Nov 2021; Mortgage Rates & Inflation Report
This just in data is when mortgage interest rates are expected to rise.
DATA JUST IN
Canada’s latest employment and inflation numbers have triggered new expectations about the next steps by the Bank of Canada and the arrival of interest rate increases.
BoC Governor Tiff Macklem continues to offer soothing words about inflation, which is current running at 4.1%. That is an 18 year high and more than double the central bank’s 2.0% target.
Macklem has repeatedly said high inflation is temporary; the result of low prices during the pandemic lock-downs, and supply chain problems that have cropped-up as the economy reopens.
Macklem points out that a key factor in long term inflation – wage growth – has not materialized. That is despite Canada returning to pre-pandemic employment levels with the addition of 157,000 jobs in September. It should be noted that the growth of Canada’s labour force during the pandemic means the country is still 276,000 jobs short of full employment. Last week however, Macklem did concede that this temporary inflation may linger for longer than initially expected.
Several prominent economists have weighed-in. Benjamin Tal cautions that inflation is a lagging economic indicator. He says the risks for long-term inflation are present and the Bank of Canada would be better to start raising rates earlier to help mitigate those risks. Doug Porter says there is a growing chance rate increases will come earlier. He expects they will happen quarterly rather than every six months. And, Derek Holt would like to see a rate hike by the end of the year, given that emergency levels of stimulus are in place while inflation is well above target.
Look for mortgage interest rates to start going up close to the end of 2021 and continue until they are back close to PRE-Covid Rates of about 3.35% for the 5-year fixed.
Mortgage Mark Herman, best Calgary mortgage broker for the masses!
EXPLAINER: Why & Where Inflation and Canadian Mortgage Interest Rates
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 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.
As the labour market tightens up, employers tend to offer higher wages to attract workers. That increases the cost of producing goods and services, driving inflation. As well, as more people get work and earn more money demand for goods and services increases. If that demand outpaces supply, inflation can also result.
Canada finds itself in this position now. Inflation is running high chiefly because of supply constraints caused by the pandemic. At the same time, more and more people are heading back to work.
That has some analysts forecasting the Bank of Canada will be raising rates to calm inflation. The Bank, however, has been saying otherwise.
It is also useful to watch what is happening in the United States. The two economies are tightly linked and actions in the U.S. can offer useful clues about what will happen here.
In its latest assessment of the American economy the U.S. Federal Reserve continued to down play inflation – which is running high there as well – as “transitory”. The Fed continues to look to the second half of 2023 as the most likely time for any possible rate hikes. While the Bank of Canada has said it expects rates could start rising as much as a year sooner than that, it would be unusual for the BoC to move before the Fed.
Mortgage Tip: Where are Canadian Mortgage Rates Going in 2021
SUMMARY:
There is LOTS of room for rates to go up, and very little for rates to go down or even hold steady.
Fixed mortgage rates are predicted to rise by 40% and go back to Pre-Covid rates or higher:
- 2.9% (from 2.09% now) for less than 20% down; CMHC insured
- 3.10% (from 2.24% now) for more than 20% down; conventional / not insured.
Prime – what variable rates are based on:
- The Bank of Canada has moved their target for Prime increase from 2023 to 2022.
- The US Fed has moved their target for Prime increase from 2024 to 2023, and the market expects that to move to 2022 as well.
- Prime is 2.45% today, it was 3.95% just before Covid (Feb, 2020) and will be trending back that way soon.
- Prime – 1% is the rates for today. 2.45% – 1% = 1.45% which is a great rate but how soon and how much will it move?
This article is awesome, and clear on what the changes mean. The summary above is all you need but you love this data, then read on …
Canadian Mortgage Rates Forecast To Rise Over 40%, Posted Rate Can Hit 7%
Canadian inflation is marching higher, and so are the expectations for mortgage rates. One bank sees the 5-year posted rate having more room to rise than fall in the future.
The institution has forecast the posted 5-year fixed-rate mortgage can rise up to 40% by 2024.
While the posted rate is rarely the rate paid by mortgage borrowers, it does impact a number of things. More importantly, it reflects an environment where credit is tightening.
