26 November 2010
Actually, it’s considered to be the top signal of U.S. inflation. The deal is that U.S. and Canadian inflation are closely connected: higher inflation leads to higher interest rates.
• Tal says rising velocity of money is the main signal for mortgage rates to rise.
• During the next few years 5-year yields will probably increase.
• “In the next 10 years the Chinese consumers will be the most important force in the global economy”.
• Another important thing is that the Chinese “have started to demand quality.” It’s good news for North America because it means the Chinese will increasingly buy our goods.
• China’s demand for commodities (e.g. oil) influences financial markets greatly (oil has a 93% correlation with the S&P 500).
• In case China expands, oil price will rise and 5-year mortgage rates will also go up.
• According to Tal’s forecasts, China will slow in the next 12 months. But then it will resume growth and the 5-year rates will be under pressure.
• “The forward curve” shows that during the next five years 5-year fixed mortgages might be a little bit cheaper than variable mortgages. Tal said it’s the first time for the last 10 years that it really can happen.
• If rates go up, there may be mortgage defaults drop coming. Rising rates lead to rising employment, and it influences mortgage defaults more than anything.
• Only 4.1% of households have less than 20% equity and total debt ratios over 40%.
• Benjamin Tal believes the mortgage situation is improving: for example, the ratio of mortgage holders who are 35+ years old and making over $50,000 (adjusted for inflation) has risen in the last 5-10 years.