Rate Update – The Beginning of The End?

The sun is shining, the birds are singing, and the Bank of Canada decreased the prime rate by 0.25% this morning. 

Could life in Vancouver get any better?

Governor Tiff Macklem felt that there was sufficient evidence to ease off on pressing so hard on the economic brakes. The bond market’s immediate reaction was a 0.1% drop in rates, adding to a total rate drop of 0.4% this week.

So the big question is, are we done with inflation yet? And the bigger question – how fast do we expect the rates to drop over the coming months?

First, let’s dive into today’s press release and the data that gave Tiff the confidence to start the easing cycle.

• GDP Growth was slower than expected at 1.7%
• Consumption of goods is running at a sustainable 3%
• All components of core inflation ( except for housing ) are slowing
• Wage pressure seems to have subsided
• Global inflation in advanced economies is currently averaging 3% and slowing.

Overall, the data points to downward momentum in the economy. Now that rates are about to come down, housing, the last holdout in inflationary pressure, should fall into line. Note: I’m referring to mortgage payments, not housing prices.

So where will rates go from here?

Don’t expect any major decreases – for now. I’m anticipating that the lenders will want to see another round of economic data before they start cutting rates.  What consumers don’t realize is that since March the cost of funds for the lenders went up by 0.6%. Over three month time frame, only a handful increased rates.  

So what should we keep an eye out for?

The US economy is the real driver of rates in Canada. When we see signs of inflation cooling down South, that will lead to stability in the bond market here in Canada. And because lenders fund their mortgages via the bond market, that will translate into lower costs for them. 

Stimulative government spending on both sides of the border is another issue at play. Tiff has diplomatically said a number of times that he keeps trying to put out the flames of inflation while the federal government keeps adding fuel to the fire.

So what should we be doing with our mortgage?

If your mortgage is coming up for maturity, time is on your side, so don’t rush into signing that renewal. As more and more economic data comes in, expect the mortgage market to get very competitive, particularly with quick closing specials.

Regarding what term I’m recommending, there is no one size fits all solution. As of today the minimum term I recommend is 3 years and the longest is 5 years. That said, in some cases going with a shorter term makes sense when factoring in other sections of existing mortgage components or mortgage maturities on other properties. Which is a big part of the mortgage planning conversation that I dive into during STEP 2 of our 4 STEP process.

The Bottom Line:

We can finally breathe easier knowing that we are at the beginning of the end of this inflationary cycle. Mortgage planning and rate strategy will be vital to maximizing household budgets and getting everyone fiscally back on track in 2024.

For now, enjoy the sunshine and life in this beautiful city!

The next Bank of Canada meeting is July 24th, 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.