The Posted Mortgage Rate Vs What You Really Pay
The posted mortgage rate is an unusually high mortgage rate that’s kind of like the sticker price of a car. It’s unreasonably high, few people will use it, and it’s mostly to help buyers feel like they’re getting a deal. The spread between the posted rate and a lender’s best available rate is usually between 220 to 250 bps. This means the rate borrows often pay is a full 2.2 to 2.5 percentage points lower than the posted rate. That doesn’t mean the posted rate is useless though.
The two biggest impacts it has are on payment penalties and the stress test. If you were to break your fixed-rate mortgage early, for say refinancing at a lower rate, you have to pay a penalty. That penalty is usually 3-months of interest, or the interest rate differential (IRD). The IRD is the difference between your rate and the posted rate closest to your remaining term. Then subtract any discount you received at origination. It’s pretty much what banks use to make sure you pay a big ole’ penalty for changing plans.
The stress test rate is also likely to be influenced by the posted rate, but maybe not directly. Originally the Bank of Canada benchmark rate was used to determine the stress test rate. This was based on the posted rate at various banks. OSFI, the bank regulator, found it wasn’t very responsive to risk though. Rather than rely on the benchmark, they established a rate floor — the minimum rate that can be used. The criteria for how the floor can evolve can change a lot from now until 2024. However, it’s unlikely the stress test rate would ever fall below the posted rate. The stress test rate is currently around 50bps higher than the posted rate.
Canadian 5-Year Fixed-Rate Mortgages Have More Upside Risk Than Downside
There’s uncertainty, but Canada’s faster than expected recovery shows more upside than down. The five-year posted fixed rate is 4.74% currently. In a downside scenario, they see this falling to 4.40% by the fourth quarter of 2021. The upside scenario sees it rising up to 5.25% in the same quarter. Higher inflation expectations are also contributing to a stronger upside scenario.
Canadian Posted 5-Year Fixed Rate Forecast
By next year, the posted 5-year fixed rate is forecast for an even higher maximum — breaching the 6 point mark. Rates are forecast to have a downside of 4.6% in 2022, and an upside of 6.20%. In 2023, the range rises to 4.70% to 6.60% for the full year. In 2023, it gets a little more uncertain with the range widening from 4.55% to 6.95%. While the latter range is wider, it has a lot more upside than downside. The probability of it falling would likely require a substantial economic slowdown.
Since a number of factors go into a forecast, the longer the date, the more uncertainty it faces. Economic conditions would have to worsen and inflation drop for rates to fall. For rates to rise, Canada would have to continue a strong recovery, and/or see higher levels of inflation. Canada is so dependent on housing now, we likely have many people cheering on a crash to keep rates low.
Link to the full article is here: https://betterdwelling.com/canadian-mortgage-rates-forecast-to-rise-over-40-posted-rate-can-hit-7-desjardins/
Inflation & 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.
The traders say the COVID-19 vaccine rollout and plans for vast infrastructure spending – particularly in the U.S. – are boosting expectations of a broad recovery and an increase in inflation. Better than expected GDP growth in Canada and shrinking unemployment in the U.S. would tend to support those expectations.
This, however, puts the traders at odds with the central banks in both Canada and the United States.
The Bank of Canada and the U.S. Federal Reserve also expect inflation will climb as the pandemic fades and the economy reopens. There is a pent-up demand for goods and services, after all. The central banks see that as transitory, though, and appear to be looking past it. The U.S. Fed has gone so far as to alter its inflation target from 2% to an average of 2%, over time, thereby rolling any post-pandemic spikes into the bigger, longer-term calculations.
The Bank of Canada and the Fed have committed to keeping interest rates low, probably through 2023. Both say inflation will have to be sustained before interest rate moves are made to contain it. The integrated nature of the Canadian and American economies means it is unlikely the BoC will move on interest rates before the U.S. Fed.
2021: here Are Mortgage Rates Going?
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Why CoronaVirus = Lower Mortgage Rates
This link does a great job explaining why rates are coming down right now for mortgages.
https://www.cbc.ca/news/business/coronavirus-mortgage-rates-canada-1.5443071
Summary:
- Events that could cause a stock market crash tend to also cause a “flee to safety” and the 5-year Canadian Mortgage Bond is that safety net.
- When investors buy these bonds the demand goes up so the bonds pay less as everyone wants them.
- The lower cost of the bond means a lower interest rate on your mortgage
This should be a short term blip, so if you are buying a home take advantage of it quickly
Mark Herman, top Calgary mortgage broker
TD adds interest on interest
TD is/ was the 1st and only bank to charge higher mortgage prime rate for their mortgages.
