Why Todays Increase In Prime Is A Good Thing
September 6, 2017
Stressed About The Stress Test?
November 8, 2017
The BOC Governor’s daily affirmation goes something like this… ” I must keep inflation at 2%, I must keep inflation at 2%” … so with the NAFTA agreement potentially on death row, and the new housing stress test coming into effect in January (see below for more details) the BOC feels there is enough headwind to keep economic growth at just the right pace. With that in mind, Stephen and the gang decided to keep the prime rate the same today.
There was an interesting side note at the end of today’s statement. It hinted that the economy has reached capacity (this is the canary in the coal mine for future rate increases) but wage growth hasn’t materialized yet – I see about 200 pay cheques a year, so I can confirm this fact. So for those of you in the corporate world, keep an ear out at the water cooler. When the talk of raises becomes commonplace, you’ll know that your line of credit rate interest rate will be going up shortly.
Key Points From The Bank of Canada Announcement
- Prime rate left unchanged
- Strong Canadian currency is slowing exports
- Mortgage Stress Test will slow consumer spending
- Business spending expected to take the place of consumer spending
- Your long awaited raise is coming
- (economy almost at capacity – see above)
How Your Mortgage Is Impacted
- Pressure on Fixed rates will ease
- Variable rate mortgage discounts likely to stay the same
- Stress Test coming into effect in January 2018.
- Rate holds available for purchases until February 22, 2018
Stressed about the Stress Test?
The media outlets exploded last week with the announcement of the Stress Test. At the risk of sounding Trumpesque – don’t believe everything you are about to read in the coming weeks. I’m already seeing some alternative facts being reported.
Though the major points about how the Stress Test will impact qualifying for a mortgage come January are clear – your purchasing power could be reduced by 20% – there are a few finer points that need to be clarified – ie. if you enter into a contract to purchase in December but complete in January what rate are you being qualified with? If you are approved for an equity take out now but complete in the new year – will you be able to fund it? The government is expected to release an update shortly and we will communicate those details to you as soon as we get them.
The stress test is going have an effect on the real estate market, but before you start thinking back to the great drought of ’09 when all the money trees dried up and real estate prices dropped, heed my advice – it’s different this time.
Here’s why:
- We are now entering into a period of strong wage growth
- The Millennials are entering the market in a big way
- The continued immigration from all parts of Canada/the world
- and for those who find it completely unacceptable to wait a day to get your online purchase, Amazon might be opening a main office in Vancouver.
All these things add up to ensure demand in our little landlocked oasis continues which in turn provides a level of support for real estate prices.
Interest rates for the next quarter
Bottom Line – Seriously this time:
The next Bank of Canada meeting is December 6th, 2017
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