Economic Update May 2010

Economic Update May 2010

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  Mark Herman’s Market UpdateMay, 2010 Interest rates expected to continue to rise from all time lows Highlights • Prime is at 2.25% and will rise to 2.50% or 2.75% by July. The 10-year average for Prime is 4.9%. • Fixed rates were 3.65%, are around 4.6% now, and are expected to float back to about 6.5%. • Variable rates are still at Prime-0.4% = 1.85% today. Economics • The Bank of Canada (BoC) has stated that they will try to leave Prime at 2.25% until June. The BoC's plan to maintain the key interest rate has been spot-on for the past 14 months. • The Prime rate of interest has held at 2.25% since April 2009, 4% lower than it was in January, 2008. The last time the central bank raised the overnight rate was July 2007. • The Bank of Canada is expected to keep interest rates at historic lows for a few more months, because sending out signals that the economy is rebounding strongly and could trigger inflationary pressures. There are also mixed numbers on how fast we are rebounding. • The economy grew at an annual rate of 5.8% for the 1st quarter of 2010, and 5% in 2009's last quarter thanks to strong domestic spending, increased confidence and policy stimulus. • The surprising growth spurt has sent the strong loonie even higher as the level of economic activity in Canada has been slightly higher than the BoC had projected. • Interest rate hikes are expected in June or July after Stat Can reported core inflation jumped to 2.1% in February compared to the bank's outlook of a 1.6% average core inflation rate in the 1st quarter of 2010. • Currency: The Canadian dollar should benefit from strong economic data, rising oil prices and improving risk sentiment. The loonie has increased 25% vs. the U.S. dollar during the past 12 months. (See graph to right.) Call for advice, a pre-approval or rate hold before rates go up again. Mark Herman; AMP, B. Comm., CAM, MBA Accredited Mortgage Professional One of the Top-10 Brokers at Canada’s Largest Independent Mortgage Brokerage for ’07 and ‘08 Mortgage Alliance Mobile: 403-681-4376 Secure e-Fax: 1-866-823-1279
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  Mark Herman’s Market UpdateMay, 2010 • UBS expects oil will rise above $90 (U.S.) a barrel in the 2nd quarter of 2010, which will provide added support for the loonie. The Canadian dollar could reach a record high against the U.S. dollar over the next two years, UBS said. It almost reached $1.09 on Nov. 6, 2007. • During the recession Canadian rate spreads have ranged from 21 to 65 basis points, but is now at 18 basis points - the lowest spread since June 2007 – so rates have to go up. (See graph to right.) • The U.S. Federal Reserve Board ended its campaign to keep mortgage rates down and stopped buying $1.25-Trillion (U.S.) in mortgage- backed securities. This means new money is no longer being artificially injected into the economy. • "They are getting ready to take away the punch bowl," said Derek Holt, vice-president of economics with Scotia Capital. "The end beneficiary is not necessarily the government but those people taking out mortgages," Raw Alberta Data Unemployment rate for Alberta forecasted 7.7% Edmonton 2009, is 6.6% & Calgary is 6.5%; both forecasting 7.5% in 2010 Alberta population growth is forecasted at 1.9% in 2010 Moderate pace due to low interprovincial in-migration and low birth rates Increase in GDP for Alberta of 3% Nearly a 34% increase from 2004 to 2009 ($130B to $174B) Calgary’s GDP forecast growth at 3% and Edmonton at 3.2% Canadian Dollar Recovering economy and a rise in commodity prices Expect the dollar to stay at parity Rising Mortgage Rates Mortgage rates were at a historic lows and are now rising. May 2008 5 yr =7.25%, April 2009 5 yr = 5.25%, Feb 2010 5yr = 5.39% Expectation fixed mortgage rates will continue to rise to just over 6% in 2010. The Mortgages are Marvellous Advantage • Extensive experience with 1st time home buyers, investors with property portfolios & divorces. • 2 ex-bank loan officers with more than $20 Billion in mortgages underwritten are team leaders. • We opened in 1997 and our brokers have more than 65 year’s residential mortgage experience. • 0-down payment options are still here! Call for advice, a pre-approval or rate hold before rates go up again. Mark Herman; AMP, B. Comm., CAM, MBA Accredited Mortgage Professional One of the Top-10 Brokers at Canada’s Largest Independent Mortgage Brokerage for ’07 and ‘08 Mortgage Alliance Mobile: 403-681-4376 Secure e-Fax: 1-866-823-1279