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What Bank of Canada Governor Poloz Really Said about Housing Bubble Risks – Monday Morning Interest Rate Update (December 15, 2014)

by Dave Larock

Mortgage Rate ConceptLast week was an eventful one for mortgage rates and for residential real estate in general.

For starters, we saw five-year Government of Canada (GoC) bond yields plunge to 1.31%, which marks their lowest level in eighteen months. This was a stark reminder that the outside world still views Canadian economic momentum through an oil-tinged lens.

Some argue that this reaction is overblown. Canadian energy production accounts for approximately 6% of our total GDP and 21% of total exports, making energy a significant, but not dominant, contributor to our overall economic output. But markets respond to changes at the margin, and in that vein, the recent drop in both the Loonie and our bond yields makes more sense – especially when you consider our oil patch has created the largest share of new, higher-paying jobs since the start of the Great Recession, and that this sector has been leading the nascent rebound in business investment, which Bank of Canada (BoC) Governor Poloz has long maintained is a vital element in every one of his healthy-recovery scenarios. read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Why the Gap Between Fixed and Variable Mortgage Rates May Widen – Monday Morning Interest Rate Update (December 8, 2014)

by Dave Larock

Mortgage Rate ConceptLast week the Bank of Canada (BoC) left its overnight rate unchanged as expected.

It has now been more than four years since the BoC last moved this rate, and given that this is the rate that our variable-rate mortgages are priced on, that means that anyone who took out a variable rate on or after September 2010 is still waiting for their first rate change.

(This makes me wonder if it is time to revisit Kevin O’Leary’s dire warning two years ago that variable-rate borrowers would “get slaughtered” if they didn’t lock in a fixed rate immediately. Rereading that article reminds me of Andy Capp’s famous quote about how “those who know the least always seem to know it the loudest”.)

Here are the highlights from the accompanying BoC commentary, which reads to me like a textbook example of a neutral interest-rate policy statement: read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Why Are Bond Yields Falling in the Face of Improving Economic Data? Monday Morning Interest Rate Update (December 1, 2014)

by Dave Larock

Mortgage Rate ConceptIt must be tough to teach economics in the bizarre world we find ourselves in today.

To wit: Last week Statistics Canada reported that our gross domestic product (GDP) grew by 2.8% on a year-over-year basis in the third quarter, well above the consensus forecast of 2.1%. This positive momentum dovetails nicely with our improving employment picture, which saw more than 100,000 jobs added to our economy over the same period. As one would intuitively expect in such an environment, our overall inflation levels also trended higher during the third quarter, with our consumer price index (CPI) coming in at 2.4% in October and remaining above the Bank of Canada’s mid-range inflation target of 2.0% over that entire three-month period.

Using these key indicators, a student of traditional economics would be correct in assuming that bond yields should typically rise against this backdrop but instead, over that period five-year Government of Canada (GoC) bond yields have traded at their lowest levels since 2012, and fell again last week in spite of the GDP upside surprise. read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Monday Morning Interest Rate Update (November 24, 2014)

by Dave Larock

Today’s post will be short and sweet.

This weekend I attended the national conference for the Canadian Association of Accredited Mortgage Professionals in Montreal and was honoured to receive their inaugural Financial Literacy Leader of the Year award. It was fun to catch up with old friends and to have the chance to thank people who have helped me throughout my career as a mortgage professional.

Five-year Government of Canada bond yields were flat for the week, closing at 1.51% once again on Friday. Five-year fixed-rate mortgages remain in the 2.79% to 2.89% range, and five-year fixed-rate pre-approvals are offered at 2.99%.

Five-year variable-rate mortgages are available in the prime minus 0.65% to prime minus 0.80% range, depending on the terms and conditions that are important to you.

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Why Hasn’t Ultra-Loose Monetary Policy Caused Higher Inflation? Monday Morning Interest Rate Update (November 17, 2014)

by Dave Larock

Mortgage Rate ConceptThe central bankers who administer monetary policy for the world’s largest economies have been whipping up potent cocktails that combine ultra-low interest rates with quantitative easing (QE) programs and other creative forms of monetary policy stimulus since the start of the Great Recession.

