Over the past quarter, we have seen some rates dip versus increase as predicted. yes bank prime increased two times but fixed rates have come down and the discounts on variable mortgages have become more attractive as well. New reports of moderating inflation coupled with slowing recovery have taken the pressure of the Bank of Canada to increase rates further.
Last week we heard that rates in the U.S. will not increase until at least 2012 and since Canadian rates cannot be more than 2 per cent above U.S. rates, we have to put on the brakes, otherwise our dollar will soar, exports to the U.S. will drop sharply putting us back into recession. The U.S. economy is still very fragile and unemployment is much higher than published. In fact, consumer prices and wages in the U.S. have declined 3 months in a row, which has given rise to new fears of DEFLATION. If you think about it, the U.S.(led by housing) has been in a deflationary recession for at least two years now.
Deflation can be as damaging as inflation as prices(including housing prices) fall, incomes fall, job losses climb etc. what is also worrisome is that credit card rates are climbing at a time when we have record levels of ‘consumer’ debt. We should also point out that the banks are increasing the minimum monthly payments to 3% of balance, which makes it more difficult to pay consumer debt.
Recessions, historically have been caused by excessive inflation. Now there is a possibility here in Canada of a recession driven by deflation. There is also still a possibility ofm a ‘double dip’ global financial crisis which would create a new credit crunch.
What we do know is that the real estate market has cooled. We view this as positive actually, since the market is now more balanced, and the fear of a ‘bubble’ has disappeared.
Folks, if you have any consumer debt, whether you are feeling pinched or not, now is a good time to eliminate that(bad) debt now. Debt is debt, however high interest rate debt is referred to as the ‘devil’ in finances. Using one’s home equity to eliminate high interest debt is the best way to get on sound financial footing.
Call us today for a free evaluation of the potential costs and savings, and the option of getting a customized mortgage product that better matches your circumstances. As experts in mortgages, our mission is to save you money, provide you with professional, unbiased advice, advice you won’t get from your bank.