GTA Mortgage Matters

12/04/2024

Bank of Canada Interest Rate Announcement - December 11, 2024
The Bank of Canada is set to make its final interest rate announcement of 2024, December 11th. After a series of cuts throughout the year, economists are anticipating another reduction, but the question is: by how much?
What to Expect:
*A Likely Rate Cut:** Most analysts predict the Bank of Canada will cut its policy interest rate. This is based on recent economic indicators suggesting a need for continued stimulus to support the economy.
*Possible Cut Size:** TD Economics forecasts a 25 basis point cut, bringing the lending rate down to 3.50%. However, a larger cut of 50 basis points cannot be ruled out, particularly if the Bank feels the economy needs a more significant boost.
*Factors Influencing the Decision: The Bank of Canada will consider several factors, including:
*Inflation:** While inflation has been moderating, the Bank will want to ensure it remains on track to reach its 2% target.
*Economic Growth:** Recent GDP data and the outlook for future growth will play a role in the decision.
*Labor Market:** The Bank will assess the health of the job market, including employment levels and wage growth.

08/22/2024

Aug 22 2024
Most people do not understand that the Bank of Canada Overnight Rate does not immediately affect the fixed mortgage rates. Here’s why:
In the constantly changing world of mortgage financing, it's important to recognize how outside financial factors can affect mortgage rates. A key player in this process is the bond market, both in Canada and the United States. Here's an explanation of how bond yields impact fixed mortgage rates and why staying informed is essential for making sound financial decisions.
What Are Bond Yields and how do they affect fixed mortgage rates?
Bond yields represent the return investors earn from holding bonds. When investors purchase bonds, they are essentially lending money to governments or corporations in return for periodic interest payments and the repayment of the principal at the bond's maturity. The yield is the annual return on the bond, expressed as a percentage of the bond's current market value.
The Relationship Between Bond Yields and Mortgage Rates**: Fixed mortgage rates are closely tied to government bond yields, particularly the 5-year bond yield in Canada. Mortgage lenders often use bond yields as a reference point to set interest rates for fixed-rate mortgages. When bond yields go up, the cost of borrowing increases for lenders, leading to higher fixed mortgage rates. On the other hand, falling bond yields reduce borrowing costs, driving down fixed mortgage rates.
Economic Factors: Several economic indicators, such as inflation, economic growth, and central bank policies, influence bond yields. For example, if inflation expectations rise, bond yields may increase as investors demand higher returns to offset the loss in purchasing power. This increase in yields typically results in higher fixed mortgage rates. Similarly, when central banks signal plans to raise interest rates to fight inflation, bond yields may rise, pushing fixed mortgage rates higher.
Market Sentiment and Risk Appetite: Investor behavior and sentiment also impact bond yields. In times of economic uncertainty or financial market volatility, investors often shift towards safer investments like government bonds. This drives up bond prices and lowers yields. Consequently, fixed mortgage rates may decrease as lenders' borrowing costs drop. Conversely, in a robust economy, investors may seek higher returns from riskier investments, causing bond yields to rise and pushing mortgage rates higher.

The Relationship Between Canadian and US Bond Yields:
Although Canadian and US bond yields tend to move in tandem due to the interconnected nature of global markets, differences in economic conditions and monetary policies can cause variations. For instance, if the US Federal Reserve hikes interest rates more aggressively than the Bank of Canada, US bond yields might rise faster than Canadian yields, potentially widening the gap between mortgage rates in the two countries.

What Does This Mean for You?
Understanding the connection between bond yields and fixed mortgage rates can help you make smarter decisions when it comes to your mortgage. If you're thinking about getting a new fixed-rate mortgage or refinancing an existing one, paying attention to bond yields and economic news can give you a sense of where rates may be headed. It's also wise to work closely with a mortgage professional who can help you navigate these changes and secure the best rate possible for your needs.
In short, bond yields are a critical factor in determining fixed mortgage rates. Staying informed about trends in the bond market can help you manage your mortgage strategy more effectively and make financial choices that support your long-term goals.
Feel free to reach out with any questions you may have.
Paul Mangion

07/05/2024

Canada's economy shed 1,400 jobs in June, marking the second labor market contraction in four months. The unemployment rate increased by 0.2% to 6.4%, exceeding median estimates from a Bloomberg survey. Permanent employees experienced a 5.6% wage increase, although this pace is anticipated to decelerate as the labor market cools further. Consequently, the probability of the Bank of Canada implementing a second consecutive rate cut in July rose, with traders in overnight swaps now estimating a 66% chance of a rate reduction, up from 55% before the data release.

