Variable rate: 2.80%
Prime rate: 6.00%
*Rates last updated:Tuesday January 11th,2007*
**Rates may vary provincially and are subject to change without notice.

Many major financial analysts have forecasted the Bank of Canada to begin cutting their interest rates by March 2007 and to have a total decrease of up to 1 full percentage point by the end of 2007. Great news for buyers and the real estate industry.

CIBC WORLD MARKETS OVERVIEW-JANUARY 2007

This month's issue talks a lot about global warming, the impact of warm weather on oil prices and CO2 emissions and their impact on the overall economy and particularly oil prices.

The Market Call draws attention to the healthy North American employment numbers which have somewhat delayed the central banks monetary policy easing. The first rate cuts are now forecasted for Q2 with a 1.00% reduction by December 2007 in Canada. In the US, the forecast is for a 75 bp reduction by Dec 2007. Bond Markets are also forecasted to perform well with yields on the 10 Year Gov't Bond forecasted to drop from 4.05% to 3.50% by the end of the year, leading to a drop in fixed rate mortgages.

All these forecasted rate reductions bode well for the financial services sector in Canada. Double digit returns for equity investors are predicted with the TSX hitting 14,250 by the end of the year. Canadian banks could be a big contributor to this growth, particularly in terms of their credit position versus US banks which have been struggling with an imploding sub prime market.

There is an article entitled "Banking on Low Rates" which discusses the financial and retail mortgage business. Canadian banks have outrun their US counterparts by about 10% every year since the start of the decade. Canadian banks now face a far less risky business environment.

A ballooning housing market resulted in one-third of all household assets to be held in real estate in the US. In Canada, we've seen a more tempered growth rate resulting in 20% share, so far less dependence on the home as the main asset in Canada. Canadians have also been far less active in accessing and leveraging their homes for financing which has left them far less exposed. Many of the US mortgages were also in the sub-prime market with 22% of originations in the US being classified as sub prime. With low introductory rates for up to 1 and 2 years, interest only, and even negative amortizations...many US borrowers relied on refinancing back into teaser periods, but are now left with depleting equity and are unable to do so resulting in defaults as payments dramatically increase post teaser period.

In Canada,far less aggressive borrowing and much lower interest rates on mortgages have left households payment obligations fairly flat relative to incomes. Delinquencies in sub prime mortgages have increased to 12.6%. In contrast Canadian banks have been at record lows throughout this decade.

If you would like a full copy of this report in pdf format emailed to you, please let me know and I will be more than happy to email a copy to you.

• Calgary Mortgage Rate Information

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