As anticipated, this week's Bank of Canada announcement kept the overnight rate unchanged. The Bank expects inflation to hover around 3% and drop below 2.50% later this year, aiming to reach the target of 2% by 2025. Wednesday marked the sixth consecutive "no change" announcement, although speculation persists that we should see rates, specifically Prime, drop by .75-1.00% by the end of 2024. Despite no movement being widely anticipated, it is disappointing that further insight into a housing market reset has now been postponed until the next scheduled decision on June 5th. With unemployment at a 26-month high and GDP underperforming, these are two indicators contradicting the notion of rates remaining "higher for longer".

In light of theIn the wake of today's Bank of Canada (BoC) announcement maintaining the overnight rate at 5.00%, Nest brings you a comprehensive overview of the current mortgage landscape. Prime Rates and payments for variable lending products remain unchanged following this non-rate event, leaving borrowers in a familiar position. While the BoC provided limited insight into the potential timing of interest rate cuts, consensus suggests we might witness the first rate cut materializing in June of this year. Despite the ongoing commitment to restoring price stability for Canadians, a message consistent since July 2023, it is essential to highlight key facets of today's mortgage landscape: 1. GDP: Canada's 4th Quarter (2023) GDP surprised with a 1% annualized growth rate, surpassing expectations. However, beneath the positive headline lies a complex narrative. The growth coincided with a population surge of approximately 430,635 people, equating to a 4% annualized growth rate. On a per capita basis, Canadians appear to be experiencing the intended tightening, a trend persisting in 5 of the last 6 quarters. Per capita GDP adjusted for inflation is now lower than Q4 2014, a noteworthy observation challenging the notion of an economy in need of restraint. 2. Labour: In January, Canada's Labor Force added 37,000 jobs, outperforming expectations, leading to a decline in the unemployment rate to 5.7%. However, a closer examination reveals some finer details. Despite adult population growth of 125,500 people, the labor force expanded by a much smaller 18,200. Additionally, the participation rate for the age group of 15-24 witnessed a concerning decline of 130,000 persons. Without this decline, the unemployment rate would be 0.5% higher. 3. Inflation: Canada's Headline Inflation Number registered below expectations at 2.9%. In the ongoing battle against inflation, there has been significant progress since CPI peaked at 8.1% in June 2022, now comfortably below the 3% threshold. Core measures, though still elevated at 3.4% and 3.3% respectively, are expected to ease further as higher rates prompt more mortgage holders to renew into lower interest rate mortgages. 4. Global Considerations: Economic performance and Bond yields have been influenced by global factors. While global economic growth slowed in the fourth quarter of 2023, U.S. GDP growth remained surprisingly robust and broad-based. Inflation in the U.S. and the Euro area continued to ease, accompanied by a notable rise in equity markets. What's Next? The looming question pertains to the BoC's eventual decision to ease interest rates. The per capita statistics and the intricate state of the Canadian economy are interwoven in unpredictable ways, with the wildcard being the surge in population growth. Inflation, triggered by demand exceeding supply, faces uncertainties on how pent-up demand will respond to rate cuts. The surge in Canada's population, almost double the pre-COVID growth, plays a crucial role in shaping the trajectory of the BoC's decisions. Since October 2023, significant drops in fixed mortgage rates have been observed, likely to persist gradually as markets anticipate rate cuts by the BoC. Current odds indicate at least one rate cut by this summer, and two more to follow before year-end ( market survey ). As we approach the Spring Market, optimism and demand gain momentum. If you've adopted a 'wait and see' approach, now is the opportune moment for a conversation. Preparing before the first rate cut is pivotal, as optimism will inevitably transition to confidence, and housing market activity will return to normal levels.  Next BoC Announcement: April 10, 2024.

In light of the softening of the Canadian economy, the Bank of Canada opted to maintain its overnight rate for the fifth consecutive time earlier this month leaving Prime and variable product pricing unchanged. While "financial conditions have eased," the Bank also highlighted persistent inflationary pressures stemming from ongoing wage growth and robust immigration. This is exacerbated by the housing supply failing to keep pace. The Bank continues to emphasize the need for restrictive policy to bring inflation back within target, yet “the market” is no longer buying it! With subdued core inflation pressures, declining GDP and house prices, and a softening labour market, it is inevitable that the Bank will need to reduce rates to avoid severe economic consequences. Market consensus is the rate-tightening cycle has passed and both new and existing mortgage holders can look to much needed rate reprieve in 2024. Bond yields have dipped more than -100bpts since October, leading to lower fixed rates. Conventional 5-year fixed rates are offered at 5.69-5.99%, with a noteworthy offer of 4.99% for default-insured purchases. As fixed rates have only dropped -50bpts over the same period, expect further discounting in the weeks ahead. THE (MORGAGE) YEAR THAT WAS, AND WHAT LIES AHEAD?

