I thought I’d start out this month’s update with a credit crunch joke, since we’ll be reviewing some policies born out of it:
I went to the ATM this morning and it said “insufficient funds”.
I’m wondering is it them or me.
I wish I could take credit for the joke, but I can’t. I can, however, for the pun!
Mortgage Rates are Holding Steady
Although fixed mortgage rates have risen on our site since we checked in last month, the trend has been bucked (at least for now). I fear in the hours between when I write this and it is published, there may be a change of course, as is commonly the case with mortgage rates. At my watch, the best 5-year fixed mortgage rate listed in Ontario sits near 3.45%.
Last month, I explained why mortgage rates were rising – due to a spike in bond yields, which fixed mortgage rates follow with a strong correlation – and now I feel I should explain why rates are also holding steady.
Following the spike in bond yields over August and September, yields came back down at the end of the month. But let’s take a step back and examine the cause.
Quantitative Easing, Tapering and Other Funny Words
Surely you’ve heard the terms “Quantitative Easing” and “Fed Tapering” thrown around the news and financial blogs, but if you’re not quite sure exactly what they mean, here’s the 411…
Quantitative Easing: Since the U.S. Federal Reserve can no longer influence the economy via the central bank interest rate (i.e. the U.S. Fed Funds Rate is already bottomed out at 0.25%), it turned to other mechanisms: enter Quantitative Easing. This is essentially the process of creating money and then buying bonds or other financial assets from banks. The banks, influx with cash, are then able to loan more money to individuals and businesses, helping the economy grow. Furthermore, the Fed’s buying spree drives up bond prices and lowers yields (which have an inverse relation with prices). Lower yields then lower borrowing costs, stimulating the economy further.
Fed Tapering: Tapering is essentially the reversal (“easing” off, if you will) of the process described above.
The U.S. jumped the gun and announced some Tapering plans last month and then basically retracted its stance shortly thereafter. Tapering, as explained above, effectively lowers bond yields, so the removal of Tapering (or planned removal of Tapering) caused bond yields to rise. This is all happening in the U.S. but, as we all know, Canada is often at the mercy of its Southern neighbour, and so our market followed suit.
And here we are today. No movement. That’s a lot of explanation for not a lot of action.
Luckily, there’s a little more going on at RateHub.ca this month.
A few of us attended the Canadian Personal Finance Conference (CPFC13) in Toronto last weekend and we want to thank the conference organizers – Preet Banerjee and Krystal Yee – and speakers – including Rob Carrick, Bruce Sellery and Ellen Roseman – who all put on an amazing show. I even got to speak for 15 minutes in the presence of those I greatly admire, and give away an iPad. Yay for sponsorship marketing!
ClosingCosts.ca’s New Facebook Series
Our sister site – ClosingCosts.ca – has launched two new Facebook series this week: “Name the Home Inspection Hazard” and (Mike) “Holemesisms”, so check them out. We’re even giving away Starbucks swag!
‘Til next month!
Kerri-Lynn (KL) is the Chief Marketing Officer at RateHub.ca. Her mortgage recaps can be found monthly on our blog.