Heather Paterson

The Bank of Canada decided to maintain its overnight rate at % this morning, citing economic growth that is in line with its October Monetary Policy Report. Still, economic recovery has not been strong enough to warrant a rate increase. The Bank believes inflation risks remain in balance. This means that the Prime Lending Rate for Variable Rate mortgages remains at 2.70%. Good news for variable rate mortgage holders.

Are You Covered For a Sharknado? As we prepare for the torrential rains, epic winds, and yet another round of ravenous, thrashing sharks falling from the sky (as in tonight’s debut of Sharknado 3: Oh Hell No!), there is one question to ask yourself: Am I insured for this? No doubt your home insurance will cover replacing a roof damaged by a plummeting great white, and third party liability coverage will likely take care of any issues arising from sharks landing in your pool ... your packed pool, during your annual block party. So on the positive side, material goods and liability should be covered. The forecast calls for plenty of flying sharks during the evening of July 22, 2015. Are you covered for injury incurred while fighting off a flying shark? Be it a strained left shoulder brought on by hanging from the leg of a helicopter flying into the eye of the storm, or a separated right shoulder from the weight of the butane cannon you were wielding while hanging from said helicopter. Or perhaps you wrenched your back while wrestling through the belly of a live shark while clinging to a massive chainsaw running at full speed. Whatever the injury, let’s face it; you could be unable to return to basic duties of work or day-to-day tasks for a few months. Mortgage Life & Disability Insurance coverage may well have your back. It offers both life insurance (to cover the outstanding balance) and disability insurance (to assist you with mortgage payments for up to two years). When you are obtaining a mortgage, always review your options for Mortgage Life & Disability Insurance with your Mortgage Broker. Even if you declined the coverage at the time you obtained your mortgage, the option to review the policy options and to apply still exists today, ideally through your original Mortgage Broker. There is, however, no replacement coverage available for the hours of your life lost to a B movie festival like Sharknado 3! See more

Dominion Lending Centres Inc. April 2015 Newsletter http://bit.ly/1JMXG5b

All eyes are on the U.S. Federal Reserve as it issues its latest policy statement. Everyone is looking for clues on when interest rates might move up and how the Fed plans to exit its easy monetary policy. Many market watchers expect the phrase "considerable time" to disappear from the central bank's pledge to keep interest rates near zero, where they have been since December 2008. Several members and the Chair have taken to talking about timing hikes based on economic data, ...rather than the calendar. Some analysts believe the elimination of the "considerable time" wording could mean a boost as early as March. What this means for Canada remains to be seen. But given the lack of concern the Bank of Canada and the federal finance department are displaying over the sinking Loonie, it doesn't seem there will be any rush to match a U.S. increase, whenever it comes. See more

The Bank of Canada has made it clear it intends to run its own course when it comes to interest rates. Its latest policy announcement all but stated it is looking to start making increases by the end of this year. Interestingly, the national average price for a home slipped 0.5% even before last week's policy statement and the decision to stand pat on interest rates. A number of factors stand between the Central Bank and its willingness to raise rates: weaker than expected jo...b numbers in the U.S., lower than expected inflation in Canada and simmering concerns about Eurozone debt. Off the radar for the past several weeks, Europe is returning as an ominous blip. People simply aren’t prepared to accept the austerity measures they’re told are necessary. In Spain, debt continues to get more expensive. If a Greek-style bailout becomes necessary it would clean-out the E.U.’s rescue fund. In France, the anti-austerity Socialist candidate has won the first round in the presidential election. And in the Netherlands, the prime minister has resigned over his inability to win support for an austerity budget.

