Dave Larock in Monday Interest Rate Update, Mortgages and Finance, Home Buying, Toronto Real Estate News
Editor's Note: Dave's Monday Morning Interest Rate Update appears on
Move Smartly weekly. Check back weekly for analysis that is always
ahead of the pack.
For the past several months there has been a disconnect in the Canadian economic
data.
While most measures (GDP growth, income growth, inflation) have shown our
economic momentum to be slowing for some time, we have still managed to generate
a surprisingly robust average of 27,000 new jobs each month over the most recent
six months. But sooner or later the data had to converge and when Statistics
Canada released its latest employment
report on Friday of last week, they did just that.
Here is a summary of the important details in the January report:
Last Friday we also received new data that showed a sharp drop in housing
starts in December , most specifically for condominiums in the Toronto area. On
the one hand, construction spending has served as a key source of economic
growth for some time, so a significant slowdown in this sector will take some
wind out of our economic sails. But on the other hand, the federal government
has been bound and determined to slow multi-residential development in Toronto
and Vancouver. If the latest rule changes achieve that desired effect, another
round of mortgage rule changes (which would have otherwise been inevitable)
becomes less likely.
Five-year Government of Canada (GoC) bond yields were nine basis points lower
for the week, closing at 1.44% on Friday. Five-year fixed-mortgage rates were
largely unchanged for the week and can still be found in the sub-3% range. While
last week’s drop in GoC bond yields should reduce the risk of an imminent hike
in fixed-mortgage rates, borrowers are still well advised to lock in a
pre-approval nonetheless to eliminate the risk of any unexpected short term
rises.
Five-year variable-rate mortgages are still offered in the prime minus 0.40%
range for qualified borrowers (which works out to 2.60% using today’s prime
rate). While the spread between five-year fixed and variable rates is narrow
using historical comparisons, variable rates are still cheaper and data like
the latest employment numbers bolster my view that they will remain so for the
foreseeable future.
The bottom line: When the Bank of Canada finally softened its
interest-rate language in its last policy statement, I saw that as a sign that
subsequent pieces of key economic data, like employment, would show more signs
of our economy downshifting. Violà.
The good news is that interest rates do not look to be going anywhere for a
while yet; the bad news is that, at least in the short term, our economy doesn't
look to be going anywhere either.
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