Most market watchers have predicted that the unprecedented scope and scale of this monetary largesse would eventually trigger significantly higher inflation, as measured by the Consumer Price Index (CPI). But so far it hasn’t happened. In fact, more often than not, these ultra-loose monetary policies have corresponded with falling CPI inflation.

Today’s question is: Why? read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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What Another Good Jobs Report Means For Canadian Mortgage Rates – Monday Morning Interest Rate Update (November 10, 2014)

by Dave Larock

Last week we learned that the Canadian economy added 43,000 new jobs In October, a far cry from the 5,000 drop that the consensus was expecting for the month. In today’s post we’ll take a look at the latest employment data and discuss the implications for Canadian mortgage rates.

Here are the highlights:

  • Canada’s job-creation engine finally broke out of its pattern of adding jobs one month only to surrender those gains in the following month. Here is what the employment data looked like in the six months prior to the latest release: September (+74,000), August (-11,000), July (+42,000), June (-9,400), May (+25,800), April (-29,000). Is it any wonder that our forecasters expected a pullback in the October data?
  • The private sector grew by 71,000 jobs in October, adding impressive momentum to the 124,000 new jobs it created in September, albeit after shedding 112,000 jobs in August. There is hope that the pickup in export demand that has been fueled by the cheaper Loonie has finally led to a cyclical rebound in business hiring. Self-employment increased by 26,000 jobs, and the public sector shrank by 54,000 jobs.
  • The manufacturing sector added 33,200 new jobs last month. Research shows that, on average, each of these jobs leads to the creation of 2.7 other jobs throughout our broader economy. This pickup is a particularly welcome sign because overall manufacturing employment levels still hover near all-time lows.
  • On a related note, the U.S economy expanded by 214,000 jobs in October, marking the ninth straight month that it has added at least 200,000 new jobs to its labour force. This is an encouraging sign for Canada because improving U.S. economic momentum and the cheaper Loonie are combining to raise demand for our exports south of the border.

We have just experienced the best two-month run of job creation since the start of the Great Recession. But before we start assuming that our economy has turned the corner and that mortgages rates will rise more quickly than we have been expecting, consider the following: read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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The U.S. Federal Reserve Stops Its Music But the Beat Goes On – Monday Morning Interest Rate Update (November 3, 2014)

by Dave Larock

Mortgage Rate ConceptCanadian mortgage borrowers breathed a sigh of relief last week when the U.S. Federal Reserve ended the third round of its quantitative easing (QE) programs and the world did not come crashing down. Given that our economies are so tightly linked, and given that there is a very high correlation between U.S. and Canadian bond-yield movements, there is always a lingering fear that a sneeze south of the 49th parallel might give Canadians a case of pneumonia.

Last week reminded me of one of Bob Farrell’s ten rules of investing: “When all the experts and forecasts agree – something else is going to happen.”

Case in point: Most experts have been predicting that we would see financial-market chaos when the U.S. Fed ended QE3. read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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The Bank of Canada Reads Its Crystal Ball and Governor Poloz Explains Why He Wears an Ill-Fitting Suit – Monday Morning Interest Rate Update (October 27, 2014)

by Dave Larock

Mortgage Rate ConceptThe Bank of Canada (BoC) left its overnight rate unchanged last Wednesday, as was universally expected.

The BoC also released its latest Monetary Policy Report (MPR), which I read with great interest because it provides us with the Bank’s views on the state of our economy and includes projections for where it sees both foreign and domestic economic momentum headed over the next several years.

Here are five highlights on the state of the Canadian economy from the latest MPR: read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Why CDN Bond Yields Have Been So Volatile and What This Means for CDN Mortgage Rates – Monday Morning Interest Rate Update (October 20, 2014)

by Dave Larock

Mortgage Rate ConceptWhat a difference a few weeks can make to the outlook for Canadian mortgage rates.

In the middle of September, our benchmark five-year Government of Canada (GoC) bond yield had surged thirty basis points to 1.73%, hitting its highest level since July 2013.The mortgage market braced for the first across-the-board hike in five-year fixed mortgage rates this year, but then in less than a month, five-year GoC bond yields plummeted to 1.38%, marking their lowest level since May 2013.