TD is now the 1st of the big banks to now charge interest on their late-interest-owed:
https://globalnews.ca/news/6451352/td-credit-cards-compound-interest/
Prime Rate Cut; Dec 4, 2019
With the latest developments the Bank of Canada (BoC) has clear path to reduce the Prime rate from 3.95 to probably 3.70%
The Bank of Canada is feeling the pressure to get back into the game with a rate reduction and one obstacle has now been removed.
The bank held its rate the same for an 8th straight meeting on October 30th.
At the same time it has clearly signaled it may not be able to hold that line much longer.
The bank pointed directly at trade conflicts (such as the U.S. – China tariff war) as the key cause of a global economic slowdown and around the world more than 35 other central banks have already cut rates in an effort to keep growth up.
The U.S. Federal Reserve has made three cuts in the past several months. That has boosted the strength of the Canadian dollar which makes the country’s exports more expensive on the world market which is unwelcome.
Great news that the Bank is not concerned that a drop in interest rates will trigger a renewed frenzy of debt-funded consumer spending. It is satisfied that the biggest component of household debt – mortgages – have been stabilized by the B-20 regulations. And another big obstruction has been removed. The federal election is over so the bank can operate without risking the appearance of political favoritism.
Fixed rates are still the way to go right now.
They are close to the all time 119-year lows right now.
Mortgage Mark Herman
Why you don’t want your mortgage at your main bank
The Big-5 banks do not love you, they love your money, and now they can “trap” you in their mortgages if you fail the Stress Test.
Highlights of the last post are below. The post from January is here: http://markherman.ca/how-the-big-5-banks-trap-you-in-their-mortgages/
The new mortgage rules – called the B20 – allow the banks to renew you at almost any rate they want – or at least not a competitive one – if your credit, income, or debts should mean you can’t change banks.
If your mortgage is at your main bank they can see:
- your pay and income going into your accounts
- debt balances on your credit report
- what your credit score is
- your debt payments
- your home/ rental addresses so they can accurately guess at your home value.
ALL THIS MEANS they can calculate if you can pass the new “Stress Test.”
If you can’t pass it then they know you can’t change banks, are you are now totally locked into them for your renewal. They can renew you at POSTED RATES … 5.34%, not actual discounted rates they offer everyone, today (June 2019) about 2.99%.
The GOOD NEWS is broker banks do not do any of this … so having your mortgage at your main bank only helps them “grind you” later on. …. so how convenient is having your mortgage at your bank now?
Highlights of the article link below are:
Canada’s biggest banks are tightening their grip … as new rules designed to cut out risky lending make it harder for borrowers to switch lenders … the country’s biggest five banks … are reporting higher rates of renewals by existing customers concerned they will not qualify for a mortgage with another bank.
“B-20 has created higher renewal rates for the big banks, driving volumes and goosing their growth rates,” said an analyst. “It’s had the unintended consequence of reducing competition.”
Royal Bank of Canada (RBC), said last month that mortgage renewal rates [are up …] due in part to the B-20 regulations.
Ron Butler said, “Even if they are up-to-date with their repayments, borrowers may find they don’t qualify with other lenders so they’re stuck with their bank at whatever rate it offers,” he said.
Senior Canadian bankers such as RBC … and TD … voiced their support for the new rules prior to their introduction, saying rising prices were a threat to Canada’s economy.
While analysts say RBC and TD are expected to benefit from higher-than-normal retention rates in 2019, not everyone is sure borrowers will benefit.
“The banks are becoming more sophisticated in targeting borrowers who would fail the stress test and they can charge them higher rates at renewal knowing they can’t move elsewhere,” Butler said.
the WORST: Mortgages @ Big-6 Banks
This blog summarizes why getting a mortgage from 1 of the Big-6 banks is the worst idea:
- Rates are higher; ranging form .25% to .55% higher
- Terms & Conditions are no where near as good:
- Collateral charges: http://markherman.ca/?s=collateral
- payout penalties: http://markherman.ca/?s=payout+penalties
Here is the article that is fully correct:
Big Banks vs. Broker Lenders:
Always talk to a mortgage broker before buying, or renewing or refinancing your mortgage
Mark Herman; Top Calgary, Alberta Mortgage Broker