Benjamin Tal kept an optimistic tone during his talk at the annual CAAMP conference, saying the recession is over, business bankruptcies are down, and key interest rates in Canada could remain low well into next year depending on when U.S. rates rise.
"In Canada, there was no need to print money for stimulus during the recession, so when interest rates rise, they won't go up as much as in the U.S.," said Tal, senior economist at CIBC World Markets.
Tal also said there was "no indication" of a housing bubble, a theory being speculated recently in the media. He then pointed to positive signs in the Canadian economy, including a shorter duration of unemployment among laid-off workers compared to the U.S., excess liquidity among individual investors and soaring consumer confidence. And despite a forecast of just over two per cent GDP growth in 2010, Tal said Canada "will outperform the rest of the G7 in 2010 for the first time."
When it came to the state of the U.S. economy, Tal spelled out four potential danger signs for the future, including payment option ARMs (adjustable rate mortgages), which start with very low interest rates that lead to the mortgage principal going up. Wells Fargo was one of the biggest backers of these products with a reported $107 billion in debt tied to them.
Addressing the next wave of Alt-A borrowers with payments up for renewal - another concern being closely watched - Tal said the longer five-year teaser rates and the state of the market due to stimulus means there will likely be a less dramatic price jump when clients adjust their payments.