This seems to be the talk of the last couple weeks.

For those watching the rates, Bank of Canada decided NOT to lower the rate. This caused what many would call a great furor in the market… for a day or so, until “the market” understood why there was no change. The result with the major banks/lenders was to raise their fixed rates almost immediately. One bank jumped more than 50 points after the announcement.  Everyone else followed suit, but only jumped 40 points. Today, there starting to pull back by 10 points.
The Federal Reserve, or “The Fed” as everyone refers to it, also stood pat on rates after a long stream of cuts this week. All the econimists are saying the same thing. Both BoC & The Fed are trying to do a difficult balancing act; on one hand stimulate the economy by lowering rates and yet at the same time watch the creep of inflationary indicators and quell those by raising rates.

Fixed rates go up as a result of the “overnight” lending rate remaining high, however the variable rates remain unchanged. Prime – 60 points is the current mark with the odd lender testing the waters for a short while with 75 points off.

Also this week another commercial lender bites the dust in Canada. Not really a surprise to many, including former employees. The last couple of years, spending money like it was going out of style… apparently it was. This is as a direct result of the fall out of the “sub-prime” market in the US. They were a US company. I think their source of funding, even on the commercial side dried up, like everything else.

In Canada now, we are left with a grand total of 3 sub-prime lenders. They’ve been there from the beginning. Suffered through the last couple of years when we had almost 20 lenders “jump in” to their space. Everyone else has packed their bags and gone back to what they were good at originally.

What I found really surprising a couple weeks ago was when a private lender who’s been in the business for many years, decided to close their doors. Their reason? Couldn’t source enough funds for all the deals. Ouch!

Lots of changes in the last few months. I think I alluded to this many months ago when I quoted that ancient chinese curse “may you live in interesting times.”

Take care everyone.

Well the busy season seems to have slowed enough for me to actually consider taking the time to post an update.

Sorry for the delay. Busy is a good thing in my business. Lots of deals still on the go, but the crunch of the last few weeks seems to be less.

I had a moment and read another fine article from Ben Tal. He always has an interesting take on the global economy.

Let me know what you think.

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NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS
Despite the fact that US mortgage foreclosure rates are still soaring and house prices continue to fall, there are some signs that the financial burden facing American financial institutions are starting to ease.
Activity at the Fed’s discount window is slowing. Outstanding primary credit totaled $12.97 billion this week, down from almost $20 billion seen last week. Note that outstanding primary credit has averaged $12.4 billion since April. Reduced borrowing from the Fed’s discount window is an indication of a lower level of stress in credit markets.
The US labour market is still struggling. Non-farm payrolls fell by 49,000 in May and the unemployment rate rose to 5.5%. The surge in the unemployment rate suggests more weakness in the pipeline.
Accordingly, while Bernanke is hinting that inflation is now on his radar screen, this weakness suggests that the Fed will not touch rates for a while.
In Canada, the labour market is starting to reflect the economic reality we currently live in. Employment was little changed in May, and if it were not for the surprising (and unsustainable) jump in manufacturing jobs during the month, the picture would have been even less encouraging. Look for the labour market to be relatively weak in the coming six months.
Food inflation in Canada is still significantly below what we’ve seen in the US and Europe. Why? Because of the strong appreciation of the dollar. But unless you expect another 20% increase in the value of the loonie, food prices here will start catching up with the hikes seen in other countries.
Accordingly, we are at (or very close to) the end of the current interest rates easing cycle by both the Fed and the Bank of Canada. And with inflation likely to be the main theme next year, look for notable increases in both short and long-term interest rates in late 2008 and into 2009.
Clearly the Canadian stock market is not mirroring the economy. Since January, the Canadian stock market has outperformed its American counterpart by a wide margin. And the reason is of course commodities, in general and oil, in particular. The TSX’s reliance on commodities can be a curse or a blessing—depending on the future trajectory of commodity prices.

In this context, many suggest that the decline in the value of the US dollar and even more so the role of speculators are the main reasons for the recent rise in oil prices. However, a closer look suggests neither speculation nor the value of the US dollar is material to the oil outlook. We estimate that accumulation of “paper” barrels of oil in the hands of speculators has been, at most, one-fifth of the increase in Chinese demand for actual barrels of oil over the last five years. And even if denominated in a trade-weighted basket of world currencies, the price of oil would still have risen to over US$100/bbl.
Benjamin Tal
Senior Economist

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Rising rates late this year & next.

So for those in Variable or Adjustable rate mortgages, you may want to keep an eye on the 3 & 5 year fixed and consider locking in when you think things have stopped going down. The other school of thought of course is to stay the course as traditionally variable mortgages in the long run work out to about the same. It really depends on your cashflow situation.

That’s it for now. Hopefully I can get back into the swing of posting weekly again with some interesting tidbits of things that have been going on recently in the mortgage world.