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Why Bank of Canada Governor Poloz’s Words Are Music to the Ears of Every CDN Mortgage Borrower – Tuesday Morning Interest Rate Update (September 2, 2014)

by Dave Larock

Mortgage Rate ConceptLast week we learned that Canada’s gross domestic product (GDP) grew by 3.1% in the second quarter, well above the 2.5% GDP growth that analysts were expecting, and a big improvement on the 0.9% GDP growth we saw in the first quarter of this year.

With both inflation and GDP growth now surging, anyone keeping an eye on our mortgage rates might be surprised to learn that Government of Canada (GoC) bond yields, which our mortgage rates are priced on, remain very close to the bottom end of their trading range over the most recent twelve months.

This is due in large part to recent comments from Bank of Canada (BoC) Governor Stephen Poloz. For example, he recently reassured bond investors that the factors that have pushed our Consumer Price Index (CPI) higher of late would prove transitory. He was proven partially right when the most recent CPI data, for July, showed inflation receding slightly from 2.4% to 2.1%. Then, a week before the latest GDP data were due to be released, Governor Poloz gave an interview at the Jackson Hole Economic Symposium in which he said that even if our economy took off “like a rocket … it would still have room to grow”. In other words, he believes that our economy can absorb substantial increases in demand without it being at risk of overheating. Armed with that guidance, market reaction to the latest GDP upside surprise last Friday was muted, with the Loonie actually closing 0.22 cents lower on the day. 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. Fed’s Latest Insights and What They Mean for Canadian Mortgage Rates – Monday Morning Interest Rate Update (August 25, 2014)

by Dave Larock

Mortgage Rate ConceptGone are the days when central bankers act as invisible hands, which nudge economies back toward states of equilibrium as needed.

Since the Great Recession first sent shock waves that still echo today throughout the global economy, central bankers have taken centre stage. They now use their mighty (and bloated) balance sheets to purchase huge quantities of not just bonds, but also stocks. Central bankers now set the price for so many asset classes, either directly through outright purchases or indirectly through interventionist monetary policies, that these days, they are effectively the only game in town.

Did you know that the U.S. Federal Reserve, the Bank of Japan and the Bank of China have purchased 90 percent of all new U.S. Treasuries issued so far this year? In an ironic twist, central banks have become concerned about their balance sheets being stuffed with so much low-yielding debt (of their own making) and in response, many are now purchasing equities in an attempt to diversify. Much like investors, central bankers want to reduce the risk that higher future inflation rates and consequent higher interest rates will trigger huge losses. But these market elephants can’t just wade quietly into the equity markets to balance their portfolios. Their tracks leave deep marks wherever they tread. 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 Central Bankers Want Higher Inflation and What This Means for CDN Mortgage Rates – Monday Morning Interest Rate Update (August 18, 2014)

by Dave Larock

Mortgage Rate ConceptThese days, both the U.S. Federal Reserve and the Bank of Canada (BoC), along with many other central banks in charge of monetary policy for the world’s largest economies, want higher inflation. That’s because in many cases, their inflation rates hover in the 2% or less range – perilously close to the zero, which puts outright deflation well within reach if a recession or another economic shock hits.

In today’s post I’ll explain why the U.S. Federal Reserve and the BoC are actively rooting for above-target inflation and I’ll outline the implications for borrowers who are trying to decide between fixed and variable mortgage rates. 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 Continuing Struggles of the Canadian Labour Market – Monday Morning Interest Rate Update (August 11, 2014)

by Dave Larock

Mortgage Rate ConceptLast week ended with another disappointing Canadian employment report.

Statistics Canada estimated that we gained only 200 new jobs in July. The details in the report showed that we lost 60,000 full-time jobs and generated almost the same number of new part-time jobs to take their place. Not surprisingly, average wage growth continued to sputter along, struggling to keep pace with inflation.

If you’re looking for a silver lining in what was a mostly dark-cloud report, consider that we added 11,500 new manufacturing jobs last month, at least temporarily reversing the steady erosion of jobs in that sector (which has shrunk by approximately 15,000 over the past year). Also, average hours worked increased for the month, which might be an early signal of rising demand for labour if there is any follow through in the coming months.

The Canadian dollar fell on the news, and while that will help make our exports more competitive over the long run, the immediate impact will be higher import prices.

