INTEREST RATES: Interest rates are falling

The Bank of Canada is expected to slash its key interest rate today by 50 basis points to 1.75 per cent, the lowest since 1960, joining a chorus of central banks around the world that have been trying to bolster their banking systems and boost their economies.

The betting is that there is more cutting to come, with nominal rates heading for zero and real-world rates to follow, which is good news for borrowers big and small.

Holders of variable rate mortgages, which vary with the chartered banks' prime rates, can take advantage of lower mortgage payments to save, spend or pay down principal. Homeowners who are refinancing should soon be able to lock in at the some of the lowest mortgage rates in history.

Consumer and business loans are cheaper, too, although the credit crunch continues as financial institutions tend to lend only to blue-chip borrowers. Governments have been working to free up credit markets by injecting cash, assuming toxic debt and guaranteeing interbank loans, all of which should begin to unlock markets after a normal time lag for such measures.

But that's only part of the flip side to the negativity of an economic downturn.

Homes in Canada's most expensive real estate market are becoming more affordable. According to the Real Estate Board of Greater Vancouver, the benchmark price of existing homes declined 13 per cent from May to November, from $568,411 to $495,704, while in the 11 months to the end of November, prices are down by 8.3 per cent. And yet most homeowners are still ahead of the game. In the past five years, prices have climbed 60 per cent.

The price of gasoline, which hit $1.50 a litre this summer, has dropped to 80 cents as the price of a barrel of oil has tumbled from $147 US to $43.

And speaking of cars, automobile companies are reducing prices -- a few dealers in the U.S. and Britain have offered two-for-one deals -- as sales continue to tumble.

Commodity prices are dramatically lower than a year ago, reducing the cost of raw materials, while a weaker Canadian dollar, which has retreated from par to about 79 cents US, will make exports more competitive when global demand rebounds.

A recession brings hardship, to be sure, but it gives us all a breather from rising prices and expectations.

(prepared by Harvey Enchin/Vancouver Sun)