Last week the Bank of Canada announced that it was to leave its benchmark rate untouched, marking the eleventh consecutive occasion Mark Carney and his cohorts have opted for the policy of the passive monetarist. While this will come as music to the ears of our variable rate customers, the overall tone of the Bank’s report was one of a foreboding nature, sprinkled with caveats and doused with doubt. The bulk of concern centred on the increasing dangers of Canadian household debt, now at a startling 154% and showing no signs of abating.

These concerns come against a backdrop of lingering doubts about the long-term stability of the euro, with negotiations to restructure Greek debt proving increasingly protracted and the S&P finally pulling the trigger on the downgrade of France and Austria, robbing the EU of two more AAA ratings. Indeed the future of the Canadian economy has been the subject of much debate of late, sadly the tone of these debates have not been overly-optimistic. The Economist, in late 2011, outlined the potential for a major correction in the Canadian housing market, suggesting house prices, driven largely by foreign investment, could be overvalued by about 25%. While rising house prices can often be accommodated for by rising rents or indeed, rising incomes, the evidence does not suggest either will be riding to Canada’s rescue.

StatsCan’s latest report shows wages (adjusted for inflation) are actually falling and rental rates in Toronto are moving in the opposite direction to which one might hope. It appears also that the envious glances cast northwards in recent years by U.S. policy makers desperate to see the kind of job-creation Canada has enjoyed of recent years are to be consigned to the past. Although the unemployment rate is still higher, this year should be the first time in five years that US job-creation outstrips Canada’s.

The news is not wholly dire however. Predictions of a US style housing correction seem exaggerated. The sub-prime market — the bane of the current US economy — is nowhere near as prominent in the Canada and the rapid interest-rate rises, needed to ignite such a correction, seem unlikely to occur in times of such uncertainty, with some speculating rates could remain stationary until early 2013. In short, if a correction is on the way it does not seem it will happen in the near future and it is unlikely to reap the devastation that was seen in the US and Europe. The recent report also saw the Bank of Canada ratchet up growth forecasts for both 2011 and 2012 after stronger-then-forecast turn-of-year performances.

The predominant message, for our MorCan Direct clients, should be to ensure you are not overextending yourself. There has never been a better time to tackle unsightly credit card debts and really put the equity in your home to good use. Fixed rates continue to plummet and with variable rates still competitive, there is little reason to be burdened by the rapacious interest rates of credit card companies. For those of you already in a fixed rate mortgage we encourage your to contact us today (416-214-9000) and speak to one our mortgage experts to see if we can save you money by moving you into a rock-bottom rate.