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McLean's Market musings for Oct 3

Blog by Nick Swinburne | October 3rd, 2013

The US managed to dominate economic news again this week due to a massive government shutdown.  This was caused by a failure to agree on conditions for extending the debt ceiling, thereby preventing the US government from using the usual borrowing measures that would allow the everyday operations of many federal departments to continue.   Many government services and facilities have been shut down, and the employees that operate them are mostly out of work temporarily.  This has happened a number of times before but the last time was long ago during the Clinton administration.   Since this is the result of extreme political partisanship, this game of political chicken may continue for a while.   It is possible that the impasse will be solved in the next week or so and if that occurs, the economic damage will be minimal.  However, if this drags on for a month, or even longer,  the damage to the world’s leading economy could be significant.    Any economic slowdown in the US will be felt in many regions around the globe, and especially Canada since the US accounts for about 70% of Canada’s trade.  The potential reduction in US economic growth from a prolonged shutdown will reduce the likelihood that the Federal Reserve will begin reducing the huge stimulus program that has kept the US economy growing.

These events will have a number of effects on the Canadian economy.   Canadian GDP growth will take a hit since the US is our largest trading partner.   Although the Canadian dollar has remained steady so far, decreased potential growth and minimal inflation will cause the dollar to slide slightly, especially against other leading currencies.    Bond yields have continued to decrease slightly and a lengthy US government shutdown could cause yields to drop a fair bit further.   Since bond yields drive fixed term mortgage rates, it looks like rates will hold steady for a while , with a low to medium possibility of decreases in the next month or two.

Decreased expectations for future Canadian economic growth has many analysts pushing back dates for the next anticipated rate increase by the Bank of Canada.  Some predictions have the next rate increase as far out as 2016, while most predictions have a rate increase sometime in 2015.  With the Prime rate remaining at 3%, clients are beginning to look at variable rates again.  Discounts have returned to 2008 levels, with some lenders offering Prime less 0.5% for a closed 5 year term.   Although this is still not a great choice for first time buyers, many consumers with higher equity and shorter amortizations are considering these variable rates as good options for paying mortgages down faster.

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
fax: 604-905-3801
cell:  604-935-9190