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How The Loonie’s Value Affects Your Mortgage Rates – Monday Morning Interest Rate Update (May 9, 2016)

by Dave Larock

Mortgage Rate ConceptIf you were to give Bank of Canada (BoC) Governor Poloz a heavy dose of truth serum, he would readily admit that the Loonie is our policy maker’s best tool for stimulating the right kind of economic growth for our country.

Consider that the BoC has repeatedly said that any sustainable Canadian economic recovery must be underpinned by a rise in export demand that fuels increased business investment in productivity enhancements and expansion. What better way to stimulate our export manufacturers than to help nudge the Loonie lower with some dovish comments at just the right time?

Put another way, why drop the overnight rate further and make borrowing cheaper for everyone, including consumers who have already borrowed to record levels, if you can talk the Loonie down instead, and in so doing, create an economic tailwind that specifically benefits the very part of the economy, export manufacturing, that is so important to our country’s long-term success? When you compare it to the radical forms of quantitative easing (QE) that many of the developed world’s other central banks have resorted to in order to stimulate their economies, talking down your currency seems a lot less risky. 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 Federal Reserve’s Continued Caution Means For Canadian Mortgage Rates – Monday Morning Interest Rate Update (May 2, 2016)

by Dave Larock

Mortgage Rate ConceptThe U.S. Federal Reserve left its policy rate unchanged last week, as most were expecting. It acknowledged some improvement in the recent economic data but maintained its cautious overall view.

Here are the highlights from the Fed’s latest statement:

  • “Labour market conditions have improved further even as growth in economic activity appears to have slowed.” These two trends can’t move in opposite directions for too long. Either the overall economic activity will start to improve or labour-market conditions will start to soften in the coming months.
  • “Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high.” This anomaly must be confounding policy makers. If incomes are rising and consumers are confident, why are they choosing to save rather than spend? The answer to this question is important because American consumers account for more than two thirds of U.S. GDP, so as they go, so too goes the U.S. economy.
  • “The housing sector has improved further but business fixed investment and net exports have been soft.” Housing-sector improvement gives us further confirmation that consumer-confidence levels are rising, but soft business investment is cause for concern. U.S. businesses are flush with cash that they are using for non-productive purposes, like share buy backs, rather than for investment in capacity enhancements and expansion. (To that end, U.S. productivity levels continue to fall.)
  • “Inflation has continued to run below the Committee’s 2 percent longer-run objective … [and] is expected to remain low in the near term … but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further.” U.S. inflation rates should remain low for as long as U.S. consumers continue to save rather than spend their extra income, and that allows the Fed to continue to focus its attention elsewhere.
  • “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” This cautious summary statement gave markets reassurance that U.S. policy-rate hikes are still a ways off and investors got the message – the futures market lowered the odds of a Fed rate hike at its next meeting in June from 21 percent down to 15 percent.

The Fed’s continued caution seems warranted. While both U.S. consumer and business confidence levels still appear high, the proof of the pudding is in the eating and neither group is showing confidence where it matters most, at the checkout counter. Also, global instability risks remain elevated and a more bullish Fed statement could well have triggered another surge in the U.S. dollar. This would have heaped more suffering on already beleaguered U.S. exporters and might also have exacerbated global instability risks, which remain elevated.

Five-year Government of Canada bond yields fell by two basis points last week, closing at 0.88% 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 around 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 2.30% to 2.40% using today’s prime rate of 2.70%.

The Bottom Line: The Fed maintained its cautious monetary-policy stance last week. As such, any U.S. policy-rate rises still appear to be a ways off and that should help keep both our fixed and variable mortgage rates at or near today’s levels for the foreseeable future.

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 the Latest Canadian Inflation Data Affect Our Mortgage Rates? Monday Morning Interest Rate Update (April 25, 2016)

by Dave Larock

Mortgage Rate ConceptLast week was a slow one for economic news but we did receive our latest inflation data, for March.

Statistics Canada confirmed that overall inflation, as measured by our Consumer Price Index (CPI), rose by 1.3% last month, which was a little less than our 1.4% rate in February but slightly above the 1.2% rate that the consensus had been expecting.

The most noteworthy detail in our latest CPI data showed that gasoline prices fell by 13.6% versus where they were last year. We saw price rises in six of the eight major categories that Stats Can tracks, and core inflation, which strips out more volatile CPI inputs like food and energy, rose by 2.1% in March (up from 1.9% in February).

When the Bank of Canada (BoC) met earlier this month it said that it believes the forces that have pushed our inflation rate higher of late are largely temporary in nature. It therefore appears very unlikely that the Bank will change its monetary policy in response to the latest data. In fact, the BoC is in the process of re-evaluating (as it does every five years) its target inflation rate of 2% and there is speculation that the Bank may raise this target to give it more flexibility in managing through inflation volatility (which we are seeing more of these days because of wider ranges in currency swings and energy-price changes).

Five-year Government of Canada bond yields surged higher by fourteen basis points last week, closing at 0.90% 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 around 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 2.30% to 2.40% using today’s prime rate of 2.70%.

The Bottom Line: The latest inflation data aren’t likely to have much effect the BoC’s monetary-policy plans. The Bank will focus on growth and employment for as long as inflation continues to hover around its target rate of 2%, and that means that inflation isn’t likely to have a material impact on our fixed or variable mortgage rates for some time yet.

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 Is Stuck in Neutral – Monday Morning Interest Rate Update (April 18, 2016)

by Dave Larock

Mortgage Rate ConceptWhen the Bank of Canada (BoC) met last week, it left its overnight rate unchanged, as was universally expected.

While a policy rate change was never in doubt, the key question on the minds of market watchers was how the Bank would interpret the recent surge in our GDP growth, which could come in as high as 3% over the first quarter of this year. If the BoC adopted a more bullish view, it would push the Loonie higher and in so doing, weaken the tailwind that our relatively cheap currency had been providing to our export manufacturers. Also, bond yields would be expected to move higher and this could trigger a rise in our fixed mortgage rates.

In today’s post we’ll look at what the BoC said in its latest policy statement and provide highlights from its latest Monetary Policy Report (MPR), which gives us the BoC’s views on the state of the world’s economies and includes projections for where the Bank sees foreign and domestic economic growth headed over the next several years: 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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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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