U.S. economy weakness helps keep variable mortgage rates low
This is one new article that came across my desk this morning:
In summary, it is stating that the pace of growth for the US economy for the last quarter of 2009 was 5.9%, beating analyst estimates. Why is a mortgage broker writing a commentary on the US economy? I will tell you in a second. However, I will also detail the somewhat misleading conclusion that the title of the article leads us to if we do not continue to read further.
According to the article, there was significant growth in the US in the last quarter of 2009. However, most of the article explains how much of a financial mess they are still in, and how the growth was not due to recovery, but due to businesses manufacturing due to low stocks as opposed to strong consumer demand, and spending in the US by foreigners.
They state that the expected pace of growth for the economy in the US for the first quarter of 2010 is only going to be 3%, and that unemployment is still at 10% with still record numbers of foreclosures still happening.
So, what does this mean for someone in the Canadian mortgage market? For one, it will mean that US Federal Reserve rates will remain low, as they will likely not consider raising interest rates until the economy is improving significantly. I believe that the Bank of Canada’s prime rate (which variable rate mortgages are based on) is largely influenced by the US Federal Reserve, since raising the Canadian prime rate without the US doing the same will lead to an increase in the value of the Canadian dollar and cause harm to the export industry. Since Canada is an export based economy, they will like to avoid this circumstance as much as possible.
As a result of all of the above, it is my belief that variable rates, and to an extent fixed rates, will remain quite low for much longer than next July. Right now, I have a few lenders who have prime -.4 available for variable mortgage interest rates, and the variable mortgage rates are continuing to improve in relation to prime. I believe that homeowners can currently save significant money by going with a variable or adjustable rate mortgage, and particularly now that there are lenders with shorter term adjustable rate mortgages available. You can get into a great shorter term product, and then get an even better adjustable mortgage rate when you renew, or have a very small penalty to refinance at a better adjustable mortgage rate in the near future.
Being in Canada at this point in time is a great place to be for your finances. Many other countries are going through very challenging times in their economies, but Canada has been stable and prudent in their fiscal policies. In my opinion, it is helping to build a Canadian housing market based on strength that is sustainable.[contact-form-7 404 "Not Found"]
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