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One-on-One with DLC’s Sherry Cooper

DLCHiresSta1It didn’t take Sherry Cooper long to bring national media attention to her new firm, Dominion Lending Centres (DLC).

The former Chief Economist at BMO was all over the media Monday after announcing her full-time comeback to the world of economics. DLC’s new Chief Economist will take on a variety of roles—from serving as company spokesperson to delivering speeches at company events to releasing regular analytical reports on the housing market.

We sat down with Sherry yesterday for her take on rates, her career change and challenges facing the broker channel. Here are the highlights:

On whether economists can really predict future rates:

“Economists forecast because people ask us what we think. [After the financial crisis] everyone thought that rates would bottom, and then rise. Did we know there was going to be a collapse in subprime lending? No. Did we predict what would happen in the European monetary union or that oil prices would plunge? No. Nobody can time markets.”


On why economists got rates wrong following the global financial crisis:

“For the last decade, every year our year-end forecast for the 10-year government bond yield was up from January, and every year we were wrong. What economists missed is what happened in terms of globalization and technology, which has taken inflation down to extremely low levels.”


On her role at DLC:

“I’m going to be providing reports, and some will be my own view on what’s happening in the market.” As well, “DLC, being the largest broker network, has internal data that is extremely valuable, and it’s granular. Housing data is historically bad. I’m going to try to make sense of those numbers and spot trends, trouble spots or excesses, and report it on an aggregate basis and by region.”


On how she helps DLC on a corporate level:

“What I’m doing is unpaid advertising…For DLC to have this kind of publicity and be seen as a thought leader is invaluable.”


On mortgage rates over the long run:

“I think it’s safe to say that interest rates have nowhere to go but up. But they could fall near term and stay there for quite some time.”


On whether Canada risks becoming Japan-like, with extraordinarily low rates for a decade or more:

“If you don’t get some inflation you end up like Japan where there is outright deflation and people postpone purchases. I don’t believe that will happen in Canada. Our demographics are so much better than Japan’s.”


On what rates borrowers should use when stress-testing their mortgage:

“I’d want to say, ‘What if rates have doubled in five years’ time?’ What would that mean (to your ability to debt service your mortgage)? Likely, if rates have gone up that much, incomes have gone up as well, or the market has slowed so you can buy for less.”


On how levered Canada’s housing market is to interest rates:

“I don’t think it’s a huge effect, although [falling rates] do spur activity initially. When I was at the U.S. Federal Reserve [in the late 1970s and early 80s] and worked for Paul Volcker…he targeted the money supply…We were all surprised that rates had to rise as much as they did to slow the housing market and slow inflation. The availability of credit has a significant effect on housing. The price of credit has far less of an effect.”


On whether Canada could see negative interest rates:

“We could…at the short end of the curve.”


On Alberta real estate, given the plunge in oil prices:

“Alberta has always been a boom-bust kind of place. But this too shall pass…Paper losses are just that, they’re on paper. Housing decisions have financial implications but they are mainly a lifestyle decision. The good news is that expensive houses are going to fall a whole lot more than inexpensive houses. So there will be opportunity for people who want to move up.”


On the Internet’s effect on mortgage brokers:

It’s just like what happened with stock brokers or travel agents. Traditional brokers still exist but their commissions have been squeezed. You have to add value. Otherwise you can just get a mortgage online. You don’t even need a person. If you know you’re going to buy 100 shares of TD [stock] there’s no reason you need to use a full-service stock broker. But if you’re deciding whether you should be buying TD versus Royal Bank…and you get good advice, you’re willing to pay for it.”


On what brokers can do to add value:

“I think mortgage brokers will need to have a broader perspective of their clients to advise them in the broader scheme, as opposed to just giving them a number. Is the [borrower] a young family? What are their income prospects? How much debt do they have? How many kids do they think they’ll have? Advice is so important, like letting people know when to refinance or when to lock in. Or helping them qualify…”

“Mortgages are the biggest financial decision that most people ever make. Brokers have no vested interest in selling one product over another product…The bank adviser has a vested interest in selling the bank’s products.”


On whether a well-qualified borrower should go fixed or variable:

“I’d do fixed because I’m conservative and it’s a no-brainer with rates so low. Could they fall 20 basis points from here? Sure. But over the next five years I’d much rather be fixed.”