Rate Update – Tiff Sneaks One Under The Tree

Here are the highlights of the press release:

Inflation is cooling:
Oil prices are down, consumer spending has moderated, business investment is flat, and GDP has shrunk by 1.1%. If it shrinks again next quarter, Canada will technically be in a recession.

What is still fueling inflation?
Housing costs, specifically rent and mortgage payments. Both of which would be resolved by slowing inflation. Wage growth is still between 4-5%, which has Tiff’s attention, but if we do see a recession, that will change the labour force supply/demand equation and, with it, take the wind out of wage growth’s sails. Government spending is another issue that is adding to the bottom line. Note: This is the second time Tiff has called out JT and Company for excess government spending during an inflationary period – something I have not seen from any BOC governor over the ten years of writing these updates.

Other good news items:
Bond yields have dropped almost 1% since our last BOC update in October. Mortgage rates are starting to follow, but if bond yields keep dropping, expect the lenders to get super competitive come March 1st. The US dollar is weakening vs the Canadian dollar, which should take some pressure off your winter grocery bill.

Outlook For Mortgage Rates in 2024

The word on Bay Street and Wall Street is that we definitely see the prime lending rate reduced. The optimists believe the first cut will come in March, while most economists feel July is a near certainty. Nobody is sticking their neck out with estimates on the speed of the cuts – i.e. will they be reduced at the same rate they increased? However, the group think is prime will be 1% lower by the end of 2024.

For fixed rates, expect the banks to drag their feet on the rate decreases for terms of three years and up. The reason is twofold: they are still licking their wounds from having a mortgage portfolio with 50% of its mortgages with rates that are sub 3%. The second is once we get out of this inflationary mess, they will want some economic data to figure out how to price mortgages. We are potentially in a new 40 year interest rate cycle. The smart money is reevaluating all their decision matrixes to ensure they keep their shirts before 2035 arrives.

What does that mean for your mortgage?

If your mortgage is maturing in the next two months, there is no silver bullet solution. We are running the numbers on a number of different scenarios, such as:

• Does going with a 1-year fixed mortgage term, which has a 1% rate premium over the current 3-year fixed, save you money by capturing the lower rates with each renewal?

• Given the current weak variable rate offerings, at what speed does the prime rate have to decrease to justify the risk of going with a variable rate mortgage? And if we do go with a variable that doesn’t have an attractive discount, does it make sense to stay put and wait for lower fixed rates, OR should we break the variable, pay the penalty, and bide our time waiting for a lower fixed rate?

For those of you who are maturing beyond March 2024, the answers should become more evident in the coming months, but as you can see, our Christmas holidays will be filled with lots of math!

Bottom line 2024 and 2025 will offer more solutions vs. the problems we’ve been trying to solve for the past 18 months.

A Final Year-End Thought:

As we wind down 2023, it’s tempting to chalk this one up as yet another tough year, filled with uncertainty and a slow yet consistent piling of straws building up on our collective backs. When I talk to clients, I can hear the heaviness in most people’s voices, which tells me that most of us are running out of steam. I know it sounds trite, but take the time to reflect on all the positives that happened over the year. If you are especially keen, make it a daily habit. Our minds are wired to spot and solve problems; because of that, we often gloss over the 100s of good that are happening around us all the time…the laughing children playing at the Shipyards, the young couple holding hands while walking down Lonsdale, the old friends meeting up at JJ Bean Park and Tilford to chat. Or as you finally make it up “The Cut” on your afternoon drive and are greeted by the breathtaking view of the sunset framed by the Lions Gate and the view up the coast. Magic is everywhere; you just have to slow down and notice it.

Don’t get caught in the “I’ll be happy when” trap. You don’t need a better economic tomorrow to have a brighter today!

Have a wonderful holiday season!

The next Bank of Canada meeting is January 24, 2024

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Disclaimer Notice: The views expressed in this blog post are based on our opinion. The information has been sourced from the Bank of Canada and several Canadian news sources. Any forecasts or expectations of the direction of interest rates are based on the collective experience of the Nishka Riley Mortgage Team, and as such, any recommendations must be taken within the context of your personal situation. As with any forecast, there is no way to guarantee the outcome of the real estate market or interest rates, nor is a guarantee implied.