As you woke up this morning, interest rates were lowered throughout North America. In order to stimulate their economy, the Federal Reserve in the U.S. has lowered rates by 3/4 of a percent. This is also in regards of fear to a "recession" coming in their country. Our Bank of Canada also lowered rates by 1/4 of a percent. This will give your buyers a little more buying power.
An interesting commentary from Ben Tal of CIBC World Markets
N
ORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS
It seems that both the equity and bond markets are starting to price in a recession in the US. The bond market is discounting a rate cut of 75-100 basis points by the Fed, and the latest sell-off in equities clearly reflects recessionary fears. It is a close call, and at this point it is simply impossible to say with a high degree of certainty whether we are
already in recession or to what extent we are about to enter one. Take the recent jump in the unemployment rate for example. The 0.6% increase in this rate from its trough is larger than what we have seen in previous mid-cycle slowdowns. But it is still notably below what we have seen in past recessions. Factory orders are still
rising and are significantly above the levels that are consistent with a recessionary period. So the short answer is that nobody really knows at this point. But the more important issue is does it really matter? After all, is there a big difference between two negative quarters in GDP growth of say a cumulative 0.2% decline, or a two consecutive quarters of a cumulative increase in GDP of 0.2%? Both are extremely weak, but the first scenario is a recession and the other is not. What we do know is that for the US economy, the next six months will be very weak. It is also reasonable to assume that Canada will weaken significantly, but it probably will outpace the US due to a stronger real estate market and the likelihood that commodity prices will surprise on the upside. And that is an important issue. If the fundamentals of the Canadian economy are much better, how come financial markets behave like Canada is in the middle of the American storm? Take the Real Estate Investment (REITs) sector for example. Since mid-2007, Canadian REIT prices fell by almost 25% (and by close to 30% since reaching their peak in early February). That is 10%-points more than the drop in the financial index and three times the drop in the TSX as a whole (Chart). Note the high correlation between the Canadian and American indexes, with Canadian REITs outperforming American REITs by only 4%-points during that period. Thats not much if you consider that the actual housing meltdown is happening south of the border not here. Whats more, when evaluated in relation to the net value of their assets, Canadian REITs are now trading at an unprecedented discount of almost 20%. That is three points deeper than the discount observed during the near-recessionary conditions of 2001. So it is possible that we are in a midst of an overshooting with the bond market rallying too much, and equity market correcting too deeply. Currently the momentum is negative, so fighting it is unadvisable. But when the fog clears (and it could be earlier than many people expect) look for those sectors that are now
being punished (such as financials and REITs) to lead the upswing in the market.
Benjamin Tal
Senior Economist
It seems that both the equity and bond markets are starting to price in a recession in the US. The bond market is discounting a rate cut of 75-100 basis points by the Fed, and the latest sell-off in equities clearly reflects recessionary fears. It is a close call, and at this point it is simply impossible to say with a high degree of certainty whether we are
already in recession or to what extent we are about to enter one. Take the recent jump in the unemployment rate for example. The 0.6% increase in this rate from its trough is larger than what we have seen in previous mid-cycle slowdowns. But it is still notably below what we have seen in past recessions. Factory orders are still
rising and are significantly above the levels that are consistent with a recessionary period. So the short answer is that nobody really knows at this point. But the more important issue is does it really matter? After all, is there a big difference between two negative quarters in GDP growth of say a cumulative 0.2% decline, or a two consecutive quarters of a cumulative increase in GDP of 0.2%? Both are extremely weak, but the first scenario is a recession and the other is not. What we do know is that for the US economy, the next six months will be very weak. It is also reasonable to assume that Canada will weaken significantly, but it probably will outpace the US due to a stronger real estate market and the likelihood that commodity prices will surprise on the upside. And that is an important issue. If the fundamentals of the Canadian economy are much better, how come financial markets behave like Canada is in the middle of the American storm? Take the Real Estate Investment (REITs) sector for example. Since mid-2007, Canadian REIT prices fell by almost 25% (and by close to 30% since reaching their peak in early February). That is 10%-points more than the drop in the financial index and three times the drop in the TSX as a whole (Chart). Note the high correlation between the Canadian and American indexes, with Canadian REITs outperforming American REITs by only 4%-points during that period. Thats not much if you consider that the actual housing meltdown is happening south of the border not here. Whats more, when evaluated in relation to the net value of their assets, Canadian REITs are now trading at an unprecedented discount of almost 20%. That is three points deeper than the discount observed during the near-recessionary conditions of 2001. So it is possible that we are in a midst of an overshooting with the bond market rallying too much, and equity market correcting too deeply. Currently the momentum is negative, so fighting it is unadvisable. But when the fog clears (and it could be earlier than many people expect) look for those sectors that are now
being punished (such as financials and REITs) to lead the upswing in the market.
Benjamin Tal
Senior Economist
Lastly, we certainly live in interesting times! Speaking of which, here are the latest rates available - as of this morning. Cheer! Allan K.
Mortgage Rates effective: January 22, 2008
Closed Rates: Open Rates:
6 Month Closed: 6.50% 6 Month Open: 8.60%
1 Year Closed: 5.65% 1 Year Open: 9.20%
2 Year Closed: 6.05% Prime less .50%: Currently 5.50%
3 Year Closed: 6.09%
4 Year Closed: 6.04%
5 Year Closed: 5.95%
6 Year Closed: 6.45%
7 Year Closed:
6.25%
10 Year Closed: 6.30%
*15 to 25 year terms available,
Please contact me directly for rates*
Variable Rates: (Prime rate currently 6.00%)
5 Year Open: Prime -.50%
5 Year Closed: Prime -.75% (Currently 5.25%)
The data relating to real estate on this website comes in part from the MLS® Reciprocity program of either the Greater Vancouver REALTORS® (GVR), the Fraser Valley Real Estate Board (FVREB) or the Chilliwack and District Real Estate Board (CADREB). Real estate listings held by participating real estate firms are marked with the MLS® logo and detailed information about the listing includes the name of the listing agent. This representation is based in whole or part on data generated by either the GVR, the FVREB or the CADREB which assumes no responsibility for its accuracy. The materials contained on this page may not be reproduced without the express written consent of either the GVR, the FVREB or the CADREB.
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