Upcoming Interest Rate Announcement – No Change Anticipated

It is almost that time again, when eyes will turn towards Mark Carney and the Bank of Canada to see if interest rates will stay put again this time around.

The next announcement, slated for Tuesday May 31, comes at an interesting time. Throughout the first part of this year, it was widely believed that interest rates had stayed as low as they could, and for as long as they could, and the prediction was that rates would begin to creep up as early as this spring.

However, as with many predications, several things were not foreseen in the forecasting.

What has happened most notably in advance of this latest announcement- was unpredicted behaviour on a number of fronts.  Consumer prices across many categories have been rising rapidly (although fell slightly below expectations last month), but are clearly displaying an upward trend.  Inflation, while still manageable, is running a little too high to be ignored as a factor as well.

So, rates will rise at some point, but given the existence of some volatile conditions in the market, and fears that a rate hike will erode an already tenuous hold on affordability due to rising prices, the question is, is that time now?

According to a survey done by Reuters last week, forecasters predict that a rate hike will not happen until Q3 2011.  It is widely believed that rates will go up to 1.25% in the third quarter from the current 1%. Almost unanimously, the forecasters polled agreed that the announcement on May 31 will be a rate hold- again.

Supporting these findings, three of the major banks have also indicated that they don’t expect to see rate hikes until the fall either.

If all of this comes to pass, it is good news for the Canadian housing market. The time-limited offer of ultra-low interest rates will get extended.  Coupled with the fact that this will end at some time contributes to a sense of urgency as well.

How does this translate into daily business for Real Estate and for the Mortgage professions? Propertywire.ca asked some members of the community.

Tara Gibson, Mortgage Broker, TAG Financial – Mortgage Alliance TAG Mortgages, agrees that rates will remain steady for the time being, but thinks that an increase could come as early as the summer. “In my opinion, our strong dollar is enough to predict that we won’t see an increase in interest rates this time; more likely in July. The question is, will discounts on Prime change with the lenders? I think we may start seeing this compress a bit soon enough; in fact, some lenders have already started to close the gap. Many clients are currently choosing to go with a variable rate; simple case of supply and demand, prices go up with increased demand.”

“Despite all the pressure to see interest rates increase, industry experts believe that the Bank of Canada and lenders will increase rates at a slow rate. Advice to borrowers, if you want a variable, get in on the rate holds before we see more lenders change the discount! Further to that and much more important, global uncertainty is only postponing the inevitable, rates WILL go up so make sure you are fully prepared to handle the change when you go to renew your mortgage in 5 or 10 years!”

Trish Pigott,Broker/Owner, Primex Mortgages agrees too that status quo will be the order of the day on Tuesday. “I’m sure they are going to remain steady and unchanged.  The majority of economists were predicting July as our next increase but they are now changing that until September and even some as early as next year.  With our global economy in the state it’s in, I can’t see it changing much until the rest of the world stabilizes.”