banks around the world continue to maintain low interest rates and most
have expressed that rate increases will not occur until their respective
economies improve significantly. Many countries have used
quantitative easing, basically increasing the money supply to keep interest
rates low, in an effort to stimulate their economies. The main concern
with this tactic is that it should eventually result in a much higher inflation
rate. Inflation has remained stubbornly low and the risk of
deflation (negative inflation) is becoming a greater concern in many regions,
particularly Europe. Most economists agree that an ideal inflation
rate for optimum economic growth is about 2%. Although deflation is
unlikely in the US, China and currently Canada, the possibility of it in Europe
remains a concern. If deflation occurs, then prices go down over time and
although that sounds great to bargain hunters everywhere it can cause a
downward economic spiral in the region where it occurs. As prices
decrease, consumers are willing to put off buying things as the items will
likely cost less in the future. This is not a huge concern for many
consumer goods but when purchases of large items are delayed, the negative
effects on an economy can be quite dramatic. The latest indication
that deflation risks in Europe are growing is the decreasing price of oil which
can reduce costs for many industries and if lower oil prices remain, these cost
savings will eventually cause lower prices for many consumer goods.
In Canada, a stronger US dollar lowered the Canadian dollar slightly and it is expected to continue a slow decline for the remainder of the year. One analysis even has the Canadian dollar dropping to $0.88 in 2014. This prediction is on the extreme end but there is a consensus that the dollar could reach $0.92 in the next few months. Bond yields are down slightly this week and fixed rates are starting to see some minor reductions. The best 5 year rate is currently 3.35% for a clean deals on regular owner occupied properties. Variable rates are currently available at Prime less 0.5% for good deals (Prime is currently 3.00%) and this is becoming a more popular option as the Prime rate is not expected to increase until well into 2015. Consumers are advised to get rate holds in place for potential purchases, refinances or renewals as a 120 day rate hold will last until mid-March. This should be long enough to ride out the uncertainty of debt ceiling talks in January and any potential changes to the expected tapering timetable in the US.
Please remember that 80% financing is available for qualified US residents at great rates!
I am always available to assist you and your clients.
Jason McLean BSc, AMP
The Mortgage Centre: Garibaldi Mortgage