This heightened volatility was essentially the by-product of a particularly intense fight between fear and greed in the hearts and minds of investors. In today’s post, I’ll outline why greed won a battle or two, and why fear is still winning the war. read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Why CDN Bond Yields Didn’t React To Our Latest Employment Surge – Tuesday Morning Interest Rate Update (October 14, 2014)

by Dave Larock

Mortgage Rate ConceptWe received the latest Canadian employment report last week, and it showed a surprising surge in job creation. Our economy grew by a whopping 74,000 jobs in September, more than tripling the consensus estimate of 20,000 new jobs which were forecast for the month.

Government of Canada (GoC) bond yields would normally be expected to rise in response to a sharp increase in employment demand. Rising demand pushes labour costs higher over time, and the cost of labour is a key driver of broader inflation. But five-year GoC bond yields actually fell slightly on Friday after the latest employment data were released. While this may not seem intuitive, a closer look at the employment data will help us to better understand the market’s reaction: read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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What the Latest U.S. Employment Data Mean for Canadian Mortgage Rates – Monday Morning Interest Rate Update (October 6, 2014)

by Dave Larock

Mortgage Rate ConceptWe received the latest U.S. employment data last week and they showed that the U.S. economy added 248,000 new jobs in September, well above the 215,000 new jobs that the consensus was expecting.

Once again though, beauty is in the eye of the beholder.

Those who think that the U.S. economy is well on its way to recovery noted that it has now created an average of 224,000 new jobs per month over the last three months. This run rate is well above the 150,000 new jobs that U.S. economy must create in order to keep pace with U.S. population growth and the natural expansion of the U.S. labour force. Furthermore, all of the pickup was in full-time positions, where 671,000 new jobs were added, while part-time positions fell by 384,000. The broader U6 unemployment rate, which includes part-time workers who would prefer to work full time, fell once again from 12% to 11.8%, and the average workweek expanded to 34.6 hours, the highest it has been since the start of the Great Recession. David Rosenberg noted that this expansion in hours worked was equivalent to adding another 400,000 new jobs to the U.S. labour force. If this trend continues, U.S. employers will be forced to create more jobs because their existing employment base can only be stretched so far.       read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Running But Not Empty – Monday Morning Interest Rate Update (September 29, 2014)

by Dave Larock

Mortgage Rate ConceptThis week’s post will be short and sweet because I spent the weekend running the Ragnar Adirondacks Relay Race with six of my close friends. We ran 197 miles (317 kilometres) non-stop over approximately 30 hours and were the first of 329 teams to cross the finish line (although staggered start times meant we were not necessarily the fastest team). Everything broke right for our motley crew, which included a five-time iron man, a sub three-hour marathoner and a Boston qualifier. We held together despite a mix of physical challenges for our runners leading up to the race, including a knee injury that required surgery, a partially torn hamstring, and a kidney infection, which makes it hard to process the lactic acid your body produces in abundance when you run six different legs on no sleep!

Congratulations to the runners of Boston Connection on a job well done.

Five-year Government of Canada bond yields fell eight basis points last week, closing at 1.63% once again on Friday. Five-year fixed-rate mortgages are available in the 2.79% to 2.89% range, and five-year fixed-rate pre-approvals are offered at rates as low as 2.94%.

Five-year variable-rate mortgages are available in the prime minus 0.80% to prime minus 0.65% range, depending on the terms and conditions that are important to you.

The Bottom Line: With last week’s drop in bond yields, the threat of an imminent rise in fixed mortgage rates has subsided for the time being. That said, financial markets are still uneasy and volatility can reappear quickly. Stay tuned.

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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U.S Fed Chair Yellen Buys More Time and Bank of Canada Governor Poloz Makes Me Do a Double Take – Monday Morning Interest Rate Update (September 22, 2014)

by Dave Larock

Mortgage Rate ConceptIn today’s post we’ll focus on comments made last week by both Bank of Canada (BoC) Governor Poloz and U.S. Fed Chair Janet Yellen.

The U.S. Federal Reserve’s Latest Guidance

The U.S. Fed offered its latest market guidance last week using both its post-meeting formal statement and accompanying press conference comments from Fed Chair Janet Yellen.

The Fed finds itself in an increasingly difficult position when issuing policy statements, as I detailed last week. In essence, its delicate choice of words must prevent any rise in irrational exuberance while at the same time not triggering a spike in bond yields by disrupting markets with overly hawkish language around the timing of its future interest-rate hikes, as it has done previously.