Over the short term, a cheaper Loonie increases the cost of materials and equipment that our manufacturers must import for use in their production processes. The benefits of a more competitive currency are taking longer to accrue, and may not actually fuel a labour-market recovery when they materialize. Our export manufacturing sector was devastated by the Great Recession and its recovery won’t just be a matter of existing companies ramping up production in response to recovering demand. Many of our export manufacturers shuttered their businesses altogether and, while we are seeing the first signs of recovery in this sector, there is no guarantee that tomorrow’s export manufacturers will be as labour intensive as yesterday’s were. The Phoenix that rises from these ashes may look very different indeed.

Five-year Government of Canada bond yields rose by five basis points last week, closing at 1.51% on Friday. Five-year fixed-rate mortgages are available in the 2.79% to 2.94% range and five-year fixed-rate pre-approvals are offered at rates as low as 2.99%.

Five-year variable-rate mortgages are available in the prime minus 0.75% to prime minus 0.60% range, depending on the terms and conditions that are important to you.

The Bottom Line: Our employment data are consistent with an economy that is struggling to create real momentum and it is hard to envision any meaningful uptick in fixed and variable mortgage rates until that changes.

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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Tuesday Morning Interest Rate Update (August 9, 2014)

by Dave Larock

I am on a family vacation this week.

As you read this I may be zip-lining, mountain biking or trail running in some of the most beautiful parts of Canada.

Here’s hoping I make it back in one piece!

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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A Look in the Rear-View Mirror – Monday Morning Interest Rate Update (July 28, 2014)

by Dave Larock

Mortgage Rate ConceptLast week was a relatively slow one on the mortgage-rate news front so I thought I would use today’s update to highlight several of the posts I have written since the inception of this blog – which now includes 230 posts and counting.

Most Popular

Some of my most popular posts focus on mortgage contract terms and conditions that are often buried deep within your mortgage documents . If life were fair, many of these clauses would be printed in boldface font and come with flashing lights next to them:

This post explains how lenders calculate fixed-rate mortgage penalties. Many readers are surprised to learn that the Big Six banks charge penalties that are often four or five times higher than those assessed by many other lenders.

When I wrote “Why I Won’t Sell Mortgage Insurance”, I got a call from a mortgage life insurance company telling me that I had to take the post down because I wasn’t a licensed insurance advisor and therefore wasn’t entitled to offer an opinion on the product. (I didn’t.)

This one explains how one large Canadian lender imported an aggressive U.S. lending tactic – and this lender is also the only one in Canada that uses collateral mortgage charges on standalone fixed-rate mortgages, a technicality which I explain is good for banks but bad for customers.

My variable-rate simulations tend to draw a significant amount of interest as I try to look into my murky crystal ball to divine whether a fixed or variable rate might save some money over the next five years. (I’m due to post an updated version soon.)

Interest-Rate Commentary

If you’re going to write about where interest rates may be headed, I think you earn your credibility when you go against the grain and offer a view that challenges conventional wisdom (provided your theories are well researched and supported). Here are some examples of where I took that risk: 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 Is Higher Inflation Pushing Our Bond Yields Down? Monday Morning Interest Rate Update (July 21, 2014)

by Dave Larock

Mortgage Rate ConceptRising inflation would normally be expected to push bond yields and mortgage rates higher.

Inflation erodes the purchasing power of money over time, so if investors believe there will be more of it, they will demand a greater return on their money in order to ensure that their expected future profits are protected.

At least, that’s how it is supposed to work in economics class.

When Statistics Canada released its latest Consumer Price Index (CPI) last Wednesday, a funny thing happened. Despite the fact that the latest report, for June, showed average prices rising by 2.40% on a year-over-year basis, Government of Canada (GoC) bond yields fell on the news.

That’s strange because this was the second month in a row that the rise in our CPI has come in higher than the 2.00% inflation target that is used by the Bank of Canada (BoC), and our inflation rate now stands at its highest level in more than two years. While there are many economic indicators that influence the direction of bond yields at any given time, very few are as important as the rate of inflation in the CPI. So why didn’t bond yields surge higher on the news? 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 Weak Employment Data Mean for Canadian Mortgage Rates – Monday Morning Interest Rate Update (July 14, 2014)

by Dave Larock

Mortgage Rate ConceptLast Friday’s Canadian employment data came in much lower than most economists had predicted. In fact, the latest consensus jobs forecast was equivalent to calling for sunny skies and getting a torrential downpour instead.

