Bank of Canada JUMBO cut – 0.5%

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Here are the highlights:

  • Interest Rate Cut:
    • Bank of Canada cuts interest rates by 0.5%, lowering Prime Rate from 6.45% to 5.95%, the fourth consecutive cut.
    • This brings the total rate cuts to 1.25% since June.
  • Economic Indicators:
    • inflation FINALLY within the target range of 2-3% (Sept came in at 1.6%)
    • Employment  still declining on a per capita basis
    • GDP in the back half of 2024 expected to be 1.75%
  • Job Market:
    • Canada gained jobs last month but still not keeping pace with population growth
    • Unemployment is 6.5%
    • ​Young Canadians & newcomers being most impacted by the poor job market
  • Forecasts:
    • Big banks forecast further rate cuts:
      • December rate cut likely
      • Total of 1.25% cuts by the end of 2025.
  • Next Bank of Canada Meeting:
    • Scheduled for December 11th, 2024

Big news out of the Bank of Canadathis morning.  Tiff & his merry band of bankers have followed the US Fed with a 0.5% rate cut.  That brings a total of 1.25% since June & isn’t to be the last.

While a jumbo cut is welcomed news to borrowers, the not so great reality is that they wouldn’t be doing that if things were rock & rolling.

In the release The Bank noted subdued GDP growth in the 2nd half of this year, slightly better for next, but well below the expected 3% global growth.  Declining consumption on a per person basis & soft labour market with unemployment running at 6.5% are clear signs the stifling interest rate environment are too restrictive.

t 6.5% are clear signs the stifling interest rate environment are too restrictive. 

Inflation has finally subsided to fall within the acceptable range with last month’s print coming in at 1.6%, but don’t count inflation totally out for dead.  Commodity prices picked up surrounding the US FED’s somewhat surprising jumbo rate cut last month & bond yields overall being higher than the summer.

There is 1 more rate meeting to close out the year coming up in Dec.  The market is expecting another 1% in cuts by the end of next year.


The next Bank of Canada meeting is ​December 11th, 2024

Bank of Canada Cuts Rates 0.25% – Sept 2024

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Here are the highlights:


Interest Rate Cut:
-Bank of Canada cuts interest rates by 0.25%, lowering Prime Rate from 6.7% to 6.45%, the third consecutive cut.


Economic Indicators:
-inflation has slowed to lowest level in 3 years at 2.5% annualized 
-Employment declined for the second consecutive month
-Q2 GDP grew by 2.1% annualized with population growth at 3.2% (population growth continues to inflate economic growth).


Job Market:
-Canada has been losing jobs
-unemployment at 6.4%
-recent job reports typical of recession.


Population Growth:
-Canada now ranks among the fastest growing countries for population growth
-Our population grew by a record 1.3million people last year, pressuring infrastructure & house supply


Forecasts:
-Big banks forecast further rate cuts:0.25% – 0.5% in cuts for this year.
-Total of 1.25% – 1.75% cuts by the end of 2025.


Next Bank of Canada Meeting:Scheduled for October 23, 2024
The Bank of Canada has CUT interest rates 0.25% this morning for a third consecutive meeting.  This lowers Prime Rate from 6.7% to 6.45% & directly reduces variable rate mortgages & lines of credit. 


This was widely expected after July’s inflation dropped to the slowest level in 3 years at 2.5% annualized & employment declined for a second consecutive month.
 



The sole blip of good news this summer was the better than expected GDP print for Q2.  The economy grew at an annualized pace of 2.1% for the quarter BUT this was all due to continued record population growth.  We increased the number of Canadians by 3.2% while the economy grew 2.1% – losing ground!





There has been A LOT more interest in variable rates over the summer for obvious reasons.  Prime has dropped by 0.75% since June.  What hasn’t changed though is being able to secure roughly 1% lower rates going fixed. 


With inflation very close to target & the economy slowing, more rate cuts are sure to come BUT how many & the pace is the big question.  This is a nuanced discussion that I LOVE having so if your mortgage is coming up for renewal this year, or you’re looking to buy, get in touch today!







The next Bank of Canada meeting is October 23rd.​

For more updates and insights, follow @zupanmortgages on Instagram for daily content.

Bank of Canada CUTS RATES 0.25% – June 2024

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  • Bank of Canada cuts rates 0.25%
    ​
  • They have confidence inflation will hit their 2% target
    ​
  • Growth has stalled in Canada with the economy in excess supply
    ​
  • There are 4 remaining meetings in 2024, and economists predict an additional 0.5% (0.75% total) of rate cuts by the end of the year
  • Lowering rates can be a tailwind for real estate prices as a 1% reduction in rates improves buying power by roughly 10%>
  • For more updates and insights, follow @zupanmortgages on Instagram for daily content


Ladies & gentleman, for the first time in 4 years, the Bank of Canada has CUT INTEREST RATES 0.25%. Cigarette anyone? Man, that was not a ride I think anyone wants to go on ever again.

