Not to be overly dramatic, but today’s US election really is one of those singular events that could have a huge impact on our Canadian economy, in a variety of ways.
I’ve scoured over the Globe and Mail’s long Saturday article describing how the election will effect our economy, and I’ve also taken in what Rob McLister has to say on how the election may have an effect on mortgage rates specifically. (I pay $99 for a month for Rob’s articles)
I’ll summarize below with some of my own insights to boot.
The media generally focuses on the race between Harris and Trump, or, technically, the executive branch of the US Government. We have to remember that the executive branch has certain and limited powers. The real power comes if either party wins both the executive branch (the President and their cabinet), and the legislative branch (comprised of the House of Congress, and the Senate).
If the vote is split, ie, one party wins the executive branch but the other party wins part or all of the Congress or Senate, then we will have a split US government where change will be difficult to affect. We’ve seen it before. In the notoriously bi-partisan country, where both parties are more worried about “winning” versus actually enacting legislation, a split government gets little to nothing done.
So when you’re watching tonight, pay attention not only to the Presidential race, but also to the Congress and Senate too, as they actually have more combined power than the President’s office.
We are hearing these buzzwords quite a bit. So which party will in fact be better for our Canadian economy? Trump’s plan (or lack thereof), is more about shock and awe. He will try to impose sweeping tariffs on imports, which will certainly be bad for our Canadian economy, but also for the US economy. He will try to lower corporate tax rates and tax rates for the wealthy, which, at this point, is quite unnecessary in an already hot US economy. Lowering tax rates will put more pressure on the US debt and deficit, which could actually drive up interest rates. Trump will most certainly blow up our current trade agreement and want something new re-negotiated, which adds to the overall uncertainty of the situation.
Harris’ plan is more balanced, although still very protectionist with regards to trade and trade agreements. But Harris will not blow things up like Trump plans to, and we will probably see more stability with a Harris executive branch and a democratic legislative branch.
With a Trump presidency, we could see more wild swings in our markets. With a Harris presidency, we will probably see more stability in our markets.
Fact is, and basically all sources agree, is that both party’s platforms are inflationary in principal. Spending is too high and the US debt is soaring. And apparently our markets have already seen a bump in bond yields because markets have priced in a Trump win. Yes, we have seen fixed mortgage rates creep up slightly in the last month or so, as inflationary pressures build.
But what will the impact be on mortgage rates?
After scouring various resources, they all arrive at the same point. We just don’t know what is going to happen. All articles I’ve read haven’t been entirely clear on how the election will effect rates and our economy, because there are various opposing forces at work. One factor might drive bond yields down, and other factors may drive bond yields up.
The effects of the US election will have more broad affects on the economy, but no one policy change or move will have any direct impact on mortgage rates.
So, there is one thing that is still certain here. Uncertainty. How will you respond?
What a let down so far, huh? That I’m just saying we’re going to have to “wait and see” what happens. The US election will have an impact, yes, but remember, the effects of a new government will take time to disseminate through the markets.
Things will not generally happen instantly. We also have our own bustling economy here in Canada, that is not 100% dependent on the US economy. We have other trade partners, and we have a robust and developed economy that will withstand, for the most part, whatever is thrown at us from the south.
Please also remember the fundamental rules. Stay calm. Stick to your plan. Don’t make any rash moves with your property or your finances. Think about your decisions from a long term perspective.
You heard it here. With whatever short term bumps we see in rates over the next weeks to months, it is still my opinion that both fixed and variable rates are still on their way down. Our economy is still facing the threat of recession, which is the largest factor at work here.
So it remains my general feeling that, if it’s an option for you, to take the variable rate for now, and keep riding the wave down.
Now of course with my mandatory disclosures: Not everyone qualifies on the variable rate. And, the variable rate is not for everyone. I spoke with a client yesterday who said she wanted to think about taking the variable rate, but that her husband was diametrically opposed to the variable rate and just wanted the fixed rate. I tell the client, well, haven’t you already answered your question then? Maybe, just to maintain the peace in your marriage, you’ll probably end up with a fixed rate?
Ok, this example is a bit extreme, but you know what I mean. There are also forces that are outside of finances that cause a couple or family to choose one or the other option.
I have to have a chuckle when looking at the Facebook group “Vancouver Island Housing Market”. Whomever manages this group re-posts lots of different opinions about a housing market crash or mortgage rates soaring to a point where things are unsustainable. It’s really too bad that these extreme opinions get publicity. They are so certain in all their crazy predictions too. If we had actually seen any of these predictions come true, we would have already had mortgage rates at 30%, a 50% drop in housing prices, and a loaf of bread costing $15. And these things would have happened on multiple occasions. Did any of this happen? NO!
Our economy is robust and has withstood a significant inflation shock. Our banking system is strong. Myself, my friends, and my clients will keep owning our houses and will not sell at a huge loss. Unemployment will remain relatively low. Things will keep going.
Shame on these Facebook groups for regularly giving these crazy predictors oxygen. And too bad for anyone that actually believes it. Those of us that can drown out the silly noise have a greater understanding about how our economy actually works.
I will be watching election coverage tonight and over the next few weeks, as the election does make for good TV.
Signing off for now,
David Steinberg, AMP, BComm
Mortgage Psychologist and Property Strategist
Lead Broker and Owner at Olympic Mortgage
250-858-7160
david@olympicmortgages.ca
Feedback is welcome. Email and let me know your thoughts. Or pick up the phone and call me – 250-858-7160.
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