Saturday, October 31, 2009

Happy Halowe'en

Just a quick note to say Happy Hallowe'en everyone ... hope you have a safe & happy evening shelling out to the ghosts and goblins.

Wednesday, October 28, 2009

The recession may be officially over, but recovery is fragile and job losses still mounting

The Canadian Press, 2009

WASHINGTON - It is about to become official: The U.S. recession is over - but not the pain.

The government will release figures this week expected to show that the economy has awakened from its deepest slump since the 1930s and is in the early stages of a recovery. But the following week, the government will issue another set of figures expected to show unemployment continuing to rise toward and possibly above a clearly recessionary 10 per cent.

How can both be possible?

The government releases third-quarter Gross Domestic Product figures on Thursday. Many forecasters say they will show GDP growing at an annual rate of about 3 per cent, validating a widely held belief among economists that the recession ended in June or July.

But try telling that to the more than 15 million still unemployed, the small businesses and individuals who can't get loans and the people whose homes are worth less than their mortgages.

Assertions by government and private economists that the recession is over - issued amid graphic examples of continuing wide distress - are raising fresh questions about economic scorekeeping.

The national recession may be technically over, but the state of the economy remains in the eyes of the beholder.

Or, as Ronald Reagan liked to say, a recession is when your neighbour loses his or her job. Depression is when you lose yours.

A survey of economic forecasters prepared by Blue Chip Economic Indicators, a research organization, predicted GDP growth to remain positive in each quarter through the end of 2010. In a survey by the National Association of Business Economics, 34 of 43 economists polled said the recession is over.

"From a technical perspective, the recession is very likely over," said Federal Reserve Chairman Ben Bernanke.

"A recession that showed no signs of ending last January appears to be firmly entering the recovery phase," said Christina Romer, the chair of the White House Council of Economic Advisers.

But nobody is sugar coating the statistics, especially in the administration, which agrees with private surveys suggesting that unemployment will hover near 10 per cent through most of next year.

"Even when you've turned the corner, you have so much work to do," Romer told Congress' Joint Economics Committee.

And while she credited much of the turnabout to government stimulus measures and moves by the Fed, she said "by mid-2010, fiscal stimulus will be contributing little to further growth."

Even ahead of the report expected to show an increase in economic growth, The Conference Board, a private Chicago-based research group, reported Tuesday that consumers' confidence about the U.S. economy fell unexpectedly in October as job prospects remained bleak.

That fueled speculation that an already gloomy holiday shopping forecast could worsen. Consumer spending accounts for more than two-thirds of the entire economy.

The economy has lost 7.2 million jobs since the recession began in December 2007, 3.4 million of them since President Barack Obama took office in January.

James K. Galbraith, an economist at the University of Texas at Austin, suggests too much attention is given to when recessions technically begin and not enough to other measures of the economy.

"It's just a word. A recession technically lasts during negative quarters. But that doesn't mean you're back to prosperity once you have positive growth. You're back to prosperity when the unemployment rate is back around 4 per cent," Galbraith said. And that, he said, could take years.

A recession is popularly defined as two or more consecutive quarters of negative economic growth, or declining output.

But a more refined determination is made by the National Bureau of Economic Research, a private group of leading economists charged with dating the start and end of economic downturns. It not only looks at GDP but at employment levels, real personal income, industrial production and wholesale
and retail sales.

It put the start date at December 2007 and has not yet called an end.

There have been 11 recessions since World War II. In the two most recent ones, job growth lagged long after the recessions were deemed over. In the most recent two - July 1990-March 1991 and March-November 2001 - the unemployment rate did not fall to prerecession levels for several years.

After the eight-month 2001 recession, the unemployment rate went from a prerecession 4 per cent in 2000 to 4.8 per cent in 2001. Then it kept climbing even higher - to 5.8 per cent in 2002 to 6 per cent in 2003. It didn't return to under 5 per cent until 2006, when it fell to 4.6 per cent.

While there are clear signs of recovery, it is uneven.

Stocks have surged about 50 per cent since their March lows. And a year after Washington rescued the financial industry, some large banks and Wall Street firms have roared back to profitability.

But smaller banks and other businesses are struggling, and many have failed or are failing.

That disconnect sparked anger among the public and led to sweeping government action last week to limit executive compensation at financial firms that accepted federal bailout money.

"While credit may be more available for large businesses, too many small business owners are still struggling to get the credit they need," Obama said in his weekly radio and Internet address. "These are the very taxpayers who stood by America's banks in a crisis - and now it's time for our banks
to stand by creditworthy small businesses, and make the loans they need to open their doors, grow their operations and create new jobs."

