Bank of Canada rate hikes could raise Prime to 4.5% by 2011 (10/13/09) The Bank of Canada will push its benchmark interest rate to 2.5 per cent in the next year and a half, an economist with the Central 1 Credit Union predicted Friday.
Central 1 Credit Union is the umbrella organization for the credit union systems in British Columbia and Ontario.
The central bank rate is now at 0.25 per cent and the bank has said it will likely stay there until the spring of 2010. Helmut Pastrick, chief economist with Central 1, told CBC News the recovery remains on track, with only occasional data suggesting a setback.
He looked at gains in U.S. housing, manufacturing and government stimulus and predicted the next report on U.S. gross domestic product will show the American economy started growing again this fall, perhaps by as much as four per cent, for the first time in more than a year.
"The general direction of the North American economy is on an improving trend," Pastrick said. "We can certainly expect industrial production in the U.S. and in Canada to continue to increase in September and October.
"Certainly the Cash for Clunkers program has had a substantial impact, albeit temporary, on car sales but manufacturers now will be in the process of rebuilding their production to help restock new-car dealer inventories."
Pastrick's prediction came one day after the chair of the U.S. Federal Reserve, Ben Bernanke, said again he was in no hurry to start increasing interest rates. He expected the rate would stay at present levels for an "extended period," Bernanke said in a speech in Washington.
The Canadian dollar rose after those remarks, to close up .71 of a cent at 95.75 cents US Friday.
Australia's central bank surprised everyone on Oct. 10 when it became the first G20 country to raise rates.
Much of the growth will have been the result of government stimulus, especially low interest rates, Pastrick admitted but predicted the private sector would jump in with increased investment and job creation.
"Over time, the private sector begins to take the main role in economic growth and that should play out this time as well. However, it appears that it'll be more of a longer drawn process, particularly in the U.S. since there's still some ongoing problems in credit markets," he said.
Bank of Canada anxious about low rates Once the recovery is underway, he said, the central bank will be anxious to move away from rates near zero. Pastrick predicted the bank will likely raise rates by half a percentage point at a time perhaps three times through the fall-to-spring period from 2010 to 2011.
"That would allow them some room to cut rates at some future point should the economic recovery falter."
One wild card would be the sudden rise in the Canadian dollar against the U.S. currency.
"Should the dollar continue to appreciate further, then growth would be restrained and the Bank of Canada's first move, or move towards rate normalization, would be delayed, he said. "It may not occur perhaps until sometime in 2011."
| Enormous Bond Yield Increase - Canadian Mortgage Rates to Follow! (10/13/09)
The 5-year bond yield is soaring over 23 basis points as we speak!
It's the biggest jump in bond rates in over a year and it comes on top of strong gains over the previous few days.
The yield is now near an 11-month high, and that means fixed mortgage rate increases are around the corner.
If you're home hunting and wondering if you should lock in a mortgage rate, don't waste any more time. Protect yourself now with a rate hold or pre-approval. There's now a much higher probability we won't see today's insanely low fixed rates again for a while.
What's behind all this? Today's positive employment report is the big driver. It caught the bond market totally off guard.
