Canadian Home Sales Stall. Variable Mortgage Rates are Still Great.

Home sales stall in what should be the busiest time of the year. Variable mortgage rates are still where you want to be. June 16, 2010

CREA reported that prices have fallen flat in May and sales are down by 8.5% compared to April but are down by 15% over last falls peak. We all know that CMHC rule changes combined with the threat of higher interest rates built up demand but I don't think anybody thought it would slow down so fast.

CREA is expecting the average sale price in 2010 to end 1.6% higher than 2009 but that would still mean a drop of 6.1% in the average home price know. TD economist Paul Gauthier predicts a decline in home prices of 10% by 2011 and I would agree with him. Remember history has a tendency to repeat itself and history has shown us that when home prices fall so does everything else.

Any good Toronto Mortgage broker can tell you that when people do not feel good about the current situation, they hold off on many purchases and save more, which could cause deflation not inflation. In 1993 as we were coming out of the last recession the government started quickly raising rates only to lower them as quickly as they raised them and even lower than they were originally.

Of course this will also have a negative effect on the manufacturing engine and on jobs in general. Which would lead me to my next question which is do you really think that Canada will have high inflation?

I should also add that the US has also experienced a sharp rise in jobless claims which proves it is not getting better over there. While there has been some jobs created here they are not the type of jobs that pay enough to cause people to feel good and spend to drive our economy out of the recession. So if the rate of inflation is less than expected, with a lingering risk of deflation combined with the US and Europe holding firm on their interest rates then I don't see how Canada can be aggressive at raising our rates.

Canada risks stalling the economy further or worst driving it sharply down. These are my opinions but I do have history on my side. Although in the early eighties inflation did shoot up after a recession but I can also argue that there was little debt in the eighties and Canadians as well as the rest of western world currently carry record debt levels along with their respective governments.

So this is the wild card since we have never been here historically and I doubt our current debt loads will bring any good things to the table. In fact these debt loads are more likely to choke governments around the world and leave them helpless with further forced cuts to their budget spending only compounding the problem.

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