Slightly lower mortgage rates and house prices.
The credit crunch is far from over. But with credit spreads improving notably since early September, it seems that the market's focus is slowly shifting towards the US economy, which is deep in recession. Overall, it lost 1.2 million jobs this year, with about half of that taking place in the last three months.
What will it take to get out of this recessionary territory? The Federal Reserve has more ammunition than simply cutting rates—and in this sense, it's more powerful than in previous recessions. Specifically, the Troubled Assets Relief Program (otherwise known as the bailout) gave the Fed more flexibility to provide liquidity to banks without driving the effective Fed funds rate to 0%.
In Canada, the labour market continues to surprise on the upside. But it won't last. Look for notable slowing in the coming six months, with the unemployment rate approaching 7% by mid-2009.
House prices are falling, but not as much as the headlines say.
House prices in Canada are falling. But the headline numbers can be very misleading. In Vancouver, for instance, the close to 45% year-over-year fall in the number of homes sold and the fact that Vancouver prices are much higher than the national average combined to make it look as though national home prices were falling sharply. In fact, the decline was driven by fewer expensive homes being sold in Vancouver, as a fraction of the whole. As a result, the national headline number for October is down by close to 6% from a year ago. But if properly weighted, house prices actually fell by only 1%.
As far as interest rates are concerned, we're expecting the prime rate to drop a little farther. It's possible that we'll see long term rates dropping a bit too. But most of the decline in long term rates is already priced into the 5 year rate, so we won't see fixed rates declining by as much as the variable interest rate.
CIBC World Markets
What this means to you.
With variable and fixed mortgage rates still near historic lows, both options can offer real value. Deciding which one is most cost-effective for you depends entirely on your needs and plans. To help you make that decision, I’m happy to sit down with you and perform a no-charge analysis of your goals, requirements and financial abilities. Please feel free to call me at any time.
Phone: 905-778-8100 ext 5161