The old saying from Trudeau that said living next to the US was like being in bed with an elephant is true. Let’s try and simplify the highlights of a US recession would affect Canada, specific to the Mortgage and Real estate space.
The biggest reason right now is that as they slow their dollar depreciates against ours which in effect keeps our dollar high despite whatever efforts we employ here to bring it down. The high dollar slows Canada’s economy.
Here is a fact, Canadian Retailers should expect significantly lower sales in their most important quarter…now and can likely extend into early next year as Canadian consumers shop south of the border either physically or most commonly on-line.
On one hand a slowing Canadian Economy will bring lower rates for sure, which will be nice for people contemplating a move.
Update…I finally found some data on the banks cost of funds, relative to the increased spread they are charging consumers for mortgages. Remember from earlier posted I reported that all things being equal consumers should be paying about .80% or so less for a five year discounted mortgage. The reason for this increased spread we have been told is the banks cost of funds have gone up, but it was difficult to know how much? did it go up the full .80% and the banks profits were the same or were the banks just grabbing more profit then normal due to the uncertainty of the times right now as we have been told? Well the cat is out now, Benjamin Tal from CIBC World Markets, my favorite economist, has said the banks cost of funds due to the liquidity crisis brought on by the US mortgage meltdown is equal to .25%!! Therefore the banks have quietly grabbed an additional .55%-.75% of additional profit from us and they are getting away with it!!
I will be continuing to follow this development, because it is not fair and this proves the banks are greedy…duh.
Oh by the way TD reported yesterday their fourth quarter profit was a mere billion dollars…in three months!!
Greg
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By Jason Dodd, December 5, 2007 @ 1:19 pm
Hey Greg,
Great comments and watching Benjamin Tal in Toronto got me not only thinking about my clients but my own near and present dangers.
Short term we are doing well with rates although you raise a good point about greedy banks and i think it is our responsibility as industry members to police our lending partners, the same way they reciprocate that watchdog mentality with us.
I found it particularly interesting how environmental factors such as cost of food and resources will have a dramatic effect on our interest rates. Inflationary costs will rise in these regards due to the global need for many of our abundant commodities. World powers like China and India with the largest population base will strain our resources and reflect cost changes directly to us. With higher inflation looming we could be looking at higher rates going into the 3-5 year time frame.
This is important information especially for young clients and their mortgage renewal going into the future, we need to ask the question “Can you afford it now and later?”.
Regards,
Jason Dodd