We have experienced low mortgage rates since the financial credit crisis in late 2008. The purpose of the low rates is to stimulate consumer spending which will result in economic growth and recovery out of the recession. In the last few weeks, there have been talks regarding the European debt crisis and how similar it looks like the 2008 credit crisis. It started with Ireland and Greece, which are considered small economies in Europe. The credit crisis talks have shifted to Spain and Italy which are large economies. As Germany and France continue to bailout their Euro zone counterparts, they accumulate more debt. There were talks last week that France is in financial trouble which resulted in a stock market sell off among other bad economic news. The bottom line there is a storm brewing in Europe which will come to fruition sooner or later. This uncertainity has resulted in bond yields dropping to historic lows which will result in lower fixed mortgage rates.
There are now possibilities the Bank of Canada might hold or even consider cutting its benchmark rate (which sets prime rate) to stimulate the Canadian economy just in case Canada gets dragged into a slowdown due to what's happening in US & Europe. This means continued low rates for the foreseeable future.
So What You Might Ask?
The concern with even lower interest rates, is creating more demand in the Canadian real estate market. This is good news for first time home buyers since the affordability requirements will drop, however, more bidding wars might result (I can only comment on Toronto's real estate market since this is where I conduct my business) and some would lose out. Canadian household debt is already at an all time high and taking on further debt could result in an unpleasant consequences for all (http://goo.gl/zzcDH). The lower rates will pull the future demand into the present and leave a void in the future. The other concern is Canadians getting used to these low mortgage rates and not plan for higher interest rate environment when mortgages renew in a few years from now.
Finally, taking on debt with a responsible plan to pay if off can be a good thing. However, taking on debt and not planning for higher interest environment will have dire consequences.
To discuss your personal mortgage financing situation, please contact me.