Canada's lower inflation rate, nearly 2% lower, than the United States' economy is generating will allow the Bank of Canada to steer a lower course on interest rates. Much of the credit to the lower inflation rate can be attributed to the stronger loonie.
Prediction is that the Fed in the US has slightly overshot rate hikes and will reverse course in 2007, lowering the rate to 4.75% from its current level of 5.25%.
With core inflation much lower in Canada, the Bank of Canada may have to lower rates further here due to the strong Canadian Dollar weighing heavily on non-resource exporters. The prediction is for Prime to fall from its current level of 6.00% to 5.25% by June 2007.
The bond market is predicted to perform well over the next 12 to 15 months with the 10 year benchmark Gov't bond yield moving from its current level of 4.32%, down to 3.95% in June 2007 and 4.00% in Dec 2007.
So basically low and even lower interest rates for fixed rate mortgages as well as variable rate mortgages being predicted for the remainder of 2006 and all of 2007 will continue to support a strong real estate and housing market in Canada.
Benjamin Tal wrote an article on "Where is the Cash Going?" The first time since 1998 that household's cash and near cash holdings are falling on a sustained level. Many saw this as an opportunity for households to lower the Canadian debt burden by applying the cash assets to the debt, however, the people with the cash are not the same people with the debt, so this is not happening. Some of this is going to the stock market as older Canadians (55 +) are 5 times more likely to invest than young Canadians. So equities are predicted to benefit and the TSX composite Index is predicted to rise to 13,600 by the end of 2006 and up to 15,000 in 2007.