I came across an article on the Mortgage Broker News website today briefly covering the US housing market conditions.
“Sales of new single-family homes in the US surged by 18.0 per cent to 504,000 annualized units in August 2014 to mark the highest level since May 2008,” a report from RBC Economics, published Wednesday, states. “The robust monthly gain, which handily surpassed expectations for a 4.4 per cent rise to 430,000, built on a 1.9 per cent increase in July (to 427,000) that was initially reported as a 2.4 per cent drop (to 412,000).”
While I think the economy in the US is far from being strong, this is a good indication that the US economy is finally starting to turn around after the 2008 economic meltdown. The US is just one of many countries that have an influence on Canada’s economy, but they are the country with the largest influence on Canada’s economy.
The good news from a Canadian perspective is that a strong US economy could help the Canadian economy. The downside is that if investor confidence is restored in US mortgage lending, investor money could go from Canada to the US, resulting in higher mortgage lending rates in Canada. How high could it go, and when, is a question that I don’t think anyone knows. I would certainly not venture to guess.
As to whether it is still better to go with a fixed rate or a variable rate, that is even less certain. Since the housing meltdown, the Bank of Canada increased the prime lending rate three times, while the US Federal Reserve did not. This is the first time in history that the bank of Canada did not follow the US Fed’s lead in a rate change and sustained it for the longer term. As such, its possible that the Bank of Canada could also not follow the US Fed in prime rate increases up to three times and be on par with their relationship to how they used to be with the US. The result of this is that variable rates could still remain favourable for a while to come. The same may not necessarily be said for fixed rates.