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Did the Bond Market Over-React To the Latest Canadian Employment Data? Monday Morning Interest Rate Update (April 11, 2016)

by Dave Larock

Mortgage Rate ConceptThe latest Canadian employment report sure got the market’s attention last Friday.

It showed that our economy added a whopping 40,600 new jobs last month, which was well above the 10,000 new jobs that the consensus had been expecting. The five-year Government of Canada (GoC) bond yield, which our five-year fixed mortgage rates are priced on, shot up nearly 10 percent after the report was released.

While there were some encouraging developments in our March employment report, the underlying data are notoriously volatile and are regularly revised in subsequent months. David Parkinson at the Globe and Mail noted Stats Can’s claim that its initial March estimate is deemed accurate to within 29,800 jobs two-thirds of the time. In particular, the 18,900 rise in net new jobs in Alberta last month seems ripe for revision, to the point where I am wondering whether someone added instead of subtracted when tallying that province’s result.

Here are the highlights from our latest report: 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 Markets Aren’t Likely To Overreact To the Latest U.S. Employment Data – Monday Morning Interest Rate Update (April 4, 2016)

by Dave Larock

Mortgage Rate ConceptWe received the U.S. employment data for March last week, and while the headline number beat consensus expectations, the details in the data were mixed.

Today’s post will provide the highlights, and will also explain why comments made by U.S. Federal Reserve Chair Yellen last week should help temper 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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Three U.S. Trends That Could Push Canadian Mortgage Rates Higher – Tuesday Morning Interest Rate Update (March 29, 2016)

by Dave Larock

Mortgage Rate ConceptCanadian mortgage borrowers have enjoyed rock-bottom fixed and variable mortgage rates for years, and that isn’t likely to change soon. Our economy is mired in a low-growth, low-inflation environment and higher rates aren’t near the top of our policy makers’ worry list. Instead, they’re focused on helping the cheaper Loonie fuel a manufacturing renaissance in an effort to replace our lost energy-sector momentum. And while there are encouraging signs that this transition is finally underway, it has been slow to develop. So today’s ultra-low interest rates are basically our silver lining on an otherwise cloudy economic day.

Although higher rates may not appear imminent, we shouldn’t become complacent about this extended period of super-cheap borrowing costs. Our circumstances can, and often do, change more quickly than expected. A small country like ours is vulnerable to global forces, most especially to the gyrations of the economic giant to our south. Our bond yields have changed in lockstep with U.S. yields for years now, so like it or not, if U.S. rates head higher, it’s a good bet that we’re going to be taken along for the ride (at least initially).

To that end, in today’s post we’ll look at three developing U.S. trends which have the potential to both push our mortgage rates higher, and to do so more quickly than expected. 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 U.S. Fed’s Surprising Shift in Tone Means for Canadian Mortgage Rates – Monday Morning Interest Rate Update (March 21, 2016)

by Dave Larock

Mortgage Rate ConceptThe U.S. Federal Reserve left its policy rate unchanged last week, as expected, but it surprised markets by removing two rate hikes from its Fed funds-rate forecast for 2016 and by adopting a much more dovish overall tone.

As a reminder, the Fed’s comments matter to anyone keeping an eye on Canadian mortgage rates because Government of Canada (GoC) bond yields have moved in virtual lock step with their U.S. equivalents since the start of the Great Recession in 2008. Our fixed-mortgage rates are based on GoC bond yields so the Fed’s comments and forecasts have direct impact on how much our fixed-rate borrowers pay for their loans. And given that the Bank of Canada (BoC) tends to move in the same direction as the Fed over time, the Fed’s longer-term rate forecasts and overall tone also act as a kind of distant-early-warning gauge for increases in the BoC’s overnight rate, which forms the basis for our variable mortgage rates.

Here are the highlights from the Fed’s latest statement (with my comments in italics): 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 March Break – Monday Morning Interest Rate Update (March 14, 2016)

by Dave Larock

Mortgage Rate ConceptToday’s post will be a short and sweet March-break edition.

Five-year GoC bond yields rose by twelve basis points last week, closing at 0.81% on Friday. Five-year fixed-rate mortgages are available in the 2.39% to 2.59% range, depending on the terms and conditions that are important to you, and five-year fixed-rate pre-approvals are offered at rates as low as 2.79%.