Governor Tiff Macklem and the Bank of Canada (BoC) made the expected decision this week: no change to the Overnight Rate [no change to Prime] . While the Bank has surprised markets in the past, this week’s hold was widely anticipated. What makes this instance unique is the growing body of evidence showing that higher interest rates are leaving their mark on the economy... Unprecedented Data Points: Second quarter GDP figures fell significantly below expectations, contracting by 0.2% compared to anticipated growth of 1.2% to 1.5%. Despite substantial population growth, the economy should be thriving, but it's not. Time Lag of Rate Impact: Generally, interest rates take over 12 months to exert their full influence. In the last year, we've seen a total increase of 1.25% in Q2 2022 and another 1.75% in rate hikes in Q3 2022. The July 2023 GDP numbers are showing the impact of these hikes, with sluggish growth. Consumption and Employment Challenges: Total retail sales have plateaued, especially when adjusted per capita, reflecting the weight of higher interest rates on consumer spending. The unemployment rate has climbed by 0.5% in the last three months, further complicating the economic picture.  What does this mean for mortgages and rates? Inflation is likely to persist at elevated levels for some time, but it won't prompt the BoC to act unless accompanied by a rebound in GDP growth and spending. As disappointing economic data advances expectations of rate cuts, we may experience downward pressure on fixed interest rates sooner than previously forcasted. Experts are nearing a consensus that the BoC has reached its ceiling on rate tightening, with inflation as the last obstacle before easing. In these uncertain times, we are here to assist. Whether you're considering home buying or refinancing for improved cash flow, we can provide the answers tailored to your needs. Please don't hesitate to reach out to discuss your mortgage needs!

Following weeks of surging rates, Canadian bond yields (which directed impact fixed mortgage rates) have retracted below the 4% threshold, shedding 26 basis points from the previous week's 16-year peak — a potentially temporary but welcome development. 

The Bank of Canada (BoC) raised its overnight rate for the 10th time since March of last year, resulting in Prime rate to increase to 7.20%. Recent hikes are becoming increasingly challenging for Canadian borrowers as financial stress persists. Both inflation data and labor markets indicate signs of weakening, with higher borrowing costs being the main contributor to the Consumer Price Index (CPI). Although inflation has dropped from 8.1% to 3.4% over the past year, the BoC suggests “underlying price pressures appear to be more persistent than anticipated,” pointing to the three-month average of core inflation running between 3.5% and 4%. [BoC takeaway] “If new information suggests we need to do more, we are prepared to increase our policy rate further, but we don’t want to do more than we have to.” Nest Summary & Recommendation In terms of interest rates, the Bank of Canada considers a neutral policy rate to be between 2% and 3%. Currently, the policy rate stands at 5%, twice the midpoint of the neutral range. This places us in a restrictive territory, and the full impact of previous rate increases is yet to be felt. Consequently, an economic slowdown is expected, and the likelihood of a recession is high. These observations are not meant to be pessimistic but rather to highlight that a recession would lead to a reduction in the overnight rate, potentially returning it to a neutral or even stimulative level. While a significant drop below the lower end of neutral is not expected, it is reasonable to anticipate a decrease of approximately 2% in the Overnight Rate and Prime lending rates in the coming months and years. The timing and pace of these changes, however, remains uncertain. The most frequently asked question is: What should existing borrowers do with their variable rate mortgages? 5-year (high-ratio) fixed 5.09 - 5.19%* 5-year (conventional) fixed 5.79 - 5.89%* *rates subject to change. While switching to a fixed rate will provide interest rate relief today and guard from future rate hikes, it will not offer savings opportunities from future rate reductions. *It is worth noting that post the BoC announcement of a rate increase, bond yields (which predict fixed mortgage rates) actually dropped, indicating a possible turning point and the peak of higher interest rates. While it is difficult to imagine further rate increases, it remains a possibility. Nevertheless, the market is undecided on pricing in additional rate hikes. For potential homebuyers, the decision between shorter-term fixed rates and discounted variable rates is being weighed. While some trust issues and concerns about variable rates persist, objectively speaking, they are becoming viable options in certain situations. It may be prudent to wait and gather more data to gain a clearer understanding of the direction interest rates are heading. Consequently, longer-term fixed rates (4 and 5 years) are being ruled out in favour of shorter-term (1 to 3 years) or variable rates. Please note that every borrower’s risk tolerance and financial situation is unique. We encourage you to reach out to a Nest Mortgage Specialist to discuss a tailored mortgage strategy specific to your needs!

