing Chinese GDP numbers, along with the reduced growth prospects for the Canadian economy caused the dollar to lose over one cent against both major currencies this week.    As the price of gold recoups some earlier losses, the loonie should bounce back a bit but the volatility will likely continue for the next few months.   The dollar should not see significant long term changes in value but day to day volatility will provide opportunities to get relatively better exchange rates for those who are patient.

Please remember that 80% financing is available for qualified US residents at great rates!

Jason McLean
jason@garibaldimortgage.com

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In Europe, the continued availability of low interest loans is providing optimism that economic growth still has a chance.   After a number of years of failed austerity policies, anything that can promote positive economic growth is a welcome sight to the beleaguered European economy.    The bailout of Cyprus continues and although the negative headlines continue to worry some, the relatively small economy of Cyprus is unlikely to have a significant impact on the overall economic performance of Europe.

The US economy remains on the right track despite some minor concerns about job numbers in March.  Weak hiring numbers from March became less of a concern when jobless claims for last week showed dramatically fewer new applicants for unemployment benefits.    The positive economic growth has resulted in speculation that the Federal Reserve will end the stimulus program by the end of the year.  The program, which involved monthly purchases of $85 billion in treasury and mortgage bonds per month, should slow down as job numbers continue to improve. 

The Canadian economy continues with low growth but improving prospects in the US, and to a smaller degree China, provide hope for stronger economic prospects in the next few years.

The Canadian dollar showed some increased strength this week.  Although the dollar has stayed slightly below par for a while, it remains relatively stable and should remain so for the short term.

Canadian bond yields remain steady with a slight downward trend over the past month.   Interest rates should remain low for the foreseeable future although some recent government policy changes may cause rates to creep up slightly over the remainder of the year.

Please remember that 80% financing is available for qualified US residents at great rates!

Jason McLean
jason@garibaldimortgage.com

Comment (4)

Europe continues to muddle along, courting a collapse of the economic union, as Cyprus taxes uninsured bank deposits.  There is no quicker way to bring down a bank than to freeze accounts and then tax some of the account balances.  Italy remains a worrisome spot in the European economic arena as the Italian economy contracts at a rapid pace.    The crisis in Europe will always have some effect on the North American markets but since this situation has dragged on for so long, the markets seem to be taking most of the news in stride.

The US continues to show slow but steady economic improvement and this will continue to help Canada’s economy since a majority of Canada’s exports are sent to the US.

In Canada, a new budget was introduced last week.  The main effect for the mortgage industry was the pledge to reduce the availability of bulk insurance, through CMHC and other providers, for conventional mortgages.  Conventional mortgages are those where a purchaser has 20%, or greater, down payment.  The use of bulk insurance allowed lenders more easily securitize mortgages (selling mortgages to investors).  This also allowed lenders to accept lower spreads between bond yields and mortgage rates, which resulted in lower rates.  The lenders that will be most affected by this change securitize all their mortgages, will not lend on many properties in Whistler due to the unique zoning and rental covenants.  However, this will eventually result in a slight increase in rates for all lenders as there will be less competition in the race to the bottom for rates.  A possible increase of 0.15% to 0.25% could be seen over the next few months from this policy change.

The February inflation numbers showed an increase to 1.2%, which is still well within the Bank of Canada’s range.  This coupled with stronger than expected GDP growth indicates that Canada’s economy is heading in the right direction but any possible rate increases by the Bank of Canada remain far in the future.

Fixed term interest rates remain very low but with the government’s policy change on bulk mortgage insurance, clients are advised to secure rate holds so that they can still get today’s rates when they purchase or upon renewal.

Please remember that 80% financing is available for qualified US residents at great rates!

Jason McLean
jason@garibaldimortgage.com

Comment (3)

Cyprus is the latest country to be on the verge of economic collapse, which would further threaten the European Economic Union as the ripples would spread through other European countries.  Although Cyprus is a very small country, the collapse of the Cypriot banking system and economy would probably lead to Cyprus leaving the euro zone.  This would also represent additional risk to the already endangered economies of Greece & Portugal.   The next week or two should see the Cypriot situation come to a head.

Positive manufacturing numbers in the US and China were indicative of both major economies continuing towards stronger performance.  As long as both these countries continue to show strong economic growth, the global economic prospects will remain positive, despite the continued problems in Europe.

Jim Flaherty, the Canadian finance minister, has been admonishing various banks for advertising low mortgage rates.  Despite the fact that these advertised rates have been available at other lenders for months, Flaherty basically interfered with market forces that he felt were contributing to the high levels of debt in this country.  This knee-jerk, ill-informed reaction has definitely reduced the public’s faith in the government and has shown that the minister has underestimated the knowledge of the public.  Anyone that has been looking for a mortgage over the past few months, and has been getting decent advice, was aware that these very low rates were available at a number of lenders.

Flaherty is also releasing the latest government budget today.  There have not been any predictions of significant changes that will affect mortgage financing but once the full details are released and analyzed, the picture will be more clear.

Canadian bond yields have remained steady over the past week.  Fixed rates remain very low with 5 year terms as low as 2.79% and 10 year terms available at 3.69%.

Please remember that 80% financing is available for qualified US residents at great rates!

Jason McLean
jason@garibaldimortgage.com

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