Five-year variable-rate mortgages are available in the prime minus 0.30% to prime minus 0.40% range, which translates into rates of 2.40% to 2.30% using today’s prime rate of 2.70%.

The Bottom Line: The Bank of Canada stood pat last week while the European Central Bank adopted several new measures to loosen its monetary policy further. It’s the Fed’s turn this week, and we’ll most likely be reviewing what it had to say in next Monday’s post.

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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Will Canadian Mortgage Rates Rise In Response To the Latest U.S. Employment Data? Monday Morning Interest Rate Update (March 7, 2016)

by Dave Larock

Mortgage Rate ConceptWe received the latest U.S. employment data last Friday, and the headline showed that the U.S. economy added an estimated 242,000 new jobs in February. This was well above the 195,000 new jobs that the consensus was expecting, and futures markets responded by raising the odds that the Fed will hike its policy rate later this year. (The odds of the next U.S. Fed hike occurring this November were increased from 45% to 53% on Friday.)

As has so often been the case however, a more detailed look at the latest U.S. non-farm payroll report told a different story than the headline.

Here are the highlights: 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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Should You Choose a Fixed or Variable Mortgage Rate Today? Monday Morning Interest Rate Update (February 29, 2016)

by Dave Larock

Mortgage Rate ConceptIn today’s post we’ll revisit an age-old debate and compare five-year fixed and variable mortgage rates against our current economic backdrop.

Let’s start with variable mortgage rates (VRMs), which are priced off of lender prime rates and typically move when the Bank of Canada (BoC) raises or lowers its overnight rate.

The BoC remains cautious about our economic outlook – who can blame them with oil prices hovering in the $30 range – and that makes it unlikely that the Bank will raise its overnight rate any time soon. In fact, BoC Governor Poloz recently acknowledged that the Bank almost dropped its overnight rate at its last policy meeting earlier this month, so the Bank’s current rate bias is clearly to the downside. And when we overlay our current low-growth, low-inflation domestic environment with today’s global bond market, where almost one third of the world’s government bonds are now trading at negative yields, it seems even less likely that the BoC will turn hawkish in the foreseeable future.

VRMs also offer more flexibility than their fixed-rate mortgage (FRM) equivalents because the penalty to break them is often much smaller. If you break a VRM mid-term, your penalty is typically limited to three months’ interest, whereas FRM penalties are calculated as the greater of three months’ interest or interest-rate differential (IRD). And IRD penalties can be huge, especially if you borrowed from a Big Six Bank. (If you currently have a fixed-rate mortgage with a major Canadian bank, I suggest that you sit down before clicking on that link that explains how different IRD penalties are calculated.) 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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With Negative Interest Rates, All That Glisters Is Not Gold – Monday Morning Interest Rate Update (February 22, 2016)

by Dave Larock

Mortgage Rate ConceptRemember when central bankers had the world convinced that quantitative easing (QE) was the solution to sluggish economic growth? Well, the proof of the pudding is in the eating and after years of QE in many countries, there is considerable evidence that QE has hurt growth rather than helped it.

Today, central bankers are starting to talk about a new cure-all solution – negative interest rates. Their thinking goes something like this: QE hasn’t worked because all of the new money it created isn’t actively circulating throughout the economies that it was supposed to help stimulate (referred to by economists as low monetary velocity). If negative interest rates manage to force that money off of the banks’ bulging balance sheets, growth will pick up and this will lead to increased investment in capacity expansion and productivity enhancements that will fuel further growth, creating a self-reinforcing cycle of positive momentum that will help struggling economies reach ‘escape velocity’. This improvement in growth should also lead to higher inflation, which would then accelerate spending and investment momentum further by raising the cost of delay.

At least that is the idea.

Central bankers certainly aren’t dummies and their theories are based on detailed, serious thinking. But theories rarely play out in practice the way they do on paper.  That is why QE didn’t work as planned – and why negative interest rates aren’t likely to do so either. 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 Family Day – Tuesday Morning Interest Rate Update (February 16, 2016)

by Dave Larock

Mortgage Rate ConceptHappy Family Day memories.

I used the holiday yesterday for its stated purpose so today’s post will be short and sweet.

Five-year Government of Canada (GoC) bond yields rose by one basis point last week, closing at 0.59% on Friday. Five-year fixed-rate mortgages are available in the 2.49% to 2.74% range, depending on the terms and conditions that are important to you, and five-year fixed pre-approvals are offered at rates as low as 2.79%.

