No Rate Grinch This Christmas
December 5, 2018
Prime Unchanged But The Governor Changes His Tune
March 6, 2019
The prime lending rate remained unchanged today by the Bank Of Canada (BOC). The keywords repeated throughout the press release were “sustainable pace” and “moderation” which suggests the BOC will take a wait-and-see approach to rate increases in the first half of 2019.
When you combine the effects on the economy from the US-China trade conflict on global demand, sliding commodity prices and oil dropping, you quickly get a sense that the BOC Governor is making sure that his supply of Alka Seltzer is well stocked for 2019. Given that we are primarily an export driven economy, you have to have compassion for a person whose job is to control that which is primarily out of his control! Especially when your de-facto business partner is The Donald.
So what does 2019 look like for interest rates? Scroll down and read how today’s news relates to your mortgage.
Key Points From The Bank of Canada Announcement
- Prime rate remains unchanged at 3.95%
- Global growth starting to temper to 3.4%
- US Growth slowing to a sustainable pace
- Oil prices falling due to trade disputes and rising inventories
- Inflation expected to remain within BOC target range
How Your Mortgage Is Impacted
- Bond Yields are dropping – Fixed rates could follow soon.
- Variable rate mortgages continue to offer more value than fixed rate mortgages
- Rate holds available to just past Star Wars Day! Call me to explain if you’re a Trekkie.
What does this mean for your mortgage?
With the news of growth slowing and the recent stock market volatility, investment money is showing signs of rotating into the bond market which in turn is causing yields to decrease as shown in the chart below. As mentioned in our previous posts, fixed mortgage rates pricing is based on bond yields, so the expectation is that we should see fixed rates decrease slightly. So where are the rate decreases? Good question! My answer: the banks are like squirrels and don’t like to share their nuts until Spring – when nature is in full bloom. Translation: I would expect that early March could be the start of the rate wars. The good news is when those squirrely bankers do offer up their nuts (rate decreases) we can reserve them for 120 days.
5 year Bank of Canada Bond Yield – Note the decrease since November
The Bottom Line:
So with the above in mind what are we advising our clients?
If the motto for real estate is location, location, location – then motto for mortgages in 2019 is going to be planning, planning, planning. With so many economic crosscurrents in play we are seeing some really good opportunities with variable mortgages right now. Having said that fixed rates are getting close to a point where they could be a safer option. Making a clear call on which mortgage term or even which mortgage product to go with, is going to a function of timing + personal financial strength + risk tolerance. To speak to the latter point, my team is now drawing on our investment profiling skills we learned when we’re advising clients on mutual funds back in our banking days.
If you think you have a need for mortgage money in 2019, it’s best we talk now – even if you think it might be in the tail end of the year. As they say – advice is free, it’s hindsight that’s expensive!
Happy New Year!
Make it the best year ever!!
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