Here are the highlights from the Fed’s latest communications: read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Is a Short-Term Spike in Fixed-Mortgage Rates Coming? Monday Morning Interest Rate Update (September 15, 2014)

by Dave Larock

Mortgage Rate ConceptWhen the U.S. Federal Reserve meets this week, it is expected to adopt a more hawkish interest-rate stance in response to improving U.S. economic data. If that happens, U.S. bond yields will continue their recent rise and, given that Canadian bond yields have moved in lock step with their U.S. counterparts for some time now, an increase in our five-year fixed mortgage rates may follow.

The U.S. Fed finds itself in an increasingly difficult position. On the one hand, the Fed continues to tie its ultra-loose monetary policies to the strength of the U.S. labour market recovery, and the U.S. employment data still leave much to be desired. On the other hand, jobs data usually act as lagging indicators during recoveries, and other U.S. economic indicators seem to indicate that the U.S. recovery is now on a more solid footing. There is growing concern that the Fed will end up behind the curve if it waits much longer to start raising short-term interest rates. This could stoke inflation and ultimately force the Fed to raise rates sharply to catch up, dealing a harsh blow to U.S. economic momentum in the process.

The Fed also has an ongoing credibility issue to worry about. It has moved the goal posts it uses to estimate the timing of its next policy-rate increase several times already, and the longer the Fed waits, especially in the face of improving U.S. economic data, the more investors come to expect low rates to continue indefinitely.

To counteract this, over the past several years, every time U.S. investors become increasingly complacent about the threat of higher rates the Fed has issued some sort of warning to act as a check on group-think bubble psychology. This has triggered a short-term spike in bond yields that has been accompanied by tremors in the equity markets, followed by a ‘clarification’ from the Fed that then backtracks on its more hawkish language. If past is prologue, we should expect the same pattern to unfold this time. read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Latest Employment Data and Bank of Canada Comments Bolster Low Rates for Longer View – Monday Morning Interest Rate Update (September 8, 2014)

by Dave Larock

Mortgage Rate ConceptLast week had several interesting developments with implications for Canadian mortgage rates. For starters, the Bank of Canada (BoC) met last Wednesday and, as expected, announced that it would keep its overnight rate unchanged at 1%. (Reminder: Our variable rates are priced using the BoC’s overnight rate).

Here are the highlights from the BoC’s accompanying statement, with my comments in italics:

  • The Bank continued to attribute the recent spike in our inflation to “temporary factors”. In other words, it reconfirmed that it will not alter its monetary policy in response to what it sees as a short-term development.
  • “The global economy is recovering largely as expected”, but the European recovery has weakened, largely as a result of the situation in the Ukraine. I think the European recovery has been vulnerable throughout and that it was only a matter of time before a new spark relit the crisis anew. The Ukraine file may well be that next spark.
  • “In the United States, a solid recovery seems to be on track.” Is it just me or would that statement be a lot more reassuring without the word “seems” in it? Probably a prudent hedge though, given that the U.S. recovery has been in a pattern of two steps forward, one step back for some time now. The latest U.S. employment data released last week are a recent case in point. After several months of strong job creation, the August data showed that the U.S. economy only added 142,000 new jobs last month, well below the 230,000 new jobs the consensus was expecting.
  • “Canadian exports surged in the second quarter”, largely as a result a cheaper Loonie. “This pickup will need to be sustained before it will translate into higher business investment and hiring.” The Bank is encouraged by this development but it is holding its applause until surging export demand proves sustainable and convinces businesses to jump in with both feet.
  • “Activity in the housing market has been stronger than anticipated.” Our level of concern about the housing market is rising along with its incremental demand. Federal Finance Minister Oliver take note.
  • “The Bank still expects excess capacity in the economy to be absorbed during the next two years.” The BoC has repeatedly linked the timing of its next overnight rate increase to our economy’s return to full capacity, so the Bank is hinting that it expects to start increasing its overnight rate at some point over the next two years – although that two-year window gives it a wide margin of error to work with.

On an overall basis, the BoC maintained its wait-and-see monetary-policy approach and continued to keep investors squarely on the fence about whether its next interest-rate move will be up or down. Put another way, the Bank’s message was that it will respond to material changes in our economic momentum when it sees them, but that it doesn’t see them yet. read more…

David Larock is an independent full-time mortgage planner and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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