Good morning,

The Bank of Canada left rates unchanged at this mornings rate announcement so no changes to your variable rate mortgages or lines of credit.  Some interesting points to take note of: the Bank is ending it’s Quantitative Easing program.  Basically, that’s a form of tightening.

The other change is walking up their forecast for raising rates.  For much of the pandemic the talk was raising rates in 2023.  Over the previous couple announcements, that was bumped up to late 2022 & is now sitting at mid 2022. 

What’s driving that?  Inflation.  The Bank expects inflationary pressures to stay elevated into next year & ease back to around their 2% target late 2022.  

Energy prices aside, a lot of what’s driving inflation are pandemic impacted services.  It’s been a challenge to fill job openings at the low end of the economy as people were paid to stay home, meanwhile a lot of people are sitting on more cash than usual & aren’t as concerned paying $5 more for a haircut or $8 more for lunch.  Demand is up, there’s a lack of labor, people have the money so we see higher prices & that is expected to be a covid related problem that will dissipate over time.

On the other hand, look at, say, energy prices.  With the green movement there has been a serious lack of development in that space.  Of course, we all still need energy so the cost is higher & that isn’t something that will dissipate so quickly.

Every economic recession was lead by a monetary policy error.  The thing to consider with inflation is that it is a lagging indicator.  It is telling you something about the past, not the future.  If you’re basing policy decisions off of the past, you’re late.  Central banks tend to panic & raise rates too much, too quickly & too late & I think that is the risk to housing & the overall economy. 

On real estate, fundamentally there is still a lack of supply generally speaking in Canada.  Supply takes years to fix so the risk to prices going down is rapidly rising rates. 

That covers today’s summary.  If you’d like to talk more about what higher rates could mean for your mortgage, please get in touch & have a great day.