This morning the Bank of Canada increased their overnight rate by 0.50% (or 50 basis points). This means that the Prime Lending Rate is now 5.95%. While this isn't awesome news, most of us were expecting a 0.75% rate increase, so it's a somewhat pleasant surprise (I'm always the optimist!). Are we out of the woods yet? Will rate hikes stop? In listening to the Bank of Canada press conference this morning with Governor Macklem and Senior Deputy Governor Rogers, we should expect further rate hikes as the economy is still overheated, driven by such things as job shortages as well as global supply issues. Will we see rate hikes like 0.50% or 0.75% down the road? He didn't rule it out but did say that the hope is that they can raise by 0.25% as opposed to the bigger hikes. He quotes, “We are getting closer but are not there yet. We want to restore price stability for the benefit of all". Core inflation has steadily declined for the past 3 months but they need to see more. However it is good to hear that we are seeing clear signs that the economy is slowing. They expect zero growth for the first 3 quarters, possibly negative growth. They expect slight growth near the end of 2023. This will allow supply to catch up with demand. It was asked if they expect a recession. He did state that a contraction is not out of the question. In my mind, it seems to be the inevitable outcome with the rapid increases this year. The message to Canadians? They know that inflation is hurting all Canadians, and while they know that raising rates hurts everyone as well, it is the only way to slow demand and relieve price pressures. Basically, its sucks but is necessary. The full press conference can be viewed here: https://www.bankofcanada.ca/multimedia/press-conference-monetary-policy-report-october-2022/?utm_source=twitter&utm_medium=social&utm_campaign=FADMPR221026 What does this mean for you? If you are in the market to buy a house, don't let the rates stop you. One of the real estate professionals posted the other day on this subject and I loved their perspective: Usually when rates go up housing prices go down. So while your rate is higher, because the property value is lower, your monthly affordability costs don,t actually change that much! There is always opportunity in every market, and if the time is right for you lets see what we can make happen! If you're in a fixed rate mortgage and are coming up for renewal in the next 4-6 months, we should talk about your options. If you want to take a fixed rate I would suggest short term. Maybe 1-2 years. Based on what the educated guesser are saying, I would think fixed rates will come down in that period of time. The rate announcement today it further solidifies this belief. If you are currently in a variable rate mortgage, you can look at locking in to a fixed rate mortgage now. I am hesitant to suggest this to you as I suspect you might not be thrilled if you lock in today and rates are lower in 6 months to 1 year. Remember, if you are in a fixed rate mortgage and those rates go down, if for any reason you need to payout that mortgage early the penalties can go through the roof. So, before you make any decision let us help you weigh out the pros and cons.
Reach out to me or my team with questions...
Renee Stribbell, Shelly Shapiro and Mary Juneau