Here's what analysts are saying: Action Economics: "The impressive September employment report has fed speculation that the BoC will follow the RBA and tighten earlier than expected." National Bank : "With the recession over in the labour market and the biggest decrease in the unemployment rate since November 2005, our call for a rate increase by the Bank of Canada in the first quarter of 2010 remains on track." ( Globe ) Scotiabank: "...It will feed growth prospects and inflation fears and raise market concerns regarding the BoC's conditional rate commitment." ( National Post ) BMO Nesbitt Burns : "This is the sound an economy makes when an economy recovers." ( Globe ) RBC Economics: "...At 8.4% the unemployment still implies considerable slack in this economy. This provides reason for the Bank to maintain its commitment to a 0.25% policy rate until mid-2010." ( National Post ) TD Securities : "We believe that it will certainly lead the Bank of Canada to focus on the timing of future interest rate increases set out in its conditional commitment to hold interest rates at the current level until Q2 2010. Nonetheless, while for now we continue to expect the policy rate to remain unchanged until Q4 2010, we think that the risks of an earlier move have increased dramatically." ( Globe ) Get prepared for all the previously dovish economists out there to start shifting to their "other hand" very soon... Fed's economic repair kit, are likely to remain unchanged at historic lows until unemployment peaks, which might not happen until the middle of next year. source: Gretchen Casey, AMP Lee Jenkins, AMP 1-866-880-2339 SALES INCREASE AS DURHAM MOVES INTO THE SPRING MARKET (04/07/09) Durham REALTORS®, We Work Where You Live. Source DRAR – “Sales of single family homes in the Region rose to 694 in March from 507 reported in February, which represents a year-over-year decrease from the 824 sales calculated this time last year,” announced President Debbie Dawson, Durham Region Association of REALTORS® (DRAR). “March’s average price of $263,970 has remained steady from February’s $263,899, and is down from $275,656 in March of ‘08’.” “Despite the economic downturn it appears that a number of buyers and sellers are taking advantage of the increased affordability the current market has to offer, said Dawson. “Buyers and sellers alike may want to take full advantage of the current residential and commercial marketplace; especially since the Government of Ontario recently announced the harmonization of sales tax (HST). Although Real Estate Boards and Associations are currently working together in opposing any system of harmonized sales taxation in view of the fact that it will hurt the future of housing affordability; the HST is set to take effect on July 1, 2010.” “Now is not the time to be erecting barriers to homeownership. | We need consumers to invest in housing to help get our economy going again,” said Ontario Real Estate Association (OREA) President Pauline Aunger. “OREA urges the Government of Ontario to avoid harmonizing the PST with the federal GST. Such an alteration to Ontario’s tax policy would cost consumers, particularly homebuyers, millions, ensuring that housing sector’s recovery from this economic downturn is unnecessary prolonged,” stated Jim Flood Director, Government Relations for OREA. “Specifically, a HST will result in the 8% provincial sales tax being levied on a variety of services, including legal fees, real estate commissions and home inspections currently exempt under the existing tax structure. These new taxes could add up to thousands of dollars in extra closing costs,” commented Dawson. Durham Region Gets $2 Million Boost for Affordable Housing (02/02/09) OSHAWA – Low–income families, seniors and people with special needs will soon benefit from the development of 29 new affordable homes in the City of Oshawa. More than $2 million committed under the Canada–Ontario Affordable Housing program will help fund the new affordable housing project about to begin construction. The announcement was made by Colin Carrie, Member of Parliament for Oshawa, on behalf of the Honourable Diane Finley, Minister of Human Resources and Skills Development Canada and Minister Responsible for Canada Mortgage and Housing Corporation (CMHC); Joe Dickson, MPP for Ajax–Pickering, on behalf of the Honourable Jim Watson, Ontario’s Minister of Municipal Affairs and Housing; and Durham Regional Chair Roger Anderson. “The Government of Canada is committed to making affordable housing available in Ontario and across Canada for those who need it most,” said MP Carrie. ”This funding is helping the Bloor Park Village give seniors and people with special needs in Oshawa hope, dignity and a path to a safer, better and stronger future.” “Between this new development in Oshawa and our $47 million affordable housing development announced by Minister Watson in Ajax last year, I am glad to see governments coming together to meet our current challenges of Durham Region,” said MPP Dickson. Bloor Park Village, sponsored by Cher–Brook – Bloor Park Village, is a $5.1 million project that includes $2.03 million in funding under the Canada–Ontario Affordable Housing Program. The units will be occupied by Individuals with physical disabilities and other special needs. "We are extremely pleased by this announcement," stated Regional Chair Roger Anderson. "The funding provided through the Canada–Ontario Affordable Housing Program will help to ensure that safe and affordable housing is available for residents living in Durham Region. We look forward to a continued relationship with our provincial, federal and municipal partners." The Canada – Ontario Affordable Housing Program comprises a commitment of $301 million from each of the two senior levels of government. In total, the federal, provincial and municipal governments will invest at least $734 million in the program, which will provide affordable housing for 20,000 households in Ontario. Source: Ontario Ministry of Municipal Affairs and Housing |