Global troubles bring some good news for Canada: low interest rates

Looks like Canadians may be enjoying the record low interest rates for some time. Since June the Bank of Canada has been trying to normalize the banks overnight rate, they attempted to do this by increasing the overnight rate by .75% this past summer to 1% (3% bank prime rate). The Bank of Canada would like to see the rate increase to around 3.5% (5.5% bank prime rate) which is ideal for a balanced economy, economists believe.

This is now unlikely for some time due to the recent developments of a slower recovery in the US and in Canada, as well as the re-emergence of the European debt crisis.

Look for bank of Canada governor, Mark Carney to hold off hiking rates until at least July 2011. This is good news for most Canadians borrowing money and especially if you have a variable rate mortgage.

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Don't Expect Housing Prices to Drop Dramatically in 2011

Claims that Canada’s housing market is ready to pop are exaggerated, say economists at BMO Nesbitt Burns.

Instead, they say the market can more realistically be labelled “moderately overvalued” based upon a comparison of house prices with personal income. They also note that mortgage servicing costs for “typical” homebuyers are running near the long-term norm of 34%.

“Barring a sharp spike in mortgage rates or a relapse into recession, a substantial price correction is unlikely to occur,” economists Earl Sweet and Sal Guatieri wrote in their research report.

They noted, however, that Canadians would have a hard time dealing with a sudden 3% hike in mortgage rates. That would weaken affordability “substantially” and, in turn, drive down demand and home prices.

Click here to read the BMO Nesbitt Burns research report.