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Slow Job Creation may keep Interest Rates Low

12 June 2012

Mark Carney is dying to raise interest rates at the Bank of Canada so that Canadians can stop borrowing from HELOCs and 2nd mortgages and start paying down their debt – something he’s been warning us about for almost two years now. But even as some of the hottest housing markets start to balance out, there are a number of factors that are keeping him and the BoC from pulling the rate hike trigger. One of those, says a mortgage analyst, is the lack of job creation happening right here at home.

David Larock, president of TMG said on his blog this week, “A slower pace of job creation means that our economy will take longer to reach its full capacity and that’s one of the key measures that Bank of Canada Governor Mark Carney uses when setting our interest rate policy. I’d take a strong jobs report over a so-so one any day, but at least slower job creation makes it less likely that the BoC will raise its overnight rate anytime soon.”

And he may have a point. The large gains found in job creation in April and March had many analysts and experts hoping that Canada would see 10,000 more jobs last month, but the actual numbers came back at only 7,700. Statistics Canada has also released their newest unemployment statistics and those show that our unemployment rate isn’t really going anywhere, instead remaining steady at the 7.3 per cent mark.

The numbers aren’t encouraging; and the fact that the number of unemployed individuals could even go up at this point is even less so. With so much uncertainty in the global economy, and Spain’s economy recently getting only worse, anything could happen. And whatever does will certainly have an impact on us here at home.

The good news is that within all of that joblessness, it means that the Bank of Canada is not likely to raise its interest rates. While Mark Carney recently stated that a “slight withdrawal of the monetary stimulus might be necessary,” it looks as though that’s no longer the case. And while the Bank rate was predicted to increase as early as this fall or late in 2012, economists are now predicting that we won’t see it move at least for the remainder of this year.

And Larock had more good news within the bad, too. Even though bond yields rose last week, those looking for a mortgage can still get a good deal.

“Government of Canada five-year bond yields rose 22 basis points last week, closing at 1.29 per cent. The rally had no effect on our fixed mortgage rates and, in fact, a few lenders actually cut their five-year fixed rates last week. A market five-year fixed rate now goes for about 3.09 per cent, which still gives lenders a healthy margin and as usual, borrowers who shop around can do a little better.”

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