What the US rate hikes mean for Canadians
As Pierre Trudeau once said about living so close to the United States "Living next to you is in some ways like sleeping with an elephant. No matter how friendly or even tempered is the beast, one is affected by every twitch and grunt”. That statement, said almost 40 years ago, still holds very true today.
Our economies are even more intertwined now and it’s no wonder many Canadians are paying close attention to policymakers and politicians south of the boarder, particularly the U.S. Federal Reserve.
The U.S. Federal Reserve recently raised interest rates by 25bps (one quarter of one percent) this month and for the second time in 3 months. It has also stuck to its outlook for two additional rate increases this year while remaining cautious before implementing any further increases. “We have seen the economy progress over the last several months in exactly the way it was anticipated and we have some confidence in the path the economy is on” Fed Chair Janet Yellen said at a recent press conference. Employment numbers in the U.S. continue to look impressive and economic activity is expanding which helps keep the bond market relatively calm with no immediate increases in yields.
What does this mean for you?
For the time being this is good news for Canadians. The lack of bond yield increase in the U.S. has resulted in the Canadian bond prices to remain unchanged as well. If you are looking to get a 5 year mortgage, this means that you shouldn’t see any increases in rates as typically fixed term mortgages are tied to the yields (returns) on Canadian bond prices. Also, no significant changes are expected for variable rate mortgages as it appears the statements made by the U.S Federal Reserve will push the Bank of Canada’s decision to increase our Bank of Canada benchmark rate a little further into the future.
Getting the right mortgage for you takes a lot of understanding of what is available in the market today. As the mortgage industry continues to evolve, your Mortgage Alliance Professional will always remain up-to-date with all the necessary resources to make sure you have all of the choices available to you.
Principal CEO
7 年The rates are higher here although the prices of homes are very low... The average price where I live for a 3 bedroom ranch style bungalow on a giant low... $149,900. We also have 30 year mortgages still. So let's assume this house is 100% financedat 3.49% over 30 years... your payment is $672 (approx.). @ 5.49%,the payment is $850 (approx.). Not too much of. Difference here. Now ass ume this happens in the Canadian market with a 25 year mortgage.... 3.49% = $750 payment (approx.). 5.49% = $920 Again, not too bad... until you realize how high house prices are... $799,900 @ 5.49% (25yr) = $4,907. $799,900 @ 3.49% (25yr) = $4,000. 5.49% (30yr) = $4,537 3.49% (30yr) = $3547 My point is... either extend mortgages to 30 years again, keep mortgages rates low, or else lower house prices... I am predicting a major bubble burst in the Durham Region unless major changes happen with mortgages. I've been right on all my previous forecasts... I suggest any property > $499,000 require MINIMUM 35% down. I also suggest a 25% international buyers premium which should be paid to local municipalities for improvements to the local community. (Must be cash.) Restrictions to the size of household. For instance, one family per R zoning. A single family home is not meant for more than one family, unless it is parents of the house owner for instance. We also should implement a premium on property taxes owned by international owners/corporations. The reason I suggest premiums is because local communities seem to become less maintained with larger populations. It is very hard to keep the small town community feelings these days. International buyers are making our house prices skyrocket. We could use this money to support the locals by building parks etc. We need to learn how to love one another, accept each other no matter race, religion, place of birth etc. So In conclusion... if house prices soar, lower rates or extend amortization periods. If you're an international buyer, expect to pay more. You're still getting a great investment and helping the local community, which you are affecting, so give back. And final, people... treat those around you with respect and love. Prices of homes will rise and it'll be harder to make your payments, which can really make you grumpy. Trust me I know. But come home, put a smile on your faces and wave at your neighbors. You'll be amazed at how the community smiles back.