David Larock in Mortgages and Finance, Home Buying, Toronto Real Estate News
Last week was a slow one for new economic data so in today’s Update I’m taking a
step back and offering a general overview of how the world looks from my
desk:
The U.S.
The beauty (or lack thereof) of the U.S. economic recovery is still in the
eye of each beholder. Some experts are touting the start of a jobs-led recovery
and are writing about signs of housing market recovery. Others believe that U.S.
consumers, long serving as engines of global growth, are waking from their
spending slumbers just in time for the holiday shopping season.
In short, I think the U.S. economy is a very long way from a meaningful and
sustainable recovery and that deflation, not inflation, remains its primary risk
(rising food and fuel prices notwithstanding).
Europe
The euro-zone experiment continues to lurch from one disaster to another:
But these sovereign default threats are mere appetizers compared to France’s
coming denouement:
This begs the question: What happens when the second most important country
in the euro-zone experiment goes from bailor to bailee? How does a monetary
union that is fundamentally defined by a Franco-German partnership hold together
if/when France is staring default in the face? If waves upon waves of austerity
programs have turned peaceful Spanish protests into violent ones, what will
French protests look like? Will the guillotine make a comeback?
(China and its rapidly decelerating growth rates are also on my worry list
but that topic will have to wait for another day.)
Canada
Canada has fared as well as any country since the start of the Great
Recession. But this is in large part because our economic growth has been fueled
by rising consumer debt, which has now reached the point where Bank of Canada
(BoC) Governor Mark Carney is calling it the biggest single threat to our
domestic economy.
While a small, open economy like Canada’s will always be vulnerable to a
slowing global economic landscape we have several strong points in our favour.
Specifically:
Before I get to the silver lining in all of this doom-and-gloom in The
Bottom Line below, let’s take a look at what happened with mortgage rates
late week:
Five-year GoC bond yields were up 4 basis points for the week, closing at
1.37% on Friday. Five-year fixed-mortgage rates are available in the 3% range
and smaller lenders who offer
Big Five are now very competitive. That’s good news for informed borrowers who
are willing to think beyond their branch.
Variable-rate mortgages are still not compelling in my opinion (my best
variable is still prime minus 0.4%, which is 2.60% using today’s prime rate). It
would probably take Mars hitting Earth for Governor Carney to lower the BoC’s
overnight rate any further, which means that variable rates come with more risk
of increasing than potential for decreasing at this point. As such, I continue
to advise borrowers who are looking to save money at the short end of the yield
curve to consider a one-year fixed rate as an alternative. (My best one-year
fixed rate is 2.49% today and I am recommending it as my Mortgage
Deal of the Week.)
The bottom line: GoC bond yields are at ultra-low levels because
investors still believe that our government bonds offer safety at a time of
great uncertainty. For many of the reasons listed above, I believe the global
uncertainty theme has plenty of room left to run, and since our mortgage rates
are priced off of GoC bond yields, that should keep them at rock-bottom levels
for the foreseeable future.
David Larock is an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David's posts appear weekly on this blog (movesmartly.com) and on his own blog integratedmortgageplanners.com/blog). Email Dave