Rate Update – Curves Ahead For Mortgage Rates?
January 24, 2024
CMHC 2024 Housing Market Outlook
April 4, 2024
To no surprise ( but to everyone’s relief ), Governor Tiff Macklem left prime at its current rate. Tiff continued to dispel any sense of optimism about where rates are going in 2024, but if you read between the lines, a rate cut in April could be a possibility.
Key points from today’s update are:
- A slight growth in GDP suggests that Canada has dodged the recession bullet – for now.
- USA inflation figures seem to be under control, however they are showing signs of GDP growth. This mixed signal is probably due to the fact they have 30 year fixed terms on their mortgages.
- Global growth is down, taking the edge off inflation here in North America.
- Wage growth is slowing, and layoffs are increasing. Wage growth is the most challenging component of inflation to control, so this is excellent news.
- Housing Costs still account for the stickiness in our inflation numbers. I always find this fact “interesting.”
Given Tiff’s laissez-faire comment about future rate hikes in 2021—early 2022 (remember those lower for longer comments), it’s a certainty he will not give us a hint of optimism until after he has dropped rates. Even then, I can guarantee you the press release on the day of the rate drop will be peppered with maybes, buts, and possiblys.
So what does this mean for your mortgage?
Expect the bank’s fixed mortgage rates to follow Tiff’s tone. We will probably see some minor decreases in rates for the 2 to 5 year terms, but until we hear some good news from the inflation data AND Tiff, the pace will be more tortoise than hare. The great news is that as rates drop, we can refresh our approvals and capture lower rates, usually up to 3-5 days before the mortgage funding date.
For those with variable mortgages, the good news is coming. Economists expect rate cuts to be a certainty by June/July and that the Bank of Canada will lower rates by 1.5% to 2% in 2024. Hang tight—the cavalry is coming!
A Massive Opportunity For Clients With Current Low Rates
Recently, we’ve been talking to a lot of clients who have a great rate they secured between 2021 and 2022 and need to access the equity in their home, but they don’t want to lose their rate.
Here are three of the most common scenarios we are seeing along with our solution:
Scenario 1 – A family of four has built up credit card and line of credit debt due to increased household expenses and unforeseen events.
The solution: We were able to add a second section to their mortgage without touching the existing mortgage. This lets them keep their great rate and clean up the higher-rate debts. One thing of note with this family is their monthly budget improved so much that we were able to put together an accelerated payment plan so they could pay the debts off even sooner than they originally thought.
Scenario 2: A growing family wants to sell their townhome and buy a house. When they bought the townhome back in 2021, they needed the parents to co-sign to make it work. They now qualify on their own. They want to move to a house but don’t want to lose their rate.
The Solution: This one is like a Disney cartoon – nothing but good news! The first bit of good news is that they can move their mortgage, take the parents off as co-signors and keep the rate. The second bit of good news is that the super-low rate on their existing mortgage is giving them a $140,000 boost on the mortgage amount they qualify for. ( If you want to know how, call me to have a riveting conversation about stress test calculation based on the weighted average of existing mortgage rates factoring in remaining amortization).
Scenario 3: A family is looking to create memorable vacations and is deciding between buying a winter or summer vacation property. Knowing that ( except for Whistler ) vacation homes tend to lag the real estate markets in Vancouver and the North Shore, they feel there is an opportunity to buy now.
The Solution: Like the clients in scenarios 1 and 2, we can add a new section to the client’s mortgage and advance them the funds for the down payment or, if the purchase price is small enough, the entire purchase price. This last bit is particularly helpful if you are buying a difficult property to mortgage, such as a 1/4 share ownership or one that is off the grid.
To say clients are surprised by the outcome of our conversation is an understatement! They are going from feeling worried and hesitant to optimistic and empowered! Realizing that they won’t lose their current mortgage rate AND that it’s a massive asset in getting them where they want to go in real estate is creating all sorts of opportunities for them. Very Exciting!!
If you have any questions about your mortgage and are wondering if it contains any of the features mentioned in the above three scenarios, don’t hesitate to reach out to me via our form on our contact page.
Until then, keep your fingers crossed on the inflation front, and let’s hope for good news from Tiff shortly after this time next month.
The next Bank of Canada meeting is April 10th, 2024
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