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Mortgage News from Peter Kinch – March 3rd

Peter Kinch’s email newsletter just hit my inbox this afternoon and it’s got some great info I thought I’d share. (Peter’s a great mortgage broker and I’ve used his office in the past.)

Here’s what he had to say:

It’s rare to see a big bank undercut its mortgage competitors publicly. Most of the time they do it stealthily with “discretionary rates” that are only offered to the bank’s best customers. Not this time.

BMO has declared war with a new 3.75% five-year fixed rate. The other big banks are advertising 4.09% for their “special offer” rates. BMO’s promo, however, is 0.34% lower, and a juicy 1.64% off posted rates!

The move is a clear play for market share and it will, no doubt, shake the other banks. If other lenders match, it will leave them with just a 121 basis point spread above five-year bond yields. That’s uncomfortably below the 135 bps minimum they usually like to see.

As expected, the Bank of Canada kept its target for the overnight rate at 0.25% yesterday.

The ongoing global economic recovery is being driven largely by strong domestic demand growth in many emerging-market economies and supported in advanced economies by exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.

The level of economic activity in Canada has been slightly higher than the Bank had projected in its January Monetary Policy Report (MPR). The economy grew at an annual rate of 5% in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports.

The underlying factors supporting Canada’s recovery are largely unchanged – policy stimulus, increased confidence, improved financial conditions, global growth and higher terms of trade. At the same time, the persistent strength of the Canadian dollar and the low absolute level of US demand continue to act as significant drags on economic activity in Canada.

Core inflation has been slightly firmer than projected, the result of both transitory factors and the higher level of economic activity. The outlook for inflation should continue to reflect the combined influences of stronger domestic demand, slowing wage growth and overall excess supply.

Housing starts rebounded in the second half of 2009 and will strengthen in 2010, according to CMHC’s first quarter Housing Market Outlook, Canada Edition.

Following a total of 149,081 units in 2009, housing starts are expected to be in the range of 152,000 to 189,300 units in 2010, with a point forecast of 171,250 units. In 2011, housing starts will be in the range of 156,400 to 205,600 units, with a point forecast of 175,150 units.

“Canadian housing markets will benefit from improving economic conditions and low mortgage rates,” said Bob Dugan, Chief Economist for CMHC. “As well, measures recently announced by the Government of Canada to support the long-term stability of Canada’s housing market will help moderate housing activity as some potential buyers will have to save a larger down payment or consider a less expensive home.”

Dugan also noted that the existing home market has shifted from a buyers’ market, at the beginning of 2009, to a sellers’ market. The relative lack of new listings for existing homes has pushed some of the demand into the new home market, which helps explain the forecast for higher housing starts activity in 2010.

The Canadian economy expanded by a greater-than-expected 5% in the fourth quarter, raising the likelihood of interest rate hikes later this year.

The country’s gross domestic product grew at the fastest annualized pace since the third quarter of 2000, Statistics Canada said Monday.

The economy’s burst boosts the odds of a string of rate hikes in the second half of the year.

“This report shouts strength, and increases the odds the Bank of Canada will begin to hike interest rates in July and stay on that path in the following decisions,” said Douglas Porter, Deputy Chief Economist at BMO.

The February RBC Canadian Consumer Outlook Index rose three points to 109 from 106 in January, as consumers were more positive about their outlook for the Canadian economy.

This is the highest level the index has reached since it was established in November 2009.

While Canadians remain divided when considering the overall state of the economy, the balance has shifted into positive territory with 53% of Canadians describing the economy as good and 47% describing it as bad in February. In January, 52% described the Canadian economy as bad, while 48% described it as good.

If you want more updates from Peter, go sign up for their mortgage newsletter. If you need a broker, give them a call. If you say I sent you then I’ll get an exciting Rona gift card. (/sarcasam)

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