The unemployment rate also rose again

06/05/2024

**Bank of Canada Lowers Key Rate by 0.25% Amid Ongoing Recession Concerns**

Today, the Bank of Canada announced a 0.25% reduction in its key interest rate in an attempt to stimulate the struggling economy. Despite this move, many are still questioning if we're in a recession. The answer is yes. The signs are clear: food prices, home prices, and mortgage rates are all spiraling out of control, placing significant pressure on everyday Canadians.

While the stock market might seem to be performing well, it's important to recognize that this is largely an illusion. A handful of high-performing companies are masking the reality that countless others are facing severe challenges. The prosperity of these few does not reflect the broader economic struggles faced by the majority.

In summary, despite the apparent health of the stock market, the overall economic indicators paint a stark picture of recession, exacerbated by soaring living costs and uneven corporate performance. The Bank of Canada's rate cut is a step towards addressing these issues, but significant challenges remain.

Fixed rates will be coming down soon and the Bank of Canada has a long way to go to a neutral rate. Inflation will continue its downward trend and life may start to get easier for some by next year.

07/12/2023

The Bank of Canada has recently raised its key policy rate to 5.0%, despite a decline in the inflation rate to 3.4% as of May 2023. The decision to increase the interest rate reflects the Bank's concerns about persistent inflation pressures in the Canadian economy. Deputy Governor Paul Beaudry acknowledged that this tightening cycle has been challenging for many Canadians but emphasized the importance of controlling inflation for the overall well-being of the economy, especially for those on low or fixed incomes.

Looking ahead, it is expected that the key interest rate will remain at 5.0% throughout 2023, as inflation approaches the target rate of 2%. However, the Bank of Canada has not ruled out the possibility of further tightening measures. The next official inflation announcement is scheduled for July 18, 2023, which will provide more insights into the future monetary policy direction.

In the future, if inflation is near the target range of 2%, the Bank of Canada may consider reducing overnight interest rates to stimulate economic growth. This potential decision could have a significant impact on the real estate market, as lower interest rates would enhance affordability and fuel buyer demand. Furthermore, factors such as significant immigration in Canada and a shortage of housing stock would contribute to the dynamics of the real estate market, amplifying the effects of reduced interest rates.

04/18/2023

Canada's Inflation Rate Drops to 4.3%, Lowest Since August 2021, as Bank of Canada's Rate Hikes Show Positive Impact
Canada's annual inflation rate decreased to 4.3% in March, marking its lowest level since August 2021, according to Statistics Canada. This decline of almost one percentage point from February's rate of 5.2% indicates that the Bank of Canada's aggressive rate increases over the past year are starting to have the desired effect of curbing inflation.
Despite the positive trend in overall inflation, there was a notable increase in mortgage interest costs in March. StatCan reported that mortgage interest costs spiked by 26.4% compared to the same period last year, marking the fastest pace of increase on record. This could potentially impact households in Canada, offsetting the positive impact of lower inflation rates.
However, lower energy prices helped bring the annual price growth closer to the Bank of Canada's target of 2%. The central bank anticipates that the inflation rate will hover around 3% by the summer and return to the target level by the end of 2024.
Another area that saw an increase in prices was grocery prices, which rose by 9.7% compared to the same period last year, although at a slower rate than February's year-over-year growth of 10.6%.
The Bank of Canada had implemented eight benchmark interest rate hikes over a 12-month period since March 2022 in an effort to combat rampant inflation, which reached a 39-year high of 8.1% in June. However, in its last two announcements, the central bank has not made any changes to its trendsetting rate, with the next decision expected in June.
Overall, while Canada's inflation rate has dropped to its lowest level since August 2021, there are still concerns about rising mortgage interest costs and grocery prices. The Bank of Canada's efforts to tackle inflation through rate hikes will be closely monitored as the country navigates its economic recovery.