Expect the Unexpected! There was considerable debate leading up to the Bank of Canada’s latest interest rate announcement . Some economists felt Canada’s central bank would have no choice but to raise rates after the economy grew well above expectations in the first quarter. Most bet the Bank would hold rates steady, at least until later this summer or fall: 24 of 28 economists expected no change for Wednesday's BoC meeting. Two-thirds expected no further overnight rate changes at all this year. The market had priced in a 59% chance of no hike Unfortunately, the market and leading economists were WRONG . The Bank of Canada raised its overnight interest rate +0.25%. This will directly impact the Prime lending rate and variable rate products specifically. Variable rate mortgage payments will increase ~$15/month per $100k of mortgage on average. Bond yields, which directly impact fixed rate mortgages, are up considerably in recent weeks indicating markets believe rates will remain higher for longer. Further takeaways from today’s BoC Announcement "...Underlying inflation remains stubbornly high." Three-month measures of core inflation running in the 3.50%-4% range for several months and excess demand persisting, concerns have increased that CPI inflation could get stuck materially above the 2% target "Consumption growth was surprisingly strong and broad-based..." Canada’s economy was stronger than expected, with GDP growth of 3.1% in Q1 2023 "...Housing market activity has picked up..." "The labour market remains tight." Higher immigration and participation rates are expanding the supply of workers but new workers have been quickly hired, reflecting continued strong demand for labour "CPI inflation ticked up in April to 4.4%..." The Bank continues to expect CPI inflation to ease to around 3% in the summer, as lower energy prices “feed through” and last year’s large price gains “fall out” of the yearly data Where do we go from here? Tiff Macklem and company have expressed dissatisfaction with the prevailing conditions. The economy exhibits higher-than-anticipated growth, accompanied by a resurgence in inflation and a stronger-than-expected labor market. While resilience is generally regarded as positive, it does not align with the objectives of the BoC. Consequently, the decision was made to raise interest rates further.

Inflation in Canada has been high for over a year now, and as it stays up so do mortgage rates (and payments) which, in turn, contributes back to inflation. When it comes to mortgages right now, there seems to be more questions than answers – even for the experts. In this current rate environment, what can homebuyers and homeowners do to reduce the pain of this inflation cycle? We asked Scott Gingles, Mortgage Broker and Owner of Nest Mortgage , for his insights and expert recommendations on a short-term strategy that will best mitigate the impacts of the current rates. Q: Scott, can you provide a high-level overview of the current rate environment and the forecast for rates? Scott Gingles: There is some consensus within the industry on the mid- to long-term outcome, but more uncertainty and questions than ever on what will happen over the remainder of the year. The focus remains unwavering on inflation. Over the past year, the US Federal Reserve and Bank of Canada have increased rates, 500 and 425 basis point respective, at the fastest pace we’ve seen in over 20 years. However, as recently as last week, it was indicated that we are nearing the peak of interest rate hikes – a hopeful indicator for Real Estate and mortgages alike. Q: What’s the greatest risk right now to those looking to renew or refinance their mortgage within the next 6-12 months? SG: The greatest risk lies in qualification and potentially locking in too high, for too long. At mortgage maturity, you typically have the freedom to have a mortgage broker shop the best rates and options. However, many renewing borrowers may not qualify after the ‘mortgage stress test’ was introduced in 2018, and only have their existing lender’s renewal terms available. A household income of $150,000 annually that qualified for about $750,000 in mortgage prior to March 2022, would now qualify for around $635,000, or approximately 15% less borrowing power. Quantitative tightening has resulted in an elevated rate environment. At this point, it’s not a matter of if rates will come down, but when, but unfortunately no one has a crystal ball. Should you secure a long-term fixed rate today, there will likely be a high (IRD) penalty and cost to source a lower rate prior to maturity. Q: What’s the greatest risk right now to those looking to renew or refinance their mortgage within the next 6-12 months? SG: One strategy is debt consolidation, which involves refinancing to pay out higher interest rate cards, lines, and loans. Another is re-amortizing or extending one’s amortization out to 30 years to lower the overall mortgage payment. Lastly, securing a lower rate on a three- to four-year term can also help. Q: What strategy are you currently recommending to homebuyers looking to secure a mortgage in this current rate environment? SG: For new and existing mortgages alike, historically longer five-year terms, both fixed and variable, were the strongest and best rate options available. However, given the inverted yield curve environment, we are recommending a 'near-term strategy' for most of our borrowers. This involves securing the lowest rate possible on a shorter fixed term during near-term uncertainty. “Given the uncertainties and risks of the current environment, we are recommending a three-year fixed term as a near-term strategy for most of our borrowers.” Q: What are the advantages of going with this short-term rate strategy? SG: Securing a three-year fixed term allows us to source a better rate than what is currently offered on a variable and provides a safeguard against payment or interest fluctuation. Yet it also allows for flexibility to source, ideally, a lower rate in the not-so-distant future, versus being locked into a higher five-year term and rate for longer. It’s the first time in my twenty-year career in the industry where the focus on five-year terms has shifted. Rates are poor for the one-year terms, and five years is too long to carry a current elevated fixed rate. A three-year term is the happy medium here. Q: Can you provide a homebuyer scenario based off the average home price in Metro Vancouver? SG: Let's consider an average purchase price of a condo in the Greater Vancouver Area, which is around $750,000. Assuming an 80% loan to value, we would consider a $600,000 mortgage with a 25-year amortization. Prime rate in Canada was as low as 2.45% prior to March 2, 2022, with variable rate mortgages widely available at 1.45%. The payment on a $600,000 mortgage at 1.45% would be $2,384 per month. However, in less than a year, Prime has increased to 6.70%, and the same variable rate mortgage is now offered at 5.70%. A similar $600,000 mortgage at 5.70% today would be $3,733 per month. That’s a 57% increase in the monthly payment. “Securing a three-year fixed term allows for a better rate and provides a safeguard against interest fluctuation while allowing for the flexibility to source a lower rate in the near future.” Q: The Bank of Canada has said that getting inflation back to the 2% target may be challenging due to slowly decreasing inflation expectations, high service price inflation and wage growth, and abnormal corporate pricing behaviour. What’s your outlook on rates for the remainder of 2023? SG: The Bank of Canada is prioritizing disinflation and arguably there is a long way to go before getting back to the 2% to 3% range. Despite long-term inflation expectations being anchored, core inflation is temporarily stuck in a rut, and non-housing services inflation hasn't risen as much as most have hoped. This situation, combined with the uncertainty surrounding the potential for a Canadian recession, makes the future of interest rates even more complex. A looming recession, unprecedented labour numbers, turmoil with banking (especially in US), sticky inflation, global conflict – there is just too much uncertainty and too many questions to predict beyond the near term. “With sustainable decreasing mortgage rates, demand mounting, and supply tightening, we may see another run in real estate that is unaffected by rates.” The current rate environment presents challenges but also opportunities for savvy homebuyers. The real estate supply in Canada is limited, and fear of missing an opportunity to buy at the dip is mounting. By considering strategies such as near-term mortgages, homebuyers can successfully navigate this terrain. As always, it's important to consult with a mortgage professional such as Scott and his team at Nest Mortgage to understand the best strategy for an individual scenario. Reach out to info@nestmortgage.co as we would be happy to review your mortgage needs!

