Another Rate Drop, But Are We Done?
January 29, 2025
Uncertainty Reigns: What the Bank of Canada’s Pause Means for Your Mortgage
April 16, 2025
March 12th, 2025
As a preemptive strike, the Bank of Canada Governor Tiff Maklem decreased the prime rate by 0.25% today to stave off, what looks like, a pending recession.
This marks the 7th rate cut since June 2024, and according to economists, if the trade war persists, it could be followed by several more until prime reaches sub 4% by July.
I don’t know about you, but the past 5 years have felt like an emotional and economic marathon.
Just as we were starting to round a financial corner, with inflation behind us and the finish line in sight, we are now thrust into a trade dispute. It’s almost like we’ve been teleported back to the start line and have to run the race again!
Compounding the collective feeling of financial exhaustion for Canadians is that our government is more focused on rearranging the deckchairs on the Titanic vs resolving the issues brought on by a petulant President.
But as the saying goes – Never Let A Good Crisis Go To Waste, so instead of focusing on how uncertain the current times are, I’m going to look for the opportunity!
Before we dive into the opportunities, here is a summary of today’s press release:
Key Points From The Press Release
- Inflation expected to increase to 2.5% in March
- Job growth has stalled in January
- Consumer and business spending has sharply dropped
- The US economy is showing signs of slowing
How your Mortgage Is Impacted
- Bond yields have dropped, but banks are hesitant to pass on the savings given the inflation uncertainty.
- The retreat of both consumer and business spending could be a key driver for future decreases in the prime rate.
- Shorter term fixed rates ( 1 to 2 year terms ) could start to lower in the coming months, while 3 – 5 year terms remain range bound until the economic fallout of the trade war becomes clear.
Spotting the opportunities:
Breaking your high rate mortgage:
If you’ve purchased or refinanced in 2023, you’re probably wondering if it makes sense to break out of your mortgage and take advantage of lower rates? With rates now 2% lower than they were in 2023, it can make sense, but if short term fixed rates start decreasing, that window might close. If you would like my team to do the calculation, click here and we can see if that’s an option for you.
Condos:
Currently, there is an oversupply of condos. In a recent webinar with CIBC economist Benjamin Tal talked about how there is a significant number of condo projects completing this year. And because the condo investment landscape has completely changed from when the units were purchased, many people are completing and immediately turning around and selling at a loss. This will change in 2026 because high interest rates over the past couple of years have halted new developments, which will create a supply shortage. Bottom line – if you are thinking of purchasing a condo, now might be the perfect time.
Tariff impact on BC to be negligible:
According to BC Real Estate economist Brandon Ogmundson, given that manufacturing is not our primary business in BC, the impact of tariffs should be negligible. The opportunity this could create is if the BOC keeps lowering rates, this could increase buyers’ purchasing power, leading to bidding wars. The caveat with this thought is consumer confidence. If buyers keep their finger on the pause button due to the 24/7 reporting of economic uncertainty across the rest of Canada, the market will remain as is.
The Bottom Line:
Though we got another rate cut today with the hint at more in the future, fixed mortgage rates remain sticky. The reason is that the big banks are reluctant to chase the lower bond yields given the mixed message from the Bank of Canada. And if the trade dispute drags on, bringing inflation with it, the big banks will be on the hook to fund those mortgages, even though their costs have increased.
Given the economic cross currents we are monitoring our options with each of our lender partners and having deep conversations with our clients to ensure they are positioned to take advantage of market shifts now, and in the future.
If you have any questions about your current mortgage or are wondering if now is the time to make a buying decision, don’t hesitate to contact me. You’d be surprised the clarity you can gain in a 20 minute conversation.
Enjoy the upcoming spring break; April will not bring too many showers!
The next Bank of Canada meeting is April 16th, 2025
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