In March the federal government unveiled changes to the budget that included an interesting opportunity for prospective first time home buyers through an enticing program that they called a “shared equity mortgage”. This program could see Canada’s housing agency (CMHC) kicking in up to 10% of the purchase price of a home if certain conditions are met, therefore bringing down the mortgage load and monthly payment for first time home buyers.Read More
Prices are Rising Everywhere– This Transitory Could Last A Long Time
Today’s release of the September Consumer Price Index (CPI) for Canada showed year-over-year (y/y) inflation rising from 4.1% in August to 4.4%, its highest level since February 2003. Excluding gasoline, the CPI rose 3.5% y/y last month.
The monthly CPI rose 0.2% in September, at the same pace as in the prior month. Month-over-month CPI growth has been positive for nine consecutive months.
Today’s inflation is a global phenomenon–prices are rising everywhere, primarily due to the interplay between global supply disruptions and extreme weather conditions. Inflation in the US is the highest in the G7 (see chart below). The economy there rebounded earlier than elsewhere in the wake of easier Covid restrictions and more significant markups.
Central banks generally agree that the surge in inflation above the 2% target levels is transitory, but all now recognize that transitory can last a long time. Bank of Canada Governor Tiff Macklem acknowledged that supply chain disruptions are “dragging on” and said last week high inflation readings could “take a little longer to come back down.”
Prices rose y/y in every major category in September, with transportation prices (+9.1%) contributing the most to the all-items increase. Higher shelter (+4.8%) and food prices (+3.9%) also contributed to the growth in the all-items CPI for September.
Prices at the gas pump rose 32.8% compared with September last year. The contributors to the year-over-year gain include lower price levels in 2020 and reduced crude output by major oil-producing countries compared with pre-pandemic levels.
Gasoline prices fell 0.1% month over month in September, as uncertainty about global oil demand continued following the spread of the COVID-19 Delta variant (see charts below).
Today’s CPI release was the last significant economic indicator before the Bank of Canada meeting next Wednesday, October 27. While no one expects the Bank of Canada to hike overnight rates next week, market-driven interest rates are up sharply (see charts below). Fixed mortgage rates are edging higher with the rise in 5-year Government of Canada bond yields. The right-hand chart below shows the yield curve today compared to one year ago. The curve is hinged at the steady 25 basis point overnight rate set by the BoC, but the chart shows that the yield curve has steepened sharply with the rise in market-determined longer-term interest rates.
Moreover, several market pundits on Bay Street call for the Bank of Canada to hike the overnight rate sooner than the Bank’s guidance suggests–the second half of next year. Traders are now betting that the Bank will begin to hike rates early next year. The overnight swaps market is currently pricing in three hikes in Canada by the end of 2022, which would bring the policy rate to 1.0%. Remember, they can be wrong. Given the global nature of the inflation pressures, it’s hard to imagine what tighter monetary policy in Canada could do to reduce these price pressures. The only thing it would accomplish is to slow economic activity in Canada vis-a-vis the rest of the world, particularly if the US Federal Reserve sticks to its plan to wait until 2023 to start hiking rates.
It is expected that the Bank will taper its bond-buying program once again to $1 billion, from the current pace of $2 billion.
The Bank will release its economic forecast next week in the Monetary Policy Report. It will need to raise Q3 inflation to 4.1% from its prior forecast of 3.9%.
Q: What is going on with INFLATION and where are the mortgage INTEREST RATES going to go?
Best answer I have seen yet is below … it still makes the 5-year fixed the better option right now (for most people)
Mortgage Mark Herman, Top Calgary Mortgage Broker
The Bank of Canada is not making its next rate announcement until September. That has market watchers looking to other indicators as they attempt to foresee what is coming for the economy and interest rates.
The latest significant news was good, but modest. Canada’s unemployment rate dipped to 7.5% with the creation of 94,000 jobs in July. Most of those are full-time and in the private sector.
Employment levels are linked to inflation, which is a key factor watched by the Bank of Canada in setting interest rate policy which, in turn, can affect mortgage rates.Read More
How to Get a Home Loan When You Own a Home-Based Business
When your home-based business starts to grow, this is a good thing. But what if it’s growing so much that you need to purchase a larger home? This can get tricky because applying for a home loan when you own your own business is sometimes a little harder than when you are employed by a company. But don’t let this dissuade you! It is perfectly possible for a small business owner to apply for — and get approved for — a home loan. Here are some of the ways you can improve your chances.Read More
Here is the near term expectations of mortgage interest rates.
5 Year fixed are going up and never getting back down to where they are now.
Variables are also great – right now they are Prime – 1% or 2.45% – 1% = 1.45%, and as below, should stay there until 2023! Almost 20 more months!
Both of these are awesome options right now.
Mortgage Mark Herman, Top Calgary Alberta mortgage broker for 1st time home buyers
Bond traders believe inflation is going to be rising over the coming months and have been demanding increased bond yields. That has led to increasing interest rates for bonds and, consequently, increasing rates for the fixed-rate mortgages that are funded by those bonds.Read More
With so much unknown in our economy and real estate markets, there is one sure thing – interest rates are on the move upwards. BUT, this is only fixed rates.
Variable rates remain at all-time lows. Fixed rates have increased by approximately 30bps (.30%) over the last couple of weeks.
Why is it that only fixed rates are increasing? Fixed rates are based on the bond yield market. As bond yields increase, eventually, so do the fixed rates. There has been pressure building in the bond yield market for awhile now and it was only a matter of time. Whereas, variable rates are dictated by the Bank of Canada (BOC) and based on many things including the health of our economy and consumer debt load coupled with what upside/downside there would be if they change the prime lending rate – currently set at 2.45%.
Variable rates are holding firm and we’ve been told publicly from the BOC that they won’t look at the increase until 2023.
What does that mean for variable rates?
Variable-rate discounts remain low and so does the prime lending rate of 2.45%. When you factor in the low discounts with the low prime lending rate, variable rates are very, very attractive. If we believe the BOC, the prime lending rate of 2.45% will remain the same until 2023 but the discount from lenders may change. If you have a current variable rate mortgage you are good, your discount is locked in.
Currently, the BOC prime lending rate is 2.45%. If you have a variable rate mortgage, you either have a discount or premium added to this rate. Ie. Prime (2.45%) – 1% (discount rate) = 1.45%. If you have a premium added to that prime rate then we really need to talk because there is an opportunity to save some money.
As the BOC moves the prime lending rate of 2.45%, your discount stays locked in for the term (typically 5 years). So if the prime lending rate moves to 2.70% and your variable discount is 1%, your new interest rate is 1.70%.
If you want to secure a fixed rate before they increase even more, please reach out to lock in a rate hold.
If you want to see if we can save you money on your current variable rate mortgage, please let me know and I’ll run some numbers.
Either way, we as Canadians are in a great spot from a mortgage rate perspective. Money is still cheap and it will be for the foreseeable future.
If you’ve been thinking about buying a house, you’ve probably considered how much you can afford in mortgage payments. Have you also thought about what would happen if you lost your source of income?Read More