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Overview: How the World Looks From My Desk

toronto mortgage ratesLast week was a slow one for new economic data so in today’s Update I’m taking a step back and offering a general overview of how the world looks from my desk:

The U.S.

The beauty (or lack thereof) of the U.S. economic recovery is still in the eye of each beholder. Some experts are touting the start of a jobs-led recovery and are writing about signs of housing market recovery. Others believe that U.S. consumers, long serving as engines of global growth, are waking from their spending slumbers just in time for the holiday shopping season.

In short, I think the U.S. economy is a very long way from a meaningful and sustainable recovery and that deflation, not inflation, remains its primary risk (rising food and fuel prices notwithstanding).


The euro-zone experiment continues to lurch from one disaster to another:

But these sovereign default threats are mere appetizers compared to France’s coming denouement:

This begs the question: What happens when the second most important country in the euro-zone experiment goes from bailor to bailee? How does a monetary union that is fundamentally defined by a Franco-German partnership hold together if/when France is staring default in the face?  If waves upon waves of austerity programs have turned peaceful Spanish protests into violent ones, what will French protests look like? Will the guillotine make a comeback?

(China and its rapidly decelerating growth rates are also on my worry list but that topic will have to wait for another day.)


Canada has fared as well as any country since the start of the Great Recession. But this is in large part because our economic growth has been fueled by rising consumer debt, which has now reached the point where Bank of Canada (BoC) Governor Mark Carney is calling it the biggest single threat to our domestic economy.

While a small, open economy like Canada’s will always be vulnerable to a slowing global economic landscape we have several strong points in our favour. Specifically:

Before I get to the silver lining in all of this doom-and-gloom in The Bottom Line below, let’s take a look at what happened with mortgage rates late week:

Five-year GoC bond yields were up 4 basis points for the week, closing at 1.37% on Friday. Five-year fixed-mortgage rates are available in the 3% range and smaller lenders who offer far better contract terms and conditions than the Big Five are now very competitive. That’s good news for informed borrowers who are willing to think beyond their branch.

Variable-rate mortgages are still not compelling in my opinion (my best variable is still prime minus 0.4%, which is 2.60% using today’s prime rate). It would probably take Mars hitting Earth for Governor Carney to lower the BoC’s overnight rate any further, which means that variable rates come with more risk of increasing than potential for decreasing at this point. As such, I continue to advise borrowers who are looking to save money at the short end of the yield curve to consider a one-year fixed rate as an alternative. (My best one-year fixed rate is 2.49% today and I am recommending it as my Mortgage Deal of the Week.)

The bottom line: GoC bond yields are at ultra-low levels because investors still believe that our government bonds offer safety at a time of great uncertainty. For many of the reasons listed above, I believe the global uncertainty theme has plenty of room left to run, and since our mortgage rates are priced off of GoC bond yields, that should keep them at rock-bottom levels for the foreseeable future.

David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. 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.