Changes are afoot...

I am making a change. Stay tuned for the details.

New Year, Same Questions

There has been lots of chatter about where fixed rates are headed since the start of the year. I thought now would be a good time to comment on this. I track bond yields and spreads every day and everything that I see is pointing to rates going up. But that hasn't happened...yet. Why? There are a lot of reasons. Most "monoline" lenders are dependant on bond yields to price their fixed rate mortgages, however banks are not subject to the same considerations. They have deposit funds to lend against and the bank are very flush with those deposits right now. So even though it may make sense from the spreads that rates go up, competition with the banks is keeping rates down. The banks don't seem to be in any rush to raise rates and most of the monoline lenders don't want to be the first to raise rates and price themselves out of the market. If the banks were to make a move to increase rates, the monoline lenders are going to be hard on their heels doing the same. I don't think anyone wants to be labelled as the "bad guy" who raised rates first (even though no one will remember who fired the first shot in two weeks anyway). But rates will go up, eventually. An increase of 25 bps is not going to kill the housing market. Rates of 4.25% are excellent. The average interest rate since 1951 in Canada has been 9%. But there still a lot of fence sitters out there waiting for proof that we have hit the lowest point in order to make a move. Now is that time.