Here are the highlights, or more aptly put, the lowlights from our latest employment data:

  • The Canadian economy lost 9,400 jobs in June – nowhere near the 20,000 new jobs that the consensus had called for.
  • Some analysts are saying that the silver lining in the latest report is that while we lost 43,000 part-time positions for the month, we added 33,500 full-time positions. I would call that a reach when you consider that we lost a total of 60,000 full-time jobs in April and May, leaving our economy 30,000 full-time jobs lighter over the second quarter of 2014.
  • Most of the newly created jobs have been in part-time positions during the past year, and the majority of job growth over this period has been in either the public sector or in ‘self-employment’ (which is considered a soft job category because it often includes workers who are actually in the midst of a job transition). On an overall basis, our economy needs to add about 20,000 new jobs each month in order to keep pace with our population growth, and we have averaged about 6,000 new jobs per month over the past year.
  • The continued erosion of our manufacturing sector is of particular concern. We lost 10,600 manufacturing jobs in June, and Ontario was hardest hit, shedding another 13,600 manufacturing jobs over the month.
  • Economist David Rosenberg observed that the ratio of manufacturing employment in Canada relative to the U.S. sank to its lowest level in thirteen years in June, and BMO economist Doug Porter noted that Ontario manufacturing employment has now shrunk to its lowest level since 1976. As a reminder, manufacturing jobs are of particular importance to our economic health not only because they trigger a powerful multiplier effect, which spurs job creation across our broader economy, but also because they tend to be higher paying.

So what do our latest employment data mean for Canadian mortgage borrowers? 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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U.S. Employment Data Are a Warning That Canadian Fixed Mortgage Rates May Be Headed Higher – Monday Morning Interest Rate Update (July 7, 2014)

by Dave Larock

Mortgage Rate ConceptThe U.S. employment data for June came in much higher than expected as the U.S. economy added 288,000 new jobs for the month.

The evolving U.S. labour market continues to present a vexing challenge for market watchers.

On the one hand, the U.S. economy has added at least 200,000 new jobs for five months in a row, for the first time in fifteen years. The unemployment rate fell to 6.1%, which is the lowest it has been since late 2008, and unlike in past reports, this drop was not caused by more Americans withdrawing from the labour force.

On the other hand, the U-6 rate, which is a broader measure of unemployment, was unchanged and remains elevated at 12.4%. Furthermore, while many new jobs have technically been added to the U.S. economy, as has so often been the case lately, almost all were in part-time positions and many were in the retail and leisure/hospitality sectors, which tend to be lower paying. And more importantly, the number of formerly full time employees who were unwillingly changed to part time status is almost as large as the number of new jobs created.

Thus, we are left to debate which trend will win out. Will today’s U.S. employment momentum fuel higher-than-expected wage inflation that will surprise the U.S. Federal Reserve and force it to tighten U.S. monetary policy more quickly than planned? Or will the continued creation of these ‘McJobs’ undermine the purchasing power of American consumers, whose average incomes are barely keeping pace with official U.S. inflation (to say nothing of real inflation!) 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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Happy Canada Day Week! Monday Morning Interest Rate Update (June 30, 2014)

by Dave Larock

Happy (early) Canada Day to my readers.

We should all take a moment to remember how lucky we are to live in this great country.

For starters, Canada has an abundance of five critical natural resources that will help assure our long-term prosperity: forests, fuel, fertilizer, food and fresh water.

In keeping with our theme of words that start with ‘f’ we also enjoy federal fiscal solvency and freedom from oppression.

Got another fortunate word starting with f that I forgot? Add it in the comments section below!

Dave

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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Canadian Inflation Surges Higher Again. Are Mortgage Rates Next? Monday Morning Interest Rate Update (June 23, 2014)

by Dave Larock

Mortgage Rate ConceptOur inflation rates continue to rise more quickly than the Bank of Canada (BoC) and most market watchers have been forecasting. Last Friday Statistics Canada released the latest Consumer Price Index (CPI) for May, and once again, it showed average prices surging higher.

Overall inflation rose 2.3% in May, after rising to 2.0% in April, which marked the first time overall CPI had returned to the BoC’s inflation target since April 2012. BoC Governor Poloz had warned us that the April CPI data would be higher, but he attributed this rise to higher energy prices and predicted that they would prove transitory.

Energy prices once again led the charge in May, surging 8.4% on a year-over-year basis, but last month’s price rises were more broadly based. Core inflation, a more refined number that strips out more volatile CPI inputs like food and energy, also rose sharply from 1.4% to 1.7%.

Some of this increase in average prices can be explained by the cheaper Loonie, which makes our imports more expensive at the same time as it makes our exports less so. But retail sales were also strong in April so a rise in consumer demand may be adding some fuel to our inflationary fire.

