Hello,
I hope this finds you well. It is hard to believe Summer officially starts this week! On the mortgage front, we have seen mortgage rates start to stabilize at near record lows. Since the fear of inflation and rising rates in April, Capital markets have retreated with borrowers seeing a 0.50% drop in their best 5 year fixed rates. The 5 year Government of Canada Bond yields have retreated from a high of 2.9%, to their current yield of 2.2%. The reasons for the turnabout in economic outlook are threefold:
1. Deliberate slow down and credit tightening in China – China is allowing its currency to appreciate against the US dollar and has demanded state owned Banks increase reserves and limit the supply of money to curb credit growth.
2. Resurgence of European debt default – With Greece needing additional funds to avoid defaulting on its debt, there are renewed fears of additional debt restructuring which will slow economic growth. The amount of debt European countries will carry as a result of economic bail outs will limit public finances and economic growth. The same can be said for the US who are slowly emerging from their economic mess. With the winding down of the US Government stimulus programs, everyone is watching for the economic momentum to continue with the private sector taking over.
3. High Oil & Food Prices – Usually these two items are inflationary, but within the current context of our global economy, high energy and food costs act as a “commodities tax.” Higher energy and food costs reduce consumer spending and growth as people stick to the basic necessities.
While we don’t live in a vacuum in Canada, we are a very different story. We have been very fortunate to have avoided a collapse in our housing market and banking system. While Canadian debt levels remain extremely high and consist mainly of consumer debts (Credit Cards and Lines of Credit), our economy remains healthy and active with unemployment dropping.
With the recent drop in interest rates, please be advised Interest Rate Differential Penalties have increased! If you know someone who is planning to sell, we recommend confirmation of pre-payment penalties to ensure sufficient sale proceeds can be realized net of the penalties payable to meet your client’s goals.
On the Real Estate side, Vancouver housing Inventory levels are down with the market continuing to favour sellers. With an increase in higher end sales mostly from offshore buyers, we are now seeing a spill-over effect and more activity in East Van, Downtown, and the North Shore. The market remains soft in certain areas of the Fraser Valley, especially Abbotsford & East.
We really appreciate your support and look forward to helping your clients navigate their financing needs with confidence. With our ability to hold rates until Mid-October we offer is a tremendous opportunity to capture low rates and formulate a solid housing & mortgage plan.
Best,
Rob & Team
