BC’s New Tenancy Notice Periods To Impact Mortgage Approvals
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Slow and Steady, But For How Long?
September 4, 2024
July 24, 2024
The Bank of Canada lowered the prime lending rate by 0.25% this morning, marking the 2nd rate cut for 2024. It’s been a topsy-turvy ride since the Bank of Canada’s last meeting. However, recent economic data gave Governor Tiff Macklem the comfort level to lower rates.
In today’s press release, the following factors contributed to the rate cut decision:
Decline in CPI from 2.9% in May to 2.7% in June.
Wage growth slowing.
Global economic conditions slowing – specifically in the USA.
Household spending continues to decrease.
Here are the inflationary items that Tiff and Co. are keeping an eye on:
Housing Cost:
Is still a significant contributing factor to our inflation numbers, but it will ease as rates lower.
Service Sector:
Prices for services, especially those closely tied to wages, such as restaurants and personal care, remain elevated. Labour costs significantly impact these sectors, which still contribute to inflation.
Population Growth:
Though the Government has introduced new limits on non-permanent residents, the surge of new Canadians will continue to add pressure to our housing market.
Immediate Impact on Rates:
With Governor Tiff hinting at further rate cuts, banks’ costs of funding mortgages should start dropping this week. As of this morning, the Government of Canada 5-year bond rate has broken through its current price range and is heading towards its December 2023 lows. If next month’s economic data cooperates, the big six banks could finally have the comfort to lower fixed mortgage rates during August and September.
Today’s announcement will reduce your monthly payment by about $15 – $16 per month for every $100,000 of mortgage balance for those of you with a variable rate mortgage. For lines of credit you can expect a reduction $2.10 per $10,000 of balance outstanding.
Though I don’t have a crystal ball, as a mortgage advisor, I’m positioned at the nexus of people’s financial confidence, lender’s risk appetite, and real estate price trends. When combined with my 20 years of experience, potential patterns start to become noticeable.
What the future holds for Real Estate – 5 Trends I’m Seeing:
Applications are increasing: The number of new client inquiries has increased by a factor of 5 this past month, suggesting an interest in purchasing.
Consumers are confident: Unlike the market crash of 2008, the new inquiries I’m receiving are confident that buying real estate is a sound financial decision.
Lenders are not tightening guidelines: This point is critical. When lenders feel there is excessive risk in the real estate market, they will tighten up the purse strings and decline more files. We haven’t seen any signs of this, which bodes well for future buyers.
Daily Specials: It may sound like I’m referring to your local cafe, but I’m referring to your local bank! Given how evasive our current Bank of Canada Governor has been, banks have found it incredibly difficult to price fixed-rate mortgages. The workaround is they have been reviewing the pricing on each mortgage separately – on a daily basis. The trick is you have to ask for the pricing review! Not many mortgage advisors realize this and haven’t been asking for this pricing review exception. It’s been standard practice for our team for the past 24 months.
No sense of urgency: The current market conditions have lulled buyers into a sense of comfort I haven’t seen in decades. With the summer market being slower than usual and rates potentially lowering in the coming months, the feeling is why rush – everything will be cheaper tomorrow.
As I’ve said for several posts now, there is a unique opportunity in the market to get ahead of the pack. Once we see a total rate decrease of 1%, buyers will rush to the market, which will eat through the real estate inventory at lightning speed, bringing with it the return of multiple offers and price increases. If you’ve considering purchasing, the window of opportunity is closing.
What this means for your mortgage:
Though Governor Tiff is lacking the courage to provide guidance on future rate cuts, you can expect the bond market ( which mortgages are priced off of ) will start reading deeper into every piece of economic data that comes out in the next few weeks. The good news is that bonds will anticipate where inflation is going and react now without waiting for Tiff to make his rate announcement.
With that in mind, I’m hoping that by mid-August, we could see rates gradually lowering and the pace of rate cuts accelerating in the fall. Keep in mind that where fixed rates will end up will be, at best, similar to 2017 to 2018. Sub 2% mortgages were a once in a lifetime anomaly, but fingers crossed, I’m hoping we’ll see mid- to high 3% by this time next year.
With respect to mortgage term selection, we are still guiding clients on a case by case basis. Household budget, job stability, risk tolerance and life goals all factor into our advice, making it difficult to offer a one size fits all suggestion here on our blog. With that in mind, we encourage you to reach out to us if you have a mortgage need or question. You would be surprised at the clarity you gain after a 20 minute conversation.
Have a wonderful summer, and hopefully, I will be writing about another rate cut in September!For now, enjoy the sunshine and life in this beautiful city!
The next Bank of Canada meeting is September 4th, 2024
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