There have been modest improvements in manufacturing and other parts of the nonfinancial business sector, yet lingering signs of weakness in commercial real estate and retail spending.

Economists suggest some of the expected increase in economic growth is a bounce off the bottom. They attribute it to government stimulus spending, including the now-expired Cash for Clunkers program; accommodative Fed monetary policies and widespread cost-cutting by companies.

Many companies let inventories run down so much that when they ran out, orders picked up. Home resales ticked up as buyers scrambled to complete their purchases before a tax credit for first-time owners expires. And U.S. exporters have benefited from a relentless decline of the dollar that has
made U.S. goods cheaper and more competitive overseas.

But none of this adds up to a sustainable upswing.

"Absent robust job growth, it is not a true economic recovery," said White House economic adviser Jared Bernstein.

Monday, October 26, 2009

Study Says Variable Rate Mortgages Better Deal for Borrowers Most Times

The Canadian Press

TORONTO - Fixed mortgage rates may help you feel secure in your budgeting, but the Bank of Montreal (TSX:BMO) says the more volatile variable rate mortgages will save you money in the long run.

The bank put out a report Friday showing that, over the past 30 years, variable-rate mortgages have been more cost-effective about 82 per cent of the time.

That may come as a surprise to some after studies have shown many Canadians prefer a fixed-rate mortgage.

A fixed rate locks the borrower into a set interest rate for a certain period of time.

That gives many borrowers peace of mind knowing how much money to set aside each month for their mortgage payment.

Variable rates change along with interest-rate moves.

BMO said the Bank of Canada's overnight lending rate is at its lowest possible point now, which could mean there are fewer benefits to a variable rate in the foreseeable future.

BMO highlighted two historical periods when fixed rates were considered beneficial - in the late 1970s and late 1980s - and both were just before interest rates started rising again.

The bank added that the current interest environment is similar to both of these periods.

"Short-term rates are at extreme lows and pressure is likely to build for higher rates in the year ahead," said deputy chief economist Doug Porter in the report.

"The question of whether to lock in to a longer-term fixed mortgage rate or stay in a variable rate has become an increasingly complex and important issue."

Canada has been in a long-term declining rate environment since the early 1980s, the bank suggested.

As a result, the spread between five-year fixed mortgages and variable mortgages has been pushed wider in recent years, and is now near an all-time high.

Editor's note: For all your mortgage options explained in plain english, we suggest you contact a licensed mortgage broker.

Thursday, October 22, 2009

Is CMHC and the Government's low rate policy a recipe for disaster or just under appreciated?

An interesting opinion piece today in the National Post. Please click the link and have a read.

It seems you could take this news one of two different ways. Either that we are headed down the road to ruin due to poorly thought out policy decisions or that there's no better time to buy a home since it seems you'll be guaranteed an approval by the insurance agency.

You make the call. We look forward to your comments.

Here's the link:

Tuesday, October 20, 2009

No Change in Bank of Canada Key Rate

As we anticipated, Bank of Canada Governor Carney announced he is leaving the Bank's overnight lending rate unchanged at 0.25% and therefore no changes are expected in the bank prime rate from the current 2.25%.

With inflationary pressures at bay, the Bank is managing to keep their conditional promise to hold rates where they are until the end of the 2nd quarter of 2010.

The high flying Canadian Dollar is expected to dampen positive economic gains experienced since July of this year and the Bank Of Canada now expects that it will reach its inflation target of 2% in the 3rd quarter of 2011 which is one quarter later than earlier forecast.

Canadian bond rates fell after the announcement as traders began backing off from earlier rate hike anticipation and the Canadian dollar was backing off as well in trading earlier today.

Tuesday, October 13, 2009

Fixed interest rates on the rise

Mortgage rates are on the rise today at most lenders ... the balance will no doubt follow suit in a day or so.

The discounted rates under 4.00% for all terms are still available (O.A.C.) for a limited period of time so get in touch with a licensed mortgage broker and protect yourself from rising rates for the next 120 days.

120 day rate protection covers you from now until mid February 2010 so anyone with a mortgage maturing between now and then should be getting off the fence and acting now. Any purchase transaction with a closing date between now and then should make sure that the financing has been arranged. There is no model to suggest where rates will go over the next while but if you can get a 3.79% 5 year closed mortgage rate today, why take the chance and wait til tomorrow to make your application through a licensed mortgage broker?

