#FinanceFriday – U.S. Election Fallout Felt North of the Border
I have always been somewhat of a political junkie, and the past week has certainly satiated my thirst. The fallout and reverberations from Secretary Clinton’s historic defeat (she became only the fourth candidate to lose the Electoral College while winning the popular vote) are wide reaching and will likely remain so for months if not years to come.
However, some of these reverberations are hitting closer to home – literally – than many realize. Since last week’s election, North American bond markets have sold off sending interest rates on both U.S. and Canadian government debt higher. The move to higher interest rates (prices and rates move in opposite directions) has prompted two of Canada’s largest financial institutions to raise rates on certain common types of mortgages.
The decision to increase mortgage rates comes on the heels of new federal regulations announced in October that increased qualifying rates for mortgages with down payments of less than 20%. Taken together the effect has clearly been one to try and cool housing markets in Toronto and Vancouver. The efficacy of such decisions was noted in a study released this Thursday by Canada Mortgage and Housing Corporation (the federal housing agency). The study stress tested several economic conditions, including a spike in interest rates, and concluded that under some of the more severe, albeit unlikely, scenarios Canadian home prices could fall as much as 30%.
For most Canadians, real estate holdings represent their largest financial asset, but rarely are the prices of those assets included on investment statements. When reviewing your written financial plan with your investment professional be sure to account for assets that may not appear on any statement.
George W. Brown, MBA
RBC Dominion Securities
2345 Yonge Street – 10th Flr
Toronto, ON M4P 2E5