Five-year variable-rate mortgages are available in the prime minus 0.40% to prime minus 0.30% range, which translates into rates of 2.30% to 2.40% using today’s prime rate of 2.70%.

The Bottom Line: Rising instability risks in China, Japan, the euro zone and across many emerging-market economies are making investors increasingly nervous about what lies ahead. Their heightened fears are making financial markets more volatile. While that has thus far caused GoC bond yields to swing widely in both directions, this rising uncertainty should drive them lower as investors seek out safe-haven assets. As such, if this still-evolving trend continues, it should help exert downward pressure on Canadian mortgage rates.

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 and U.S. Employment Lower Than Expected in January – Monday Morning Interest Rate Update (February 8, 2016)

by Dave Larock

Mortgage Rate ConceptLast week we received the latest Canadian and U.S. employment reports. Although both headline numbers came in lower than expected, there were silver linings in both countries.

Here are the highlights from the latest Canadian employment report:

  • Our economy shed 5,700 jobs in January, continuing our seesaw trend of gaining jobs in one month and losing jobs in the next. Looking at the longer-term trends, we have now averaged 10,500 new jobs over the last twelve months but only 8,900 new jobs/month over the last six, so our job-creation momentum is continuing to slow.
  • We added 5,600 full-time jobs and lost 11,300 part-time jobs, while paid employment rose by 14,600 new jobs and our self-employed ranks fell by 20,200. Our policy makers will be glad to see us trading part-time jobs for full-time jobs and self-employed jobs for paid employment jobs but they will also be concerned that the improvement in the quality of new-job creation is being more than offset with losses in overall quantity.
  • Average hourly wages have now increased by 2.8% on a year-over-year basis. This trend is encouraging because higher wages increase the purchasing power of the average Canadian worker (better to increase spending by raising incomes than by further increasing our household debt levels).
  • At the provincial level, Ontario was the biggest gainer, adding 19,800 news jobs in January. When I read that statistic, I assumed that we had seen another surge in manufacturing employment, which had expanded by 30,000 jobs in the prior twelve months. Despite the Loonie’s fall however, the manufacturing sector gave back 13,000 jobs last month and Ontario’s gains were actually in trade, education, and accommodation and food services.
  • Not surprisingly, Alberta shed 10,000 jobs again last month and its unemployment rate now stands at 7.4%, putting it above our national average for the first time in almost thirty years. Alberta has served as our economy’s main job-creation engine since the start of the Great Recession and that momentum will be hard to replace.

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 the U.S Federal Reserve Surprised Markets Last Week – Monday Morning Interest Rate Update (February 1, 2016)

by Dave Larock

Mortgage Rate ConceptThe U.S. Federal Reserve left its policy rate unchanged last week, as was widely expected, but it also surprised markets by adopting a far more dovish tone about the U.S. economy’s prospects.

How quickly circumstances can change.

When the Fed raised its policy rate in December, its rate-setting committee had predicted that there would be four more rate hikes in 2016. Now, just a month later, the Fed sounds much more cautious and U.S. fourth-quarter GDP growth just clocked in at a paltry 0.7%. Investors are now betting that the next Fed rate hike won’t be until February 2017 (according to CME Group 30-Day Fed Fund futures prices).

The U.S. Fed’s policy statements matter to Canadian mortgage borrowers because our economies are deeply interlinked. That means that while our respective monetary policies can diverge somewhat for a period of time, the Bank of Canada (BoC) will tend to move in the same direction as the Fed over the longer term. As such, the Fed’s policy statements act as a sort of distant-early-warning system for Canadian mortgagors who are trying to predict the timing of the Bank of Canada’s next rate hike (as distant as that prospect may now seem).

Here are the highlights from the Fed’s latest 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 the Bank of Canada Didn’t Deliver Its Expected Rate Cut – Monday Morning Interest Rate Update (January 25, 2016)

by Dave Larock

Mortgage Rate ConceptThe Bank of Canada (BoC) decided to hold its overnight rate steady when it met last week. Financial markets gave 60% odds that the BoC would drop its policy rate in response to Canada’s weak fourth-quarter data, so this most recent policy-rate decision came as a mild surprise.

The Bank offered a cautiously optimistic view of our economic prospects in its accompanying press-conference commentary and in the forecasts in its latest Monetary Policy Report.