Need money for a Down Payment on a Home? The Home Buyers' Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year. Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year.... Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount due for a year, it will have to be included in your income for that year. The deadline for 2011 RRSP contributions is February 29

Canadian Mortgage Rates Hinge on the Americans If you want to know what’s moving Canadian mortgage rates, watch the American news. The reason? Canadian bonds are 95% correlated with American bonds (Treasuries) and bond yields are 97% correlated with 5-year fixed mortgage rates. ... In other words, Canadian rates are married to U.S. rates. So it’s no wonder that our mortgage rates are being shifted by things like the U.S. debt ceiling and fiscal cliff. Below is a list of factors weighing on mortgage rates right now: Rates are in a tug of war between bullish factors (those lifting yields) and bearish factors (those depressing yields). Here’s a current summary of each: BULLISH FACTORS FOR RATES: Cliff relief: The U.S. dodged a full-scale swan dive off the fiscal cliff. As a result, relieved traders have been selling safe bonds and rotating into riskier assets. There may be more of that to come, especially if debt ceiling talks progress better than expected. Spring Market: Bond and real estate seasonality are sometimes underestimated. As the prime home-buying season approaches, fixed-rate mortgage demand could help support yields. BEARISH FACTORS FOR RATES: A U.S. Econo-flop: Congress’s new tax increases are growth and job killers. And, the wasted opportunity to cut spending means future U.S. austerity measures could be more severe. Debt Ceiling: In a few months, Congress will face its next big decision: raise the debt ceiling for the 41st time in 30 years, or let the U.S. default. The latter isn’t likely but the thought of it could perpetuate the safe-haven trade (i.e. keep people from dumping bonds and driving up yields). Euro-risk: Europe’s three years of debt turmoil has been upstaged, but not eliminated. European central bank liquidity is a Band-Aid solution and Spain and Greece are in depression. WILDCARDS FOR RATES: Rating agencies: The New Year’s fiscal cliff compromise cut just $12 billion in U.S. spending, while adding $4 trillion of new debt. Credit rating agencies must be shaking their heads. Without budgetary tightening by spring, another downgrade is not unthinkable. Losing another AAA rating would either seriously damage the Treasury’s risk free reputation and spike yields, or compel investors to buy U.S. Treasuries in knee-jerk fashion (like in August 2011). U.S. and/or Canadian Out-performance: Most traders expect low rates to stick around. But if employment improves significantly and traders sense that the Fed is abandoning its commitment to hold down rates, all bets are off. The historic Treasuries rally will unwind and yields will lift-off. At the moment, there is maximum uncertainty. While nobody expects major rate increases near-term, a 20-30 basis point increase would shock no one. So if you need a mortgage in the next six months, don’t hesitate to lock in at today’s epic low rates.

Markets appear generally optimistic to the start of the week. There has been news of some progress in negotiations to avoid the fiscal cliff in the United States, Bond yields are up about 3 bps. Sales of existing homes fell 1.7% in Canada last month, compared to October. Sales were down nearly 12% compared to November of last year. The Canadian Real Estate Association has also lowered it’ s sales forecast for this year and 2013. CREA now sees a 0.5% decrease in sales for this... year, a downward revision from September’s projection for a 1.9% increase. The 2013 estimate has also been moved lower with the Association now looking at a 2% decline. The realtors also say prices are slipping with November coming in 0.8% lower year over year. Over the next two to three years, analysts have predicted price corrections anywhere from 10% to 30%. In the country’s hottest markets they also believe that the higher numbers are not out of the question.

The Bank of Canada is once again keeping its key policy rate unchanged, although continuing to signal that rates will move higher at some point. The Bank's statement noted that in Canada "although underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013," and that "it is too early to determine whether the moderation in housing activity and credit growth will be sustained." The prime rate for most... lenders should stay at 3%, exactly where it has been for more than 2 years. The Bank's next rate decision is scheduled for January 23. As for fixed rates, we continue to enjoy historically low rates for those looking to purchase or refinance.

Mortgage borrowers, no doubt, took heart in last week’s announcement by the US Federal Reserve, that it sees interest rates staying at 0.25% (virtually zero) into 2014. But keep in mind that is a projection, not a commitment. While Canada remains tightly tied to the US, the Bank of Canada can act independently. Along with its first-ever rate projection, the Fed also downgraded its economic forecast and continued to call the US housing market ‘depressed’. More telling for the bond market will be this week’s US and Canadian job numbers and Canada’s real GDP figures.

