Market Update September ‘09

Rates will begin to rise early in 2010.

Should end up at about 6%, a 50% increase from today.

1. Mortgage interest rates should start going up in January when the bond market starts to expect and price in the expected inflation.

2. Prime should stay at 2.25% until June 2010 as the Bank of Canada has suggested that they will not change the rate before then.

3. Buy a home, or renew an existing mortgage, in the next 4 months to take advantage of this once in a life time opportunity due to the last year’s financial crisis.

Mortgage fixed rates to rise. The US has increased their money supply by 50% in just 1 year which is textbook inflationary. They have also printed money to buy their own bonds, which is double textbook nflationary. These actions have not yet caused the inflation that everyone expects but it is on the way.

As soon as the market starts to price in the costs of these actions the mortgage bond rates will rise and so will the mortgage rates. Rates should start go up in January to about 6% or so for a 5 year fixed rate.

Prime will stay at 2.25% until June, 2010. The Bank of Canada (BoC) has stated that they will try to hold Prime at the low emergency rate of 2.25%. This is a key part of the financial stimulus and has been keeping the economy alive. Removing this stimulus too soon could undo the positive effects that the spending has achieved so far. This is why the BoC has stated that they will leave it as is, even if other rates begin to rise. The other reason is that Canadian banks needed to know what the cost of funds was going to be so they could in turn loan funds to further stimulate the economy. Consumers who wait for Prime to rise before locking in their variable rates will be disappointed as rates will have already go up as noted above.

Buy or refinance before 2010. Today’s rates are emergency interest rates as we have just gone through the worst financial crisis since the Great Depression. These are once-in-a-life-time rates that we should not see again in our life time. Buying before 2010 will allow you to take advantage of newly adjusted lower home prices and the low interest rates as well. Renewing an existing mortgage that is in year 3, 4, or 5 of a 5 year term and paying the 3 month interest penalty now will produce savings because you can fix your new mortgage rate at the lowest they have been for 70 years. You will also not renew later into the rates that will be around 6%.

Another Reason to Buy Soon. Homeownership costs in Alberta have dropped to levels that were last seen 3 years ago, further boosting the resale market. This is "the biggest cumulative drop in the history of the RBC Affordability Index, reaching levels that were last seen in late 2005" said Robert Hogue, senior economist, RBC. "In response, buyers have jumped back into the housing market in a big way since the spring, sending existing home sales soaring over 60 per cent between April and July."

Mark Herman; AMP, B. Comm., CAM, MBA _ Accredited Mortgage Professional One of the Top-10 Brokers at Canada’s Largest Independent Mortgage Brokerage for ’07 and ‘08

Mortgage Alliance  Mobile: 403-681-4376  Secure e-Fax: 1-866-823-1279


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Jeffrey LeBlanc

Jeffrey LeBlanc

CENTURY 21 Bamber Realty Ltd.
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