Rate Update – The Governor Shows His Cards
July 15, 2020
Rate Update – A New Year, A New Start, A New Hope
January 20, 2021
With no fanfare nor surprise, the Bank of Canada (BOC) left the prime lending as is. Tiff Macklem, the BOC governor, also restated his intent to keep the prime lending rate virtually unchanged until 2023.
So with Tiff dropping $4 billion (with a B) a week into the bond market, one begins to wonder: at what point do we stop spending our way out of this situation, what is the future cost of all this stimulus and what will the long term impact be on interest rates.
In the words of the Great One, you need to skate to where the puck is going… which is the focus of this update.
Key Points From The Bank of Canada Announcement
- Prime remains unchanged
- Commodity prices strengthing – Oil in particular
- CAD improving against USD
How Your Mortgage Is Impacted
- Bond yields are at all time lows due to the QE measures
- Fixed rates range bound – for now.
- Rate holds available just past April Fool’s Day – ( for real )
My goal with these updates is to provide you with insight into the current conditions through the lens of my 20 years of experience in real estate financing and investing. A lot of what I’m about to mention is based on personal observation and not researched data.
So now that we have that out of the way, where do I think where “The Puck” is going.
Your New Corner Office And It’s Impact on The Housing Market:
Now that employers have managed to offload the expense of an office on to the employee, many people are rethinking their housing needs. We are seeing a huge migration of people moving up the housing food chain. Meaning condo owners want to buy townhomes, townhome owners want 1/2 duplexes or houses, and homeowners are looking to upgrade their home or buy a vacation property. This is why the housing market is so hot during a time of unprecedented economic instability.
Where to skate to:
- The soft condo market represents an opportunity for investors and 1st time buyers.
- The 1.5 million to 1.8 million price point is red hot. Look to buy a fixer upper so that you can unlock the value. Or consider buying just on the outskirts of a hot area.
- Don’t just rely on a pre-approval before you write that offer. Make sure the lender as reviwed all your documents AND the property documents. As the saying goes, you don’t rise to occasion, you fall to your level of preparedness.
Home Sweet Home. Be it Ever So Humble:
After 9/11, the world was perceived no longer to be a safe place. We saw a massive trend in cocooning, which created a renovation boon. We are starting to see the same trend now. If you are thinking about doing a reno project in the spring, you might want to lock down a contractor now. The great news is when people renovate homes, it provides support to the housing prices in that area.
Where to skate to:
- If you are considering doing updates to your home, talk to your trusted mortgage advisor before you start spending the money. The traditional way of using your consumer credit facilities to fund the project and then refinance the debt with the new and improved home might not work. This is because the credit algorithm has changed, and in times of economic uncertainty, it will drop your credit score like a rookie skating with his head down through centre ice.
- Talk to your trusted realtor advisor about what the best reno improvements are, and to help you make sure that you are not over improving for the area. What that means is you aren’t installing gold handrails and diamond floors in an area that supports pine and maple.
The Governor Has Got (The Shirt Off) Your Back:
The BOC is perilously closing in on owning 50% of the Canadian Government’s debt. Sherry Cooper, the chief economist for our company, feels that if the BOC reaches the 50% threshold, they will have to back off aggressively buying up government debt. When that day comes, two things will happen: bond prices will increase to the natural market rate, and Mr. Trudeau will have to fund expenses with tax revenue.
Where to Skate to:
- If your mortgage is maturing within 4-8 months, you should consider having a conversation with your trusted mortgage advisor about your maturity strategy.
- If you have 9 months or more left until your mortgage maturity, you might want to consider paying the penalty and refinancing your mortgage. Give me a call, and my team can calculate the numbers to ensure the transaction makes sense.
The bottom Line :
The current situation is causing a massive paradigm shift on many fronts, but the one constant is people’s desire to own their home.
And I believe that as the Government continues to pump money into the system, we will continue to see low mortgage rates and a strong desire to towards homeownership.
Partly because it’s a physical asset that bodes well in either a time of falling or rising inflation and partly because if you have to be stuck somewhere in the world, here in Vancouver is a pretty awesome place to be!
Wishing you and your family the best of Love, Laughter and Health for the rest of 2020.
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