The Economy and the Housing Market

I will try to do some justice here. For those economists, please don't write in and confuse the rest of us! Due to many forces not least of which was a deflationary economy, Canada injected various stimuli into the economy over the last year to boost credit/lending, backstop mortgages and other paper investments and has kept interest rates and historic lows, while unemployment, productivity, manufacturing and a strong loonie have created a tough environment. With that GDP growth in the final quarter of the 2009 calendar year, good profits by banks trading investments in a bit of a recovery mode with continued low rates has provided a platform for which the economy is attempting to stabilize from. Many have argued that we are witnessing a "housing bubble". Low rates and such intense demand (even in the wake of hightened selling prices and low demand) has caused some to postulate that we're in a tricky position. Other economists take it a step further and argue that our national debt is peaking and households are taking on excessive debts that may close in or surpass our neighbours to the U.S. That said, others will argue that good ole Canadians will pay down debt before they invest further. One of the means or stimulus that was put into practice here in Canada is known as quantitative easing. In its most basic form, this happens when the government buys up/loans of longer term bonds and/or securitizes mortgage back securities. It has the effect of keep interest rates artificially lowered and hence making mortgages more attractive. Now we are wondering when this unravelling will take place. When it does and the government makes its way out of this gig, private investors will be left to do the purchasing. Private investors though will want higher returns and hence this alone should cause a lift in interest rates. When the government bows out is not yet known. This will affect fixed rate mortgages. On the other end, variable rate mortgages will be affected by movement in the benchmark interest rate (prime rate) which affects consumer loans as well. In the U.S., they just increased the discount rate which affects the terms and rate at which the federal govenrment lends to banks direct. People are waiting for an indication that this will/will not affect the federal funds rate which would increase mortgages in the U.S. So for now, we should enjoy the lowered rates and be cognizant that this train will end. But so too shall the price increases we witnessed year over year from 2009. So we may see supply increased trim the price increases while rates climb. All in all, its not so bad.
This particular post had 2 goals. 1) to show my profs from MBA and my bosses from the banking days that I know something about the economy and 2) to provide a very basic synopsis of how the overall economy is impacting mortgage rates. This is one part of a very complex machine. So don't dare read the above and try to talk intelligently to an intelligent person. But hopefully this gave you some background into something you'd otherwise not read or care to know about!
Thanks!