Rate Update – Meet the New Boss, Same as the Old Boss?
June 3, 2020
Rate Update – Tiff Keeps The Printing Press Running
December 9, 2020
Our freshly “minted” Bank of Canada (BOC) Governor, Tiff Macklem, had his first press release today, and as expected, he left the prime rate unchanged.
The first press release from a new BOC Governor is always an exciting thing ( really it is! ) because it gives you a hint of what their leadership will be like, and how transparent they will be about their economic game plan. After reading today’s press release, I can tell you that we are dealing with a very “cards on the table” type of leader – which is perfect if you are a mortgage advisor, trying to help your clients navigate the mortgage maze!
Quick Factoid: The name Tiff is derived from the Greek name Theóphanes which composed of two elements: “theós” meaning: divine, a deity, a god – plus “phaíno” – meaning: to appear, bring to light, show, uncover, reveal, make known.
With the above in mind, I’m glad that we have a “Tiff” running the show during these uncertain times.
So now that we’ve established our economy is being run by a straight shooter, what news was in the update that impacts your mortgage? Scroll down below to find out.
Key Points From The Bank of Canada Announcement
- Prime remains unchanged
- Bond buyback program (QE measure) to stay in place until 2021
- Commodities prices still low, but starting to rise
How Your Mortgage Is Impacted
- Bond yields are at all time lows due to the QE measures
- Fixed rates are potentially at a bottom
- Rate holds available until mid November
Getting back to the new normal.
In the BOC press release there were several key messages that stood out that give a clear indication of where rates are going:
- The Corporate Bond buyback plan will continue
- This is what the BOC is doing to ensure there is sufficient liquidity for banks to fund mortgages. It’s why rates are so low…for now.
- The BOC expects that the economy will recover 40% of this year’s losses by the end of the 3rd quarter.
- This sets the stage for prime rate to remain unchanged for at least the next 9 months.
- There is still significant “slack” in the economy
- What this refers to is too much supply and not enough demand, a tough one to believe if you’ve walked into Homesense or Winners lately. Deflation is the real concern that Tiff is speaking to. When prices drop, people tend to wait for the next “deal” before buying especially with big purchases. As a result the economy grinds to a halt, and then people stop spending money due to concerns of job stability.
- We’ve seen the biggest economic drop since the Great Depression
- This comment is truly amazing if you think about it. Most of us still have family in our lives that went through the Great Depression. If you asked them to tell you stories of what life was like during that time, it would be a stark contrast to today. The message here – we are going to get through this – and we are going to be alright.
Given that the economy has fallen 15% from last year, and with the BOC projections of 5% growth for the rest of 2020 and all the way through to 2022, it won’t be until 2023 before the economy is back to its pre-COVID level. So with that in mind here is what we think the future holds for interest rates.
- The Bond buy program will ease off once the signs of a 2nd wave is diminished or a vaccine is introduced.
- My best guess is we’ll have access to these interest for the next 45-90 days and then they will creep up by 10 bps to 15 bps.
- Variable rate mortgages will remain low for the next 12 months.
- We are having a lot of discussions with clients about fixed versus variable. For some clients who want to balance the lower rate of a variable with the security of a fixed mortgage we are offering hybrid mortgage products. In a hybrid mortgage we have the ability to split 50/50 between fixed and variable which results in a net rate lower than 5 year fixed rate at a reduced rate volitility risk.
- If you have a mortgage maturing in 2020 – now is the time to talk.
- These low rates are only going to be here while there is economic uncertainty. Once the economy finds it’s legs or a vaccine is approved, mortgage rates will change. A 15 minute conversation now could save you enough money to take your family to Hawaii for a week once things get back to normal!
The bottom line:
So what does all this mean for real estate and your mortgage?
In short – good news.
We are seeing a significant amount of new applications, with 10 new offers coming over last weekend alone. Add to this that we entered 2020 with the highest amount of clients with pre-approvals in the past 10 years, and you have a recipe for a strong real estate market. Given the limited inventory, we are seeing the re-emergence of multiple offers, something we haven’t had to deal with since 2017. And my guess is once rates start to slightly increases, things will really heat up.
So if you are looking to buy, or have a mortgage maturing, now is the time to sit down and talk to your mortgage professional.
Keep well, stay safe, and don’t forget to give that person you just stepped 2 meters away from your warmest smile. After all gratitude and graciousness are the key ingredients to a happy and long life!
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