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Saturday, October 10, 2009

Happy Thanksgiving !

Its not often we take a step away from the main theme of this blog but there are certain special times of the year when we like to do so. We have much to be thankful for here at the Your Mortgage Matters blog even though it has been a hard year in the industry and economy in general. As some of you also know, we have had some serious health issues to deal with in a close family member this year too and your good wishes and prayers have been more appreciated than you can imagine.

So let's take a moment to enjoy some down time from the world ... it has already been a very tough year for some and continues to be for many others.

Enjoy the company of family & friends this weekend and really sit back for a minute and think of all you have to be thankful for. The things we take for granted on a daily basis ... clean water, a good education system for our children, safe streets & stores full of everything from the basics to the luxury items. Good health & freedom to say what is on our minds without the fear of persecution for our thoughts or beliefs.

Happy Thanksgiving everyone and thank you for your support.

Wednesday, October 7, 2009

Australian bank raises interest rate

The rate hike heard round the world

Paul Vieira, Financial Post

The Reserve Bank of Australia has become the first major central
bank to raise interest rates since the financial crisis, citing rising home and stock prices along with the traditional focus on growth and inflation - factors other central bankers are expected to make more prominent as they seek to prevent a repeat of debilitating asset bubbles.

The surprise move by Australian central banker Glenn Stevens was greeted with enthusiasm by markets, as it was interpreted as a sign a global economic recovery was on track. Equities, commodity prices and the Canadian dollar surged on the move, although giving up some gains in later trading.

The Australian rate increase now puts the spotlight on other central banks, such as Canada's, which has been steadfast in setting rates to ensure a 2% inflation target. But inflation in Canada is expected to remain benign until 2011, forecasters say, due to excess manufacturing capacity in the economy and a strong Canadian dollar that will keep a lid on import prices.

The loonie reached a one-year high Tuesday of US 94.82¢, before closing at US 94.38¢, up 0.93¢ from Monday's close.

"Inflation is not going to be a problem. Consumer spending, and the consumer
response to cheap money, however, may be a problem," said Stewart Hall,
economist with HSBC Securities Canada.

The consumer response is what might push the Bank of Canada, just like its
Australian counterpart. In its decision, Australia's central bank cited solid gains in housing prices and a "significant" recovery in equity markets for raising its benchmark rate 25 basis points, to 3.25%.

"I do get the sense asset prices are going to be play a greater role in the
formation of monetary policy," said Michael Gregory, senior economist at BMO
Capital Markets. "Because the amount of stimulus is unprecedented, and at
emergency levels, removing it won't follow the same rules of thumb."

As a result, he said, central bankers might be looking at new measures to
determine when to raise rates. As opposed to looking strictly at inflation and growth, Mr. Gregory said central banks might be forced to pay as much attention to asset prices and credit spreads.

In Australia, the central bank has always paid close attention to housing prices - which are a national obsession and have been on a tear over the past decade - and view them as a guage of the overall strength of the economy.

One of the main debates in the aftermath of the financial crisis is the role central banks should play in averting future meltdowns, and what powers they should be granted to execute this task. By taking on a beefed-up role as overseeing the financial system, central banks would be expected to identify asset bubbles and pop them before they burst. The collapse of the U.S. real estate market, fuelled by low lending rates that attracted less-creditworthy buyers, sparked a credit crisis and global recession.

"The general view before the calamity was that monetary policy was not an effective tool in dealing with asset bubbles," said Craig Alexander, deputy chief economist at Toronto-Dominion Bank.

"But given how much damage was caused by the U.S. housing bubble, the view
now is that cleaning up the mess afterward can be far too costly and that monetary policy may need to be responsive to asset prices."

Mr. Alexander was a co-author of a TD report released Tuesday, suggesting the Bank of Canada might be forced to raise rates before it expected should Canada's housing market continue its stellar performance.

Mr. Hall said the Bank of Canada has put itself in a "tiny bit" of a box by indicating it was prepared to keep its key interest rate at 0.25% until June 2010, on the condition that inflation would hit the 2% target in early 2011.

But Mr. Hall said the central bank "would do what it wants to do" should circumstances arise. "It won't get trapped by anything."

The Bank of Canada is set to deliver its next interest-rate on Oct. 20, followed by an updated economic outlook two days later. Analysts will be eyeing the documents closely for any change in tone regarding rates. In the meantime, the Bank of Canada's senior deputy governor, Paul Jenkins, is scheduled to speak in Vancouver Thursday regarding the future "challenges" facing central banking.