Mortgage Update
The slow down of the U.S housing market has finally effected the U.S
economic growth. Last Friday’s GDP Numbers showed that the economic growth
in U.S slowed to a below potential rate of 2.5% in the second quarter from
the robust rate of 5.6% in the first quarter. The higher interest rates are
finally taking the steam out of the mortgage refinancing and housing
wealth.
In U.S sale of existing homes fell from annual rate of 6.71 million to
6.62 million in June. This is the 3rd straight month of decline and
sales are now down by 9% on a year over year basis. The inventory of
homes for sale is up 39% from last June. New homes sale are off 11% from
the year before. Prices are up 0.7% in June on a year over year basis,
compared to 3.4% a year earlier.
There in now concern that since the mortgage rates are gone up, there
would be large no. of defaults when these mortgages come for renewal and
it would cause a hard landing in U.S housing market. Considering that
75% of U.S mortgage holders locked into a 30 year fixed rate loan, we
don’t believe this fear is well founded. We still believe that prices in
U.S will flatten but not decline significantly.
Given that 80% of Canada’s export s goes to U.S, a slow down in their
economy will cause some moderation in our economy. But canads domestic
economy is likely to remain solid and out perform U.S economy.