Dave Larock in Monday Interest Rate Update, Mortgages and Finances, Home Buying
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Last week we received the latest Canadian and U.S. employment reports, and in today’s post I’ll provide the highlights and offer my take on the impact that this new data may have on Canadian mortgage rates.
The Canadian Labour Force Survey for January
The U.S. Non-Farm Payroll Report for January
The latest Canadian and U.S. employment reports are not likely to significantly alter the cautious overall monetary-policy stance of the Bank of Canada (BoC). Bluntly put, our economy continues to experience slowing overall momentum and this is expected to weaken our employment data further in the coming months. While a strengthening U.S. economy (and a cheaper Loonie) should provide a much-needed lift for our export manufacturers in time, this benefit will take longer to accrue and is not yet apparent in the data.
A more interesting development is occurring south of the border. The U.S. Federal Reserve has long pinned the timing of its next policy-rate hike on improving employment momentum, which is now undeniably occurring. If the Fed is true to its word, then it will have to raise its policy rate in the middle of 2015. Some experts are skeptical and believe that the Fed won’t tighten until it sees U.S. inflation running above its 2% target for a period of time, and that could take much longer. Meanwhile, looser monetary policy in places like Japan, China and Europe has fueled a surge in the U.S. dollar and this acts as a de facto form of U.S. monetary-policy tightening. This too may help stay the Fed’s hand.
Regardless, at some point the Fed is going to have to match its action with its words or it risks losing its credibility. The key question now is whether it will be the words or the actions that will move more closely in alignment with the other.
Five-year Government of Canada bond yields rose by eighteen basis points last week, closing at 0.78% on Friday. This type of surge would normally imply that higher fixed-mortgage rates were on the horizon, but in this case the rise came off of all-time lows and in the current environment, lenders still have healthy margins to work with. As such, last week’s move is not expected to push fixed mortgage rates higher than their current 2.69% to 2.59% range. Meanwhile, pre-approvals are offered at rates as low as 2.79%.
Five-year variable-rate mortgages are still available in the prime minus 0.65% to prime minus 0.80% range, depending on the terms and conditions that are important to you. As a reminder, prime rates recently fell from 3.00% to 2.85%.
The Bottom Line: Last week’s Canadian and U.S. employment data showed a widening gap in the momentum being experienced by both countries. Canadian employment growth justifies continued caution by the BoC, and while another months of strong U.S. employment growth should accelerate the U.S. Fed’s tightening timetable, other less transparent factors may keep the Fed on hold for longer than expected. All told, over the near term, I don’t expect the latest employment data from either country to have a material impact on either our variable or fixed mortgage rates.
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, Move Smartly, and on his own blog: integratedmortgageplanners.com/blog Email Dave