02/06/2023

https://www.mpamag.com/ca/news/general/how-much-influence-on-canadian-housing-do-investors-have/435245?utm_source=GA&e=cGF1bEBwYXVsbWFuZ2lvbi5jb20&utm_medium=20230206&utm_campaign=MBNW-Newsletter-20230206&utm_content=3973CE00-EF21-463F-BA09-4029B45F65AA&tu=3973CE00-EF21-463F-BA09-4029B45F65AA
Interesting article. Statscan has released a report that says investors account for 1 in 5 homes sold in Ontario. Also 41% of all condo sales belong to investors. I for one think that it is much higher than 1 in 5 in the GTA. Lets hope all these investors can weather the interest rate storm and not flood the market with listings in the spring. This will help stop the price decline. Cheers

Statistics Canada outlines the demographic's presence

02/03/2023

https://www.mpamag.com/ca/mortgage-industry/industry-trends/did-the-bank-of-canada-mislead-borrowers-on-low-interest-rates/435105?utm_source=GA&e=cGF1bEBwYXVsbWFuZ2lvbi5jb20&utm_medium=20230203&utm_campaign=MBNW-Newsletter-20230203&utm_content=3973CE00-EF21-463F-BA09-4029B45F65AA&tu=3973CE00-EF21-463F-BA09-4029B45F65AA

Why is it that we always look to blame someone for our bad decisions? I do agree that the bank should have started raising rates earlier. I also believe that the Feds should not have printed money and gave it away. How could we expect inflation to stay low when the printing presses were running at full speed? But common sense would tell you that the rise in prices was never going to be sustainable. You did not have to buy the 2nd rental property or new car at inflated prices. You could have waited. This massive rise in prices was fueled by greed, speculation and to a smaller degree fear of being left behind. I always told my borrowers that to really take advantage of low variable rates you should make your payments based on a 5% mortgage. This way if rates start to climb you wont notice and if need be you can start skipping payments since you pre paid so much. If this was not an option for you then you should have been in a fixed rate. Buyers turned the housing market into a casino. What else can you call it when somebody puts 250k down on a property and hopes to break even? If you call that an investment over a speculation then you are a very poor investor. It is those poor investors (or gamblers) that have driven up the prices and it is those people that will drive down the prices at there own expense. This is only just begun and there will be many more victims before this story comes to an end.

Many Canadians who took on mortgages in 2020 are now experiencing financial strain. Who's to blame?

11/09/2022

The job numbers for October were a bombshell report that added 108,000 jobs. This report removes the little clarity we had about where central banks’ terminal rates will eventually end up. The report is causing “quite a lot of uncertainty” from a real estate perspective, according to Axford, with observers unsure how many further hikes will be required.

As a result, it’s difficult to ascertain where the market is heading in terms of pricing and values, he added.
“It’s one of those things where it becomes very sensitive to changes in expectations around interest rates; if people think rates are going to rise by more than they were previously expecting, then that will have an impact on affordability and could potentially have an impact on values and prices.
Conversely, if rates end up being lower than people were expecting, that could lead to higher demand and potential upward pressure on values and prices. So it really depends on how those expectations change.”
One way or another, though, it seems certain that central banks will continue to raise interest rates for the foreseeable future if inflation and job numbers keep rising.

11/01/2022

The Bank of Canada has announced a further 50-basis-point hike to its benchmark rate last week marking a sixth consecutive increase.
The move means its trendsetting interest rate has now spiked by a massive 3.5% since March.
The decision continues one of its fastest rate-hiking cycles on record as it bids to puncture inflation that has swelled alarmingly throughout 2022.
Expectations of a large hike in today’s announcement hardened following the release of figures last week that showed Canada’s inflation rate in September was higher than predicted, at 6.9%.
The Bank’s overnight rate now sits at 3.75%, with one further hike anticipated before the end of the year but CIBC's Benjamin Tal warns moving much higher than 4% could risk triggering a “significant recession."
The final decision of the year will be on December 7th 2022. They are expected to raise rates a further 50 basis points and pause.

07/21/2021

Feel free to reach out for more info.

06/02/2021

Is it time to create a mandatory financing clause?

Would the introduction of a cooling-off period stabilize the market?