What I find interesting is if you read the release & leave out the part about cutting rates, you’d never guess based on their description they’d be cutting rates. It’s not exactly a stinky description of our domestic & global economy but for variable rate mortgage holders & those with upcoming renewals, this is a big sigh of relief. Side note, but 76% of all mortgages in Canada are going to be renewed in the next 2 years & that was certainly on the Bank of Canada’s radar. I’m seeing more & more mortgages getting renewed with payment jumps of $1k, $2k / month, and that just takes away money you can spend elsewhere in the economy to keep things flowing.

Overall, the Bank sees inflation easing enough that they have confidence it will hit 2% (what could go wrong?) & with growth floundering & the economy in excess supply, they’re making life just a little bit easier. We have 4 remaining meetings in 2024. Big Bank economists are hovering around 0.5% in additional rate cuts by the end of the year for 0.75% total. No guarantees there but that at least gives an idea of what we might see.

So what happens now? Do we see real estate pick up as buyers who’ve been on the sidelines, hoping to buy before rates really drop, start moving to action? 0.25% makes little difference in what people qualify for but if rates get down by, say, 1% by early next year that improves buying power by roughly 10% so all else being equal that’s a tailwind for prices. It’s going to be a bumpy road down, I am sure, but this rate relief is a welcome treat & is sure to spring my oilers to victory. We’ve been focusing more content on our Instagram page @zupanmortgages. Look us up if you don’t already follow, give us a share & let me know how you’re liking the content as we do our best to keep you up to date.

Bank of Canada Rate Announcement – March 2024 – NO CHANGE

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Good morning,
The Bank of Canada left rates unchanged at this mornings rate announcement.  No major changes to rate cut expectations as consensus is still slating that for June.  There just hasn’t been enough weakness to justify rate cuts & inflation, while coming down, is still not at 2%.
GDP for last year was revised upward to 1.1%, avoiding an official recession, but let’s face it, that has everything to do with the record level of population increase we’ve seen.  You bring in enough bodies, you can juice up demand enough to paint a rosier picture then is reality.
​​​

Mortgage delinquencies in Canada, though still quite low, have risen by more than 50% year over year with Ontario rising 135% & BC 62% over that time frame.  As more mortgages come up for renewal & face the reality of significant payment increases, more Canadians face greater financial stress. 
CPI inflation eased to 2.9% for January but housing related costs are the overwhelming biggest driver of those price increases.

The market is still pricing in 0.75% in rate cuts by the end of this year.  Maybe we get that, but it’s prudent to plan for cuts to start later than expected as that can continues to get pushed out into the future.
If you, or any friends or family, have a mortgage coming up for renewal in the next year, get in touch.  There are specific scenarios where we can find significantly lower rates than what your current lender is offering & these days, every dollar counts.  

Bank of Canada Dec 2023 – NO CHANGE

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Good morning,


The Bank of Canada has left rates unchanged at this morning’s interest rate announcement.  This wasn’t much of a surprise as inflation has continued to decelerate, , unemployment ticking up & real GDP contracting, all in spite of the positive input of strong population growth.  The government of Canada bond yields, which fixed rates are priced on, have been coming down for the last 3-4 weeks. 

What’s really stood out over the past month were comments by Bank of Canada Governor Tiff Macklem.  Addressing the parliamentary finance committee, speaking about inflation, he commented that the central bank could begin cutting interest rates before inflation is all the way back to target.  Cutting rates BEFORE inflation is back to 2%.

Why does this matter?  Central bankers often use statements to guide markets (remember the, “rates will stay low for a very long time” comment in summer 2020 attempting successfully to get everyone to borrow & spend to juice the economy during covid?). 

After basically 2 years of emphasizing the importance of getting inflation to 2% & all the rate hikes to get there, why the shift?  Why, at this point, start opening the door for rates coming down?  Does the Bank of Canada see a future where it is going to be a very long time before inflation hits 2% with an economy that needs help before then?  Is it a positive thing that rates could be coming down if inflation is high?

The short answer is no.  If rates are coming down while inflation is above target that suggests a pretty dire economic picture.

The reality is we’re in a higher cost of living regime.  When you borrow, you’re pulling demand from the future & the government of Canada total debt surged by 84% in the past 5 years.  54% of that debt is coming due to renew in the next 3 years.  You’re either paying for that through growth, higher taxes, or cutting government spending. 

Now, don’t go buck wild on that comment.  Tiff also said loosening monetary policy is still a ways off, but markets reacted on that nonetheless & are still pricing in cuts as soon as April. 