The Bank of Canada had a couple of notable messages for consumers as it left its benchmark interest rate at 1% for the 25th setting in a row. First, the bank remains committed to moving rates up. Although the language used was somewhat softer than in the past the Bank said that an increase was not imminent, but over time it would likely raise rates as the situation warranted. Second, the bank made it clear that the increasing imbalance in household debt is one situation th...at could trigger a rate increase. The ratio of household debt to income now stands at 163% and it continues to grow. The bank continues to warn that this is the number-one domestic threat to the Canadian economy. That threat got some reinforcement from a new survey that indicates nearly three-quarters of Canadian homeowners feel they would be in a significant financial squeeze if their mortgage payments increased even slightly. Nearly a fifth said a 10% increase would put them in jeopardy of not being able to afford their home. The same proportion said they have dipped into savings to meet their mortgage obligations.

The latest rate setting by the Bank of Canada last week, once again, maintained the benchmark at 1%. It has been there for two years, the longest run ever without a change. Still, Governor Mark Carney continued to express the Bank’s desire to move rates up as soon as possible. That position seemed to take another hit when the Chairman of the U.S. Federal Reserve indicated The Fed was prepared to hold its borrowing rate at 0.75% to 2015 if necessary. Now a new report from Mood...y’s Analytics is bolstering Carney’s cause. It says Canada could move on rates well before the end of next year. The sister company to global ratings agency points to Canada’s GDP growth being broadly in line with projections; the fact that Canadians appear to be reducing their debt levels; and the housing and building markets appear to be cooling. All of these contribute to an environment that would allow for a gradual increase in rates, that wouldn’t shock the economy. See more

Hot on the heels of last week’s report showing home prices are falling in Canada, this week a different report from RBC indicates that home prices and mortgage rates are on the rise. Why the contradiction? One word: Vancouver The price drop reported in July was driven by declines in Vancouver that skewed the numbers for the whole country. Vancouver remains the least affordable market and when it is removed from the equation the erosion of affordability is greatly reduced. Af...fordability is measured as the amount of household income taken up by home ownership costs. Despite Vancouver’s 91% (up 2.2%) affordability measure, Canada’s metropolitan cities are experiencing moderate change. Calgary has strong resales and building activity, with unchanged affordability measurement of (36.7%) due to a drop in electricity and natural gas. Toronto home-ownership consumed higher than normal household income, still modest to Vancouver and affordability up 0.9% to 54.5%. Ottawa recorded the third best sales of existing homes with unchanged affordability (41.9%). Montreal market trends sideways with healthy resales in the second quarter third highest on record, and affordability down 1% to 40.4%.

As expected yesterday, the Bank of Canada is holding its benchmark, overnight rate at 1% for the 15th consecutive setting. In the accompanying policy statement the bank said the decision was made in light of the current global economic situation. It also downgraded this year’s economic growth projection from 2.4% to 2.1%. The bank releases its Monetary Policy Report today. Yields continue to drift down. A growing number of analysts have been backing up the time line for an in...terest rate hike by the Bank of Canada. Through the last quarter of 2011 and the first quarter of this year, the call was for a 25 to 50 basis point hike by late 2012 or early next year. Now that’s being rolled back to the middle of 2013. Slowing economic growth in Canada, the U.S. and China, and the unrelenting economic problems in Europe have handcuffed our central bank. It has been looking to raise rates in an effort to slowdown the growth of household debt in Canada. But the Bank of Canada did get some relief with Ottawa’s imposition of new lending rules for high-ratio mortgages and new mortgage qualification limits. The regulatory moves amount to a de facto interest rate increase in the housing sector and, anecdotally at least, appear to be having the desired, cooling effect.

The CIBC says Canadians may enjoy historically low interest rates into 2014. The private sector bank released its new outlook for the global and Canadian economies, and all indicators point to weakening conditions and rising risks. The bank says Canada’s economy will barely keep its head above water with growth rates of 2.1 per cent this year and next year, after growing 2.4 in 2011 and over three per cent in 2010.... The main reason, the bank says, is that the global economy will continue to slow, down to three per cent this year, the slowest pace of expansion since the recession. As well, Canadian consumers are tapped out and governments are spending less. With this backdrop the Bank of Canada will find it difficult to raise interest rates, says the CIBC, predicting it may wait until U.S. growth picks up sometime in 2014.