US Fed Changes Affecting Canada’s Mortgage Market?
The Fed in the US recently reviewed their QE plans (quantitative easement) for low interest rates, but what does this bode for Canada?
It’s been well known that Canada’s market is quite fickle when it comes to interest rates; some may even say that the recent real estate boom (especially on the international scene) is highly dependent on low interest rates. Pulling back from the QE policy, something known in financial circles as “tapering” can have long lasting and drastic effects on the world markets.
What is QE?
Quantitative easement, or QE, has been a long held policy of low interest rates intended to increase borrowing. The US has been doing this for some time now, hoping that by printing more money and keeping interest rates low they’ll be able to stimulate the economy. The short of it is that this really didn’t do much other than make banks greedy with their lending and people seeking private mortgages a little more motivated.
Harder to Get Credit
Borrowers are finding it harder to get access to “easy” credit under QE policies, which is one of the leading reasons for the policy’s rescinding. The Fed has been buying almost $85b in securities and government bonds to prop up the weakened economy, but it’s been shown that you can’t just keep pumping more and more money without something behind it into the economy. But when the Fed changes what’s going on in the US, it affects the rest of the world too.
The Chilling Effect
It’s been awhile since the US dumped a great deal of dollars into the Canadian housing market, but the effects are still sure to be seen. Canada’s interest rates and bond market tends to move in tandem with the American market; when American interest rates are on the move, Canada quickly follows suit. Canadian interest rates have been, over the long term, quite low. If they’re going to shoot up overnight, borrowers that haven’t locked in low interest rates may begin to feel the pinch – and those with VBR or subprime mortgages could really experience sticker shock when they shoot up.
Could Housing Prices Fall?
Some economic analysts and Canada mortgage brokers say that housing prices have been propped up by bond yields being suppressed by the US’ policy of quantitative easing – but it’s hard to say exactly what effects can be expected once QE has ended. Even if it’s just pulled back a little bit it could have a startling effect on world markets, not just the Canadian housing market and mortgage markets.
Since housing prices are ultimately attached to what people are willing to pay, and what people are willing to pay is attached to how much they can get in credit, rising interest rates may play a small part in some Canadian markets realigning to prices that reflect higher interest rates and put a stop to speculation in the housing market before it hits like it did in the United States.
Homebase Mortgages is a leading Toronto mortgage broker, which specializes in all types of mortgages ranging from home equity loans, second mortgages, private mortgages, mortgage refinancing, mortgage renewals, home mortgages and hard money lending. To learn more about mortgage options that are right for you, please visit them at: http://www.homebasemortgages.ca/
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