Here are my key takeaways from the BoC’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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Why Aren’t Canadian Mortgage Rates Falling When They Should? – Monday Morning Interest Rate Update (January 18, 2016)

by Dave Larock

Mortgage Rate ConceptIn Canada, the only things that don’t seem to be falling these days are snow (at least in the Greater Toronto Area) and our mortgage rates.

China’s economic slowdown and the seemingly never-ending drop in the price of oil are combining to hammer the TSX, the Loonie, employment momentum, and consumer and business confidence. All of this has helped push five-year Government of Canada (GoC) bond yields from a high of 0.83% on December 17, down to 0.56% at last Friday’s close. One would normally assume that this twenty-seven basis point drop would cause five-year fixed mortgage rates to fall but that has not been the case lately. In fact, market five-year fixed rates have risen from 2.64% to 2.79% over that same period.

Meanwhile, market five-year variable-rate discounts have shrunk from prime minus 0.50% to 0.35% over this same period, and that is after our lenders had already padded their variable-rate spreads by passing on only fifteen basis points of the two quarter-point overnight-rate cuts by the Bank of Canada (BoC) in 2015.

At first glance, the question of why our mortgage rates are rising when the rates they are priced on are falling was answered when our federal finance department increased the cost of securitizing mortgages through the National Housing Act Mortgage-Backed Securities (NHA MBS) program, the primary funding source used by most residential-mortgage lenders (which I wrote about here). 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 Canadian and U.S. Employment Data Mean for Our Mortgage Rates – Monday Morning Interest Rate Update (January 11, 2016)

by Dave Larock

Mortgage Rate ConceptWe received the latest Canadian employment data last week, for December, and it showed that our economy added 22,800 new jobs last month. That was well above the 8,000 new jobs that the consensus was expecting but the strong headline number belied some weakness in the data.

Here are the highlights: 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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Five Factors That Will Drive Canadian Mortgage Rates in 2016 – Monday Morning Interest Rate Update (January 4, 2016)

by Dave Larock

Mortgage Rate ConceptIn today’s post I’ll outline the five key factors that I think will most likely determine the path of Canadian mortgage rates in 2016.

Before we do that though, let’s revisit the post I wrote on the same topic at the start of the 2015 to see how those factors have played out over the last twelve months.

Recap of the Five Factors That I Predicted Would Drive Canadian Mortgage Rates in 2015

  1. The strength of the U.S. economic recovery – The U.S. recovery eventually found a more solid footing in 2015, and as predicted, the Fed’s December rate rise did pull Canadian bond yields higher in sympathy. That said, because the first U.S. rate rise happened so late in the year, the impacts of the Fed’s first monetary-policy tightening in almost a decade have yet to be fully felt.
  2. Slowing growth in China – Slowing growth in China did put downward pressure on commodity prices. The knock-on effects for our economic momentum were mostly negative, and as expected, China’s slowing growth did indirectly exert downward pressure on our mortgage rates.
  3. The continuation of large-scale quantitative easing (QE) programs – The European Central Bank (ECB) finally backed up its words with action and launched QE programs in early 2015, and Japan also expanded its use of QE (again) last year. While China has not officially engaged in QE, it has adopted QE-type policies, for example, by making it easier for their commercial banks to lend more aggressively. China has also continued cutting interest rates, which it still has room to do because its benchmark one-year lending rate sits at a relatively lofty 4.35% today. That said, if China’s growth continues to slow and the country experiences turbulence as it transitions from an export-led to domestic-consumer-led economy, it’s not hard to imagine China adopting full-blown QE if needed. In summary then, the continued wide-scale use of QE and QE-type monetary-policy initiatives exerted downward pressure on global bond yields, as expected, and these developments helped keep Canadian mortgage rates at ultra-low levels.
  4. The price of oil – Lower oil prices exerted downward pressure on our mortgage rates and their sharp fall dealt a body blow to our economic recovery. This made the Bank of Canada (BoC) increasingly cautious, which was expected, and led to two cuts to the BoC’s overnight rate, which was mostly unexpected.
  5. The potential for the next financial crisis – The global economy made it through the last twelve months without experiencing a significant financial crisis, but the worry list of the potential risks to global economic stability is still a long one. More on that for this year below.

Not surprisingly, there is some overlap between last year’s key factors and those that will be most important heading into 2016. Here is this year’s list: 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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