At 9:00 am EST, Octo­ber 25^th, 2011, the Bank of Canada did what we expected them to do… they main­tained their overnight rate.  

Here is an excerpt of the announce­ment from the Bank of Canada and what they had to say about their decision:

“The global econ­omy has slowed markedly as sev­eral down­side risks to the pro­jec­tion out­lined in the Bank’s July Mon­e­tary Pol­icy Report have been real­ized. Finan­cial mar­ket volatil­ity has increased and there has been a gen­er­al­ized retrench­ment from risk-taking across global mar­kets. The out­look for the Cana­dian econ­omy has weak­ened since July, with the sig­nif­i­cantly less favourable exter­nal envi­ron­ment affect­ing Canada through finan­cial, con­fi­dence and trade chan­nels.  Although Cana­dian growth rebounded in the third quar­ter with the unwind­ing of tem­po­rary fac­tors, under­ly­ing eco­nomic momen­tum has slowed and is expected to remain mod­est through the mid­dle of next year.”

The out­look has not changed since the last announce­ment.… the Cana­dian eco­nomic growth stalled in the sec­ond quar­ter but the Bank con­tin­ues to expect that growth will resume in the later part of this year.   Based on this repeated mes­sage and eco­nomic con­di­tions it is antic­i­pated that prime rate might not actu­ally increase until well into 2012 maybe even 2013.  When it does start to increase, it is expected to be grad­ual and con­trolled in line with eco­nomic recov­ery, both in Canada and glob­ally.  Remem­ber any change to the prime rate since 1992 has only been by 0.25% at any ONE time.

With the recent eco­nomic trends and pro­jected fore­cast, any­one with a vari­able rate mort­gage would do well to stay with what they have since there is no short term expec­ta­tion of rate increases occur­ring.  This hope­fully means you’re enjoy­ing a rate of 2.25% or lower for the fore­see­able future.

The next Bank of Canada rate announce­ment is sched­uled for Decem­ber 6, 2011.

Bond yields fell early last week before ris­ing to end up just a bit higher than where they started.

The early week decline in bond yields was the result of some weaker than expected US eco­nomic data and the real­iza­tion that a swift res­o­lu­tion to Euro­pean debt trou­bles is off the table. Weaker eco­nomic con­di­tions and uncer­tainty tend to drive yields lower.

By the mid­dle of the week, US data such as hous­ing starts came in a lit­tle bet­ter than expected, and at then on Fri­day, the rate of infla­tion for Canada for Sep­tem­ber was reported at lev­els some­what higher than the mar­ket had expected. Ris­ing infla­tion tends to push bond yields higher.

The biggest chal­lenge in mar­kets remains the uncer­tainty pre­sented by the Euro­pean debt cri­sis. With such a wide range of pos­si­ble out­comes, cap­i­tal mar­kets are behav­ing in a much more cau­tious man­ner and this is likely to con­tinue into the fore­see­able future as Europe’s lead­ers con­tinue to take baby steps toward a poten­tial res­o­lu­tion of those problems.

In the mean­time, spreads at which mort­gages can be sold in the mar­ket will remain at the wider lev­els that have been observed since the start of September

There has been more move­ment with vari­able rates.  More lenders are increas­ing their rates, now hov­er­ing around prime less .30.  There are still some out there that stand out from this, but I can’t tell you how much longer the best rates will be avail­able for.  As the spreads decrease, I’m not sure that vari­able rates are really as attrac­tive as they once were… we have 5 year fixed rates at 3.19% and the 4 year rate is under 3%.  When com­par­ing this to cur­rent vari­able rates that are in the area of 2.6% or higher, is it really worth the gam­ble when fixed rates like the ones I just men­tioned are available?

For many, includ­ing most first time buy­ers, I would rec­om­mend look­ing at a fixed rate while the spreads are thin­ning.  Peace of mind is much eas­ier at these rates.  The best vari­able rate still stands at prime less .65%, but this will likely be tem­po­rary.  I’d rec­om­mend that if you’re actively search­ing for a home or con­sid­er­ing a refi­nance, you give our office a call soon so you don’t lose this oppor­tu­nity or so we can dis­cuss the rates as they per­tain to your circumstances.