Mortgage Rate Update – Tiff Hits The Pause Button

The Bank of Canada ( BOC ) gave us a glimpse of a brighter future by not increasing the prime rate today.

Finally!

The general theme of the press release was that things are developing as expected, with Governor Tiff anticipating an inflation rate of 3% by mid summer of 2023. Though the news is exciting, many “if’s” and “but’s” were sprinkled throughout the press release.

For now, we’ll take the win and look to brighter skies of the coming spring.

So when can you expect to see rates drop?

It’ll take a couple of months before the Big Banks start dipping their toe into the shallow end of the rate pool, but having said that, keep an eye on these key announcements before the BOC’s April 12th meeting.

• • The job figures on March 10th. A surprise to the upside would make Tiff nervous.
  • The CPI figures on March 21st. If this comes in lower than expected, Tiff will have confidence that a trend is forming and will continue with the holding pattern.

Though the BOC didn’t increase the rates, they are still mopping up all the money they flooded the market with over the past two years. The cost of this clean-up shows up in higher mortgage rates in the one to five year fixed rates terms. Once Tiff has wrung out the mop one last time, you can bet the Big Banks will be running to the market with lower rates, like kids crashing the gates of Playland on opening day.

The other factor at play is inflation in the USA. Though inflation may be finally wrested to the ground here in Canada, it’s still an ongoing fight for our neighbours to the South. Unfortunately, this impacts the Canadian bond market, which seeps down to fixed mortgage rates with the Big Banks. Once we get signs that inflation is under control South of the border, this will be the final signal for the Banks to begin their rate wars. And it’s going to be a full out Battle Royale! Mortgage originations have dropped to record lows, and you can bet that by the end of the next fiscal quarter, there will be a LOT of pressure from shareholders to get those numbers up!  

So what are we expecting in the next three months for rates?

For fixed mortgage rates, expect more of the same for the next 45 days. After that point, if all goes according to Tiff’s plan, the rates will start to drop. It’ll be baby steps at first, with the more significant rate drops coming closer to June.  

There is also the potential for variable rate specials to come along the way. I know that sounds like #winning idea at this point, but hear me out. The advantage of going with a variable mortgage is twofold: 1. At this point of the economic cycle, prime has historically dropped before fixed rates have. So you get the benefit of lower rates sooner. 2. You can convert a variable mortgage to a fixed term anytime. This takes the guesswork out of which fixed rate term is best at this point in time. By going with a variable mortgage, you can keep your options open and be ready to take advantage of the potentially lower fixed rates that are coming.

Which option should you choose?

There is no silver bullet solution. We are advising our clients on what term and product to go with on a case by case situation. During our discussion, we factor in three key financial strength measuring points and combine them with the individual’s risk tolerance. If a purchase is involved, we take the above and factor in the opportunity cost of the purchase. It’s a delicate formula perfected from over 20 years of being in the industry.

How is all this impacting real estate?

In a word – get ready! Ok, that’s two words, but the market is getting ready for another leg up. I know that sounds incredibly optimistic, but let me tell you why.

To start, mortgage advisors ( be they Banker or Broker ) are leading indicators for the real estate market. Once people decide to purchase a home, they talk to their broker or banker. As of this week, 5 new applications have come in, 10 new leads are getting ready to apply and 15 people who hit the pause button last year are actively looking again. That is 30 people that have surfaced in the past two weeks. The traffic on my website is also up 120% compared to the previous month, with about 725 unique visitors coming through. Add this all up, and it equals a lot of people are getting ready to enter the market.

But with the news talking about rising bankruptcies, high interest rates and the real estate market dropping, surely it would be best to hold off?

Not at all. I know that’s a bold statement, but you have to get past the noise of the current economic environment and focus on the possibility of the brighter future. Have the courage to leap while others are debating what to do next. Have faith that once you do leap, that you are smart enough to figure it out on the way down. And surround yourself with people who will be the wind beneath your wings and help you rise up to your goal. The profitable decisions are never easy or present themselves in nice gift wrapped packages.… but imagine if you could buy that place you’ve always wanted at a 20% discount today? How good would it feel to know that you beat the crowd without breaking the bank! Let’s chat and see if we can make that happen!

I hope you enjoyed this update, and we’ll have our fingers crossed for continuing this story on April 12th.

The next Bank of Canada meeting is April 12th, 2023

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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.