The key concern for mortgage borrowers is how this will affect the timing of future BoC rate increases. 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 True Taper Test Is Still to Come – Monday Morning Interest Rate Update (June 16, 2014)

by Dave Larock

Mortgage Rate ConceptThe U.S. Federal Reserve began tapering its quantitative easing (QE) programs in December 2013 and since then, it has reduced the size of its combined monthly QE purchases from $85 billion to $45 billion.

Now that the Fed’s QE tapering is almost half done, you may be thinking that markets have adjusted well to the Fed’s reduction in the amount of new U.S. securities and treasuries it buys each month. But as I have written in past posts, the taper’s real market test has yet to happen. Today I’ll provide a more detailed explanation of why I maintain this view.   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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How Last Week’s Major Announcements Are Likely to Affect Canadian Mortgage Rates – Monday Morning Interest Rate Update (June 9, 2014)

by Dave Larock

Mortgage Rate ConceptThere were several noteworthy developments last week for anyone keeping an eye on Canadian mortgage rates. In today’s post, we’ll go around the horn to provide highlights from each.

The Bank of Canada’s Latest Policy Rate Announcement

  • The Bank of Canada (BoC) left its overnight rate unchanged, as expected.
  • The Bank reiterated its belief that the recent rise in our inflation rate, as measured by the Consumer Price Index (CPI), was “largely due to the temporary effects of higher energy prices and exchange-rate pass through”.
  • The BoC continued to emphasize downside risks across the board. On Canada’s economic momentum: “Weighing recent higher inflation readings against slightly increased risks to economic growth leaves the downside risks to the inflation outlook as important as before.” On U.S. economic momentum: “… there could be slightly less underlying momentum than previously expected.” On global economic momentum: “… recent developments give slightly greater weight to downside risks.”
  • The Bank made four separate references to the weaker Canadian dollar in its relatively short statement. Its main messages were that the negative impacts of the weaker Loonie on inflation should be both minor and transitory, while the benefits of our cheaper currency were expected to strengthen foreign demand and improve corporate profits, especially in exchange rate-sensitive sectors. The Bank reiterated its hope that higher profits would then lead to increased business investment activity in the coming quarters.
  • The BoC capped off its statement with a very neutral reference to the direction of its next interest-rate change being dependent on “how new information influences the balance of risks”.

The market interpreted this announcement as having a slight rate-drop bias, and I imagine this is exactly what the BoC intended. In a world where other central banks are using radical and unprecedented levels of balance sheet expansion to stimulate their economies, to little lasting benefit in most cases, if the BoC  needs to only utter a somewhat pessimistic economic view to push our currency lower, then so be it. 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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A Primer on the Bank of Canada’s Evolving Interest-Rate View – Monday Morning Interest Rate Update (June 2, 2014)

by Dave Larock

Mortgage Rate ConceptThe Bank of Canada (BoC) makes its latest policy rate announcement this Wednesday and while there have been some positive economic signals of late, particularly in the U.S., not everyone is convinced that a corner has been turned.

In anticipation of this week’s meeting let’s take a look at the Bank’s recent comments on where inflation and growth, both in Canada and abroad, are most likely headed in future. I will then overlay these views with the Bank’s Wednesday commentary to look for any changes at the margin next Monday, in an effort to help you gain insight into what all of this might mean for our mortgage rates in future. 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 Rising Inflation a Warning That Canadian Mortgage Rates Are On the Way Up? Monday Morning Interest Rate Update (May 26, 2014)

by Dave Larock

Mortgage Rate ConceptWhen Statistics Canada released its latest Consumer Price Index (CPI) report last Friday, it showed that prices have risen by 2% over the most recent twelve months, hitting the Bank of Canada (BoC)’s long-term target for inflation for the first time since April of 2012.

Anyone keeping an eye on where mortgage rates may be headed is well advised to pay attention to the monthly CPI data, which measures the rate at which our average prices are increasing on a year-over-year basis.

The April CPI data beg the question: Are we witnessing the first signs of an uptrend in inflation that will begin to push mortgage rates inexorably higher as so many prognosticators have long been warning? Or is this recent inflation surge just a temporary spike caused by isolated factors?

The answer is important for mortgage borrowers because if inflation is expected to increase more quickly than previously believed, Canadian bond investors will demand higher yields to preserve their expected returns, and this will cause fixed-mortgage rates to rise. If inflation runs above the BoC’s target rate of 2% for an extended period, the Bank would also be expected to raise its overnight rate to increase short-term borrowing costs in an effort to slow the inflation rise, and this would push variable mortgage rates higher.

Let’s take a look at the highlights from the latest CPI data to try to answer this key question: 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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