The competition for your next mortgage is heating up.

Since late June mortgage rates have been very stable, at fully discounted rates of 5.5% for a 5 year fixed rate mortgage, but interest rates in the very active fall market are expected to become a lot more competitive as all the mortgage lenders compete for your business. We have already seen some the more aggressive lenders reduce 5 year mortgage rates in anticipation of this important market season.

With inflation, one of the main drivers of higher interest rates, under control by the Bank of Canada and the Canadian dollar relatively stable we can expect interest rates to follow suit. While oil still has upward pressure on it based upon international events and the coming heating season, (see how I avoided using the W word) its impact on interest rates is thought to be relatively minor. With all this stable news the Bank of Canada is likely to keep short term interest rates right where they are into the New Year, we may even see some reductions.

This may be in sharp contrast to what you are hearing about the US economy and the US housing market in particular. However, the two housing markets are different in a number of important ways, in particular the pace of increases in values of homes in some US cities far out stripped purchaser’s affordability creating a pricing bubble. Further, the US market has some mortgage products that make the market much more volatile such as their Interest Only mortgages.

The Bottom Line
With the economy relatively stable and mortgage rates on the decline in the short term and then flat for the rest of the year we can expect house values to remain stable as well. Interest rate stability is good for everyone in the Real Estate market, buyers, sellers, and lenders. The spill over effect of stable costs of borrowing has the impact of providing stable housing values in our market. The other effect of note is the creation of a balanced market where buyers have more selection, while sellers have to be a little more careful about pricing. Its times like this that Professionals provide so much added value in advising you on the market.

More Rate Changes in Store?

A well performing economy and a housing juggernaut that refuses to slow down raises the likelihood that more rate increases from the Bank of Canada are in store for us. It is almost a certainty that the Bank will raise rates in May but it is also likely that they won’t stop there. The projected May increase will have the impact of raising Prime by 25bps and therefore increasing Variable Rate mortgage rates as well as fixed rate mortgages.

The only potential cloud on the horizon is the red hot Canadian dollar. The increased value of the dollar will, at some point, have an impact on our exports which become more expensive south of the border and overseas.

For a while it seemed that all the economic strength was in the west around the Oil Patch but with the latest news on unemployment and the continued improved projection for house sales from CREA it seems the whole country is doing well. While the unemployment rate edged up there was some good news for the Manufacturing sector in terms of job creation.

As with any increasing rate environment it is a great idea to get your clients pre-approved from a mortgage. It costs you nothing and has the effect of locking in current rates for up to 120 days.

Contact me to find out more.

Interest Rates, both short term (Prime) and long term, have been on the rise lately and are likely to move somewhat higher over the next few months. It now seems certain that the Bank of Canada will raise interest rates by 25bps in May when they meet again. This is supported by direct comments from the Governor (David Dodge) and the bond market. It is widely expected that that may be the last increase for some time after that. So Prime is likely to reach 6% and then stay relatively stable for some time after that.

The most recent release of economic growth at 0.2% as expected by the market also supports this thinking. Inflation numbers are within the target range of the Central Bank and Manufacturing in Ontario is still showing signs of weakness. Further, the dramatic increase in the value of the Canadian Dollar, the forecasts for a 93 to 95 cent dollar by the end of the year, and the resulting decrease in competitive value to our exports may slow down the growth of our economy and therefore rate increases.

This puts variable rate mortgages back into the mix as a good option for your financing options in buying a home. The lower rates offered by this product may save you significantly over the term of their mortgage, and I know lenders to get you a great deal!

If you have any questions or comments I would be happy to answer them.

Best regards


Joel Bates
Senior Mortgage Consultant
Mortgage Edge
416 721-2450

As you can read below the market is suggesting that an increase of 25bps in the Bank of Canada rate, and therefore bank Prime rates, will take place tomorrow. There is also speculation that another increase of 25bps will be taken in May at the next meeting of the Bank of Canada. This will also mean some increases in fixed rate mortgages of almost equal amounts, so expect rates to continue to increase through May.

This gives you an opportunity to benefit from a rate hold in the form of a pre-approval (even if approval is not an issue).


BoC decides
ALLAN ROBINSON
Friday, April 21, 2006
Bond, currency and stock markets could be volatile this week as earnings season ramps up and the Bank of Canada offers some signals whether it may pause in its rate-hike cycle.
The central bank is forecast to increase its target rate for overnight loans for the sixth consecutive time by a quarter percentage point to 4 per cent tomorrow and release its monetary policy report on Thursday.
“The Bank of Canada's own statements do not suggest that it has much of an appetite for an overnight rate of more than 4 per cent,” said Marc Lévesque, chief foreign exchange and fixed-income strategist for TD Securities Inc.
Domestic economic growth is in line with its potential, inflation has not been a problem, and the central bank remains concerned that global growth could slow in 2007, he said.
Still, bond investors are leaning the other way. “Basically the market is pricing in two hikes,” said Mr. Lévesque. “There's a pretty broad range of views.”
Some investors in the bond futures market in Canada are still looking for another rate increase in May, so if the central bank does signal this week that it might stop increasing rates for now there could be volatility in bond future prices, said Stewart Hall, the currency and fixed-income strategist for HSBC Securities (Canada) Inc. He estimates the yield on bankers' acceptance futures could fall at least 15 basis points. (A basis point is 1/100th of a percentage point.) Over the past few days, bond traders have re-priced the market indicating an increased likelihood that the central bank might indicate that it sees the inflation risks as being well contained, he said.

Please check back soon for my thoughts and opinions.