To counter all that, it should be noted real GDP for Q2 was revised up from a 0.3% drop to 1.4% growth.  The upcoming months were also ones where inflation was coming down at this time last year so it wouldn’t be a surprise to see higher surprises with inflation reports, but for the time being rates are settling down into the Christmas season. 

That wraps 2023 for rate announcements.  Have a very happy holiday season & see you in 2024.

Bank of Canada raises 0.25% – July 2023

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Good morning,

The Bank of Canada raised rates 0.25% at this mornings rate announcement.  This is the second consecutive increase after the 5 month pause to start the year. With inflation continuing to ease, the downward path has come more from lower than expected energy prices & less from underlying inflation, with core inflation (when you take out fuel & food) remaining persistent in the 3.5-4% range.

It was this point last year where inflation began to decelerate which will make the 2nd half of this year interesting as we will be facing easing comps from 2022.  The Bank expects inflation to settle to 3% for the next year before gradually declining to 2% in the middle of 2025.  

GDP growth is essentially unchanged however expectations for growth has gone up slightly, due to surging population growth.  Canada’s population grew by 1.2 MILLION in the past year as of Q2.  I know this comes up a lot but it’s a staggering number.  ​

As per the Fraser Institute, Canada’s per person GDP is growing at the slowest rate since the 1930s & the Great Depression.  This isn’t healthy, productivity driven growth.  On the individual level we continue to be worse off.  

Unemployment has risen to the highest level since February 2022.  Business outlook has fallen to the weakest since the depth of the pandemic, but the Bank sees consumer price gains held up by high government spending & strong demand.

The question today is, with inflation continuing to come down, with unemployment rising, with GDP negative on a per Canadian basis, why have we now seen 2 hikes since the pause? Mortgage interest costs are adding nearly a single percentage point to CPI.  

The Bank of Canada cannot control immigration.  They can’t build homes & know that rates at these levels hurt housing supply as developers pull projects & sellers hold off in order to hang onto their lower mortgage rates.  

The Bank of Canada raising rates today is a commitment to crushing the economy & demand.  Considering the heavy handed approach we saw when the pandemic hit, urgently dropping rates to basically zero, then the extraordinary move of keeping rates unchanged as inflation marched well beyond their 2% target as their intention was to “let it run hot,” & now the extreme level of rate hikes & unusual move to go back to raising after pausing, can you really envision a scenario where this ends well? 

We know where this is going, everyone knows how much their spending has changed over the last year & a half.  The painful uncertainty is when we will get there & where will rates be when we get there.
Leading into this meeting, CIBC economist Andrew Grantham said in a recent report they think today’s hike will prove the peak & with rates starting to cut around the middle of 2024.  

So, what should you do?  If you’re in a fixed rate mortgage, raise your payments.  Start preparing for higher rates at renewal & paying down more principal to lessen that potential blow waiting down the road.
If you’re in a variable rate, you can lock in to a rate that’s going to be about the same as what you’re in now, if not moderately better, but doing that takes on a significantly higher penalty risk if you break your mortgage early, takes away the ability to benefit when rates do eventually drop & only really pays off if we continue to get more hikes & rates don’t come down.  

If you’re in a fixed payment variable, know that locking in will raise your monthly payments as your amortization will have to get back on track.  If cash flow is the concern, you’re best off raising payments by enough so that you’re continuing to pay off some principal then reevaluating when the rate cycle turns.  At renewal, assuming you have the minimum 20% equity & qualify, you can always refinance up to 30 years to lessen payment shock if rates are still elevated but if you are able to stomach higher payments you will thank yourself down the road by raising by as much as you can handle now.

Make no mistake, you can’t have the level of debt we have as a country, raise rates by this level, and squeak out a soft landing & avoid recession.  Rate hike cycles end in recession. 

If you would like to discuss any of this please get in touch with me today.  

Bank of Canada Rate Announcement – June 2023 – 0.25% INCREASE

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Good morning,
The Bank of Canada raised rates 0.25% at this mornings rate announcement. This move was a bit of a surprises as, while a potential hike was being floated, markets weren’t favouring an increase at this meeting.  This continues to be a difficult central bank to predict as if you recall, following the last hike in January they indicated their intention was to pause & wait to see how the impact of rates played out & data unfolded.  Something changed over the last month so let’s take a look at what happened & what prompted this big reversal.

First off, inflation. Instead of headline inflation dropping from the March 4.3% to the expected 4.1% in April, it went up slightly to 4.4%. A 0.1% increase obviously isn’t much of a difference but it’s all about expectations & the rate of change, but it’s worth noting that was the first increase in 10 months. 
The irony of that print is the increase was largely driven by higher shelter costs — namely rents & mortgage interest expenses – both results of high mortgage rates.  Rates are high because of inflation.  Inflation is high because of high rates.   
It’s interesting to note that the Bank didn’t really change it’s outlook for CPI.  Same as the last meeting, the expectation was for us to fall to 3% this summer.  Was inflation the reason they raised this morning?  Seems a little thin.  So what else happened? 

