Much has happened with interest rates, the lending market and investing since our last update several weeks ago. We thought it important to wait and confirm this week's move by the U.S. Federal Reserve (the U.S.'s equivalent of the Bank of Canada) before further comment. Here is what is important to know:
1.) On December 7th the BoC (Bank of Canada) decided to leave its key rate alone and thus if you are in an adjustable / variable rate type mortgage your rate has not changed.
2.) Since the election of Donald Trump to the presidency in U.S., 5 year fixed rates in Canada have raised slightly, i.e. 20 to 40 basis points (2/10th-4/10th of one percent). This was precipitated by: a.) the anticipation of Trump's promise to spend heavily on public infrastructure (potentially causing inflation next year) and b.) anticipation of the U.S. Federal Reserve increasing their Key Rate this week, which they did on Wednesday by 0.25% (to 0.75%).
3.) What does this all mean to Canadians and the Canadian economy? The upswing in U.S. economy will eventually filter north to Canada, but will take awhile. The BoC would like to raise its' Key Rate but cannot because of Canada's lagging economy (GDP growth forecasted at near 1% for 2016). Along with the serious tightening of mortgage underwriting guidelines prescribed by ministry of Finance - it does not look like housing will lead Canada out of recession that is lingering, which it often does. Unfortunately Canada has come to rely too much upon a weak Canadian dollar to pull itself out of recessionary times instead of productivity, lower tax regime, and serious incentives for the private sector to flourish. Just when Canada needs fiscal stimulus, the federal government is prescribing a new "carbon" tax. All Canada can hope for is to sell more because the Canadian dollar is weak and our goods and services appear cheaper to the world - especially the U.S.
4.) If you have been awaiting to enter bond funds / the bond market, bond yields are at 5 and 6 year highs it would be worthy of considering some asset allocation in this direction.
Short term interest rates should remain stable in Canada well into 2017, unless export demand picks up more quickly than expected. If bond yields continue upwards in the U.S., Canadian medium and longer term fixed rates could drift upwards into 2017, although this would be muted if the Canadian economy does not pick up its' pace.