As the market predicted, the Bank of Canada has continued their quantitative tightening increasing the overnight rate by 25 basis points. While this is not good news for variable products, the silver lining is that the market is predicting a pause to further hikes in the near-term. Specific to Variable and Adjustable-Rate Mortgages, Prime will increase to 6.70%. Inflation in Canada remains an ongoing concern, despite having decreased from its peak. As interest rates continue to impact the economy, there are signs of improvement on the horizon. For example, declining energy prices and more efficient supply chains are projected to bring inflation down to around 3% by the middle of 2023. This trend is expected to continue, with inflation reaching the target rate of 2% in 2024. Further summary of today’s announcement ( click full announcement here ) : Global inflation remains high, but is coming down in many countries due to lower energy prices and improvements in global supply chains. The Canadian economy has grown stronger than expected and remains in excess demand, with tight labor markets and businesses reporting difficulty finding workers. Restrictive monetary policy is slowing activity in Canada, especially in household spending and housing market activity. The Bank of Canada expects inflation to come down significantly this year, and is prepared to increase interest rates further if needed to return inflation to the 2% target. In today's mortgage landscape, it is important to review all available options and opportunities: Payment Concerns? One potential solution is to refinance your existing mortgage , as this will provide equity to apply to higher interest unsecured debt. Reducing payments can free up cash flow, allowing for extra payments to be made towards mortgage principal, increasing interest savings. Another option with a refinance is to extend your existing amortization , reducing your overall monthly outlay. Mortgage Renewing? For those with mortgages set to renew in 2023, it is recommended to review and evaluate one's options with a mortgage Broker. As all banks are aggressively competing for new mortgage business, contact a Nest Mortgage Broker with access to over 200+ lenders and thousands of mortgage products to help source the absolute best mortgage available (at no cost to the borrower!). Purchasing or Investing? As the housing market slows and home prices adjust, you may consider purchasing a property at a lower price with a flexible term ( variable or 1-2 year term). Leaving your options open to capture a lower rate 12-18 months from now may be a viable strategy. Reach out to info@nestmortgage.co as we would be happy to review your mortgage needs!