On the GDP front, Canada grew by 3.1% annualized in Q1 but basically all of that growth happened in January with 0.5% growth.  February came in at 0.1% & March 0%.
Consumption & demand for services are the points of strength but like we’ve talked about before, when you’re bringing in record numbers of new Canadians each year that is going to support those areas.  If you look at GDP on a per capita basis which is a closer reflection of the reality Canadians are facing, we’re in a recession now. 

On the housing front prices have been going up but not because this is a healthy & balanced growing economy.  House prices have been increasing because we’re still dealing with extraordinary low levels of inventory. Limit the supply of something & prices go up.  Demand needs to fall in turn to extraordinary low levels.  How will we get there with all the new bodies coming in needing places to live?

In the Bank’s financial system review it noted approx 1/3 of mortgages have seen increases in their payments compared to Feb 2022. Considering only 30% of Canadians have some form of housing loan, we can assume only 10% of Canadians have seen a mortgage payment increase & explains a little bit why this massive move up in rates hasn’t had the impact (yet) many would have predicted at the start.

Make no mistake, the Bank of Canada wants the economy to break.  The move today was worrisome as this could very well open up the door to more increases over the summer. On the one hand, more increases would bring us closer to the eventual points of rates going down, but on the other hand the question is how long will it take to get there & what is going to happen in the meantime.

If you’re in a variable rate mortgage, and not necessarily wanting to lock in to your remaining term with your lender but wanting to secure a shorter term fixed for the next 4 months to see what the coming Bank of Canada meetings brings, get in touch with me today as we can still get 2 year rates in the low 5% range but would need to lock that in ASAP before taken off the table.

If you would like to discuss any of this please get in touch with me today.  

Bank of Canada Rate Announcement – April 2023 – NO CHANGE

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Good morning,


The Bank of Canada left rates unchanged with this morning’s rate announcement, as was expected.   They signalled they intend to pause & see how the economy responds to the jumbo hikes from last year so nothing has really tipped the scales in either direction for them to make a move. 

That said, it’s been an eventful month.  Much of the upward rate pressure has been the extremely hawkish talk from the US Fed – the higher they go, the more pressure there is for Canada to raise to support our currency. 

Just over a month ago bond yields started to drop significantly as the stability of the US banking sector came into question.  The 16th largest bank in the US – Silicon Valley Bank – failed as their bond holdings were basically underwater & worth significantly less than what they paid for them.  The mechanics behind that is when rates go up, bond values go down so all the rate hikes lead to a run on deposits, money getting pulled out as there were concerns about the bank having enough assets to pay them out & voila, the bank was shut down. 

They weren’t the only one mind you & there was concern for the regional banking sector overall.  The talk was that further rate increases would make this issue worse & could lead to a full blown crisis but that has since died down.  The Fed raised 0.25% at their last meeting (0.5% was being floated around) & changed their guidance from being committed to “ongoing” rate hikes to “some additional hikes.. maybe.”  Basically, they may raise.  They may not, but overall they are easing off the brakes a bit.  All in all it was a step in the right direction if you’re looking for rates to come down here.

In Canada, employment data continues to be strong & surprised to the upside, although, again, that is one of the most lagging indicators & the last shoe to drop when the economy enters recession.

Inflation continues to ease & the Bank expects CPI to fall quickly to around 3% by mid this year & decline to 2% by the end of next year.  

One of the major challenges in getting inflation down & keeping it down is our recently announced federal budget.  More spending & more debt will not help ease inflation any time soon.  Cutting $500 cheques to help cover soaring prices of groceries does nothing to help bring down prices.  Announcing a new tax free savings account for new home buyers goes directly in opposition to what the Bank of Canada is trying achieve, although I will say, if you qualify for that program, use it & I have some highlights of the program on my website you can check out.  It is a really good program but make no mistake that is stimulus to a housing market the Bank of Canada wants to cool.  All signs of our budget & immigration commitment point to higher inflation for longer.  

In the near term, barring a crisis, there doesn’t seem to be any indication that rates will go up or down.  Bond yields continue to bounce around & at this point it’s not looking like the Bank will start dropping until 2024 but it does look like we’re going to see fixed rates continue to settle lower here. 

That’s it for today.  If you have a mortgage coming up for renewal this year or are looking to buy & want to run your strategy by me, please get in touch as I’d love to hear from you.  Thanks & have a great day.

The New First Home Savings Account (FHSA)

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