I was listening to a New York Times podcast on how inflation can be a self-perpetuating prophecy. The main tool that the Bank of Canada (BofC) has in managing inflation is by increasing the overnight rate; however, what they don’t want to create is hysteria that inflation is going to be a long-term ongoing issue. Many of the economic indicators assume we’re just in a hot spot right now. 

The unexpected 1% increase in the overnight lending rate in June was a surprise increase by the BofC; and we’ll likely see another increase in September. However, the very important five-year bond yield which drives fixed mortgage pricing is lower today than when the BofC made its announcement. We’re actually seeing lower five-year fixed rates on mortgages than we were before the rate hike of 1%.

As reported in Ben Rabidoux’s regular Edge Analytics reports (edgeanalytics.ca), for those looking for inflation to ease, consider these points:

  • June inflation reading was the highest since 1983, but was lower than expected and the monthly seasonally adjusted numbers slowed to 0.6% from 1.1% previously. Inflation has been trending downward in the US and that’s a good sign. 
  • The price of factory goods (industrial product prices), does a great job of predicting inflation trends for the future. This is great as it just posted the largest decline since April 2020 

When rates have increased recently, the goal of the Bank of Canada is to reduce inflation. The way increasing the rates helps to do this is by generating more fear around a recession than the fear that was surrounding inflation. The BofC will be increasing rates until people fear a recession more than they fear inflation. And with the massive decline in consumer confidence, it looks like they are accomplishing their mission. 

Nonetheless, there are some interesting opportunities that are coming up in both real estate and mortgage lending. Here are some ideas for you to capitalize on the current landscape:

MORTGAGE RENEWALS coming up in the next six months: Don’t Wait!

We’ve seen a slight relief in 5-year fixed rates as the government of Canada benchmark bond yield is down (reminder – bond market impacts fixed rate mortgages). We can secure a fixed rate for you today and either hold it for 120 days or look at early renewing the mortgage. Lenders will allow you to capitalize up to $3,000 of penalties and discharge fees into the mortgage for early renewals.

While variable-rate mortgages are still attractive; if you choose a Variable Rate Mortgage, ensure that your budget can sustain the rate increases. Both fixed and variable rates are comparable now and so both should be considered. We walk through these options with our clients. 

FIRST-TIME BUYERS Get Your Pre-Approval Rate Locked In And Keep Looking

While the most drastic declines on home values will happen in large urban centres like Toronto and Vancouver, we’re seeing opportunities for first-time buyers to purchase in Guelph, the Waterloo Region and the surrounding areas across Southwestern Ontario.

Many first-time buyers who thought they’d never get into the housing market; now have the opportunity to purchase once again. We’re recommending that if you have good credit; employment and a decent down payment, now it a good time to purchase. We’ll likely see prices increase again in the coming months as people get used to higher interest rates. Unemployment is still at an all-time low, and when people are working, they’re buying homes.

Remember – we’re here to help and we enjoy having conversations about your mortgage financing needs! Please schedule an appointment here or just email me at Lastovic.s@skipthebank.ca to book a free virtual call.