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Dear Clients,

Attached is an article about interest rates quoting Ben Tal,  my favourite economist.   I am advising all of you to try to avoid all debt outside of your mortgage at this point.  Because of the flat real estate market, which will be around for the next couple of years there will be little growth in equity to borrow from and you will certainly not want to have debt during any hyper-inflationary period as it would be a very expensive fix to get it under control.   If you have any friends that are in high debt they should definitely look at lowering their mortgage rate right now and finance in their debt into something that we can control through any high inflationary times in the next few years.

Tell them to call us.  Some we will be able to help others not but they should at least try!

Have a GREAT HOT WEEKEND!  Hit a beach but remember a big umbrella.

Suzanne

 Garry Marr, Financial Post with files from Paul Vieira  Published: Thursday, July 23, 2009

There are at least 1,592,000 Canadians who don't believe the recession is over.

Benjamin Tal, senior economist with CIBC World Markets, says consumers - including the almost 1.6 million unemployed - are unlikely to be overjoyed by the Bank of Canada's pronouncement Thursday that the recession is all but over.

"This is a technical economic recovery and something only economists get excited about," said Mr. Tal. "Does it mean unemployment will go down? Will it be easier to get a job? For the average person, it's not over and it won't be over until it's easier to get a job."

There have been some signs that consumers are feeling more confident and ready to spend - one of the top indicators being the moribound housing market that saw record sales activity for June in major markets across the country.

But it may be a tad early to get excited about a housing market that was dealing with pent-up demand from a winter that saw little transaction activity, said Mr. Tal. "The affordability aspect has become extremely important in this market," said the economist.

Record low interest rates, and a housing market that has all but stalled on the price side, has presented a dilemma for consumers thinking about making major purchases, including a house.

Variable-rate mortgages tied to the prime rate are now as low as 2.85%. The rate on a fixed-rate five-year mortgage is still as low as 4.3% after dipping to 3.75% last month.

If consumers needed more assurances, they got it from Bank of Canada governor Mark Carney Thursday, who reiterated the pledge not to raise rates again until at least June of next year.

"We have a conditional commitment and it is conditional on the outlook for inflation. And we have reaffirmed that with this decision, because we believe keeping the overnight rate at 0.25% - thinking all the way through the chain of the impact of that rate on short-term rates, floating rates and fixed rates - that it is what is necessary in order to help the economy achieve the inflation target. But it is conditional. And if that outlook changes, we would change. It is not a guarantee. That's an important point to make," Mr. Carney told reporters in Ottawa.

Many in the industry feel that once next June comes, rates will start to rise. "Once it moves in June, there are expectations it will move in July and August," says Joan Dal Bianco, vice-president of real estate secured lending with TD Canada Trust. Rates did fall about four percentage points in a year and a half on the way down, so there is no reason they may not rise just as quickly.

Ms. Dal Bianco said she saw record levels of borrowing last month. And why not? Consumers using an existing secured line of credit were borrowing for as little as 2.25%. "Those people with lines at prime have been drawing it to the max because the rates are so good," she said.

Certified financial planner Ted Rechtshaffen, of TriDelta Financial Planners, has to be the voice of reason to some of his clients who want to spend on goods as well as jump back into the stock market.

"Part of our job is to be the other voice," Mr. Rechtshaffen said. "The same people who said in March ‘Can stocks go to zero?' want to get back in. We are starting to see bits of that greed again."

As for that big purchase, the Toronto-based planner said the rules are still the same. You have to know your financial situation, including your job prospects. He said you can look for deals, but he cautions consumers to ask: Do you really need it?

"Six months ago we couldn't afford a car and we were saying ‘Let's keep it as long as we can'," Mr. Rechtshaffen said. "Some people are saying ‘Things are looking good maybe I should be looking at stuff.' But if buying a car didn't make sense six months ago, then it doesn't make sense today. If did make sense, then it still does."

"The central bank said it would keep interest rates on hold until June 2010 "conditional on the outlook for inflation".

Bond yields have risen in recent weeks and now reflect a 90% chance of an interest rate rise withing nine months.

Others, such as Mr. Gampel, believe the central bank will keep interest rates on hold until mid next year, but embark on an aggressive tightening thereafter. However, he said the economy was at a turning point and the Bank of Canada's ultimate decision would depend on the speed of economic recovery.

"They could be looking at having to push interest rates up at a faster rate, and sooner, if the recovery takes on a greater scope going forward," Mr. Gampel said.

He said the recovery could well be on track to outpace expectations as businesses rebuild inventories, consumer spending picks up and fiscal stimulus kicks in.

However, he said evidence to date does not suggest the central bank will need to hike rates before June, particularly with a large amount of excess capacity in product and labour markets."

                        Firstline      First National       Merix

3yr                 3.84               3.65                           3.69

4yr                 4.09               4.09                           4.09

5yr                 4.39               4.29                           4.29

7yr                 5.35               5.80                           6.25

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Dear Clients,

I hope you are having a great summer.  I hear though the grape vine the weather has not been that great for summer.  We only get to see the weekends as you have all contributed to the highest volume year yet so we are tied to our desks.  We will see the trickle down of all this activity with employment and renovations in the fall.

Attached is a great article from CIBC World Markets about the recovery and how tricky it is going to be.  He is advising the banks not to even hint at rates going up as that could strengthen the Canadian dollar even more which would mean our exporting would be negatively affected causing a major delay in recovery or the Government stepping in to stimulate a correction. 

Again it all still points to the variable rate mortgages staying the same for at least the next year.

Prime is of course still at 2.25% and I am sorry I jumped the gun on the .35% over prime it is still .60 above prime so 2.85%.  The only lenders to make the change are compounding monthly.  FirstLine compounds semi annually which is basically the same rate.

Have a great weekend and thanks again for your nomination votes for Reader's Choice.

RATES:            FIRSTLINE        MERIX              FIRST NATIONAL

2 YR                 3.05                  3.29                  3.05

3 YR                 3.84                  3.69                  3.65

5 YR                 4.39                  4.39                  4.39     

7 YR                 5.35                  5.80                  6.25

Cheers

Suzanne