This morning, October 26, 2023, the Bank of Canada (BoC) announced that it will maintain the interest rate at 5.0%, marking the second announcement with no change since the last increase in July. On the other hand, the BoC continues to say that it reserves the right to increase rates if inflation starts to increase again.
Inflation started to fall again in September and is currently at 3.8%. The BoC's target is 2.0% but at least we are moving in the right direction. The BoC expects to reach the target towards the end of 2024 or early 2025. At the moment, inflation, if we exclude mortgages and rents, is below 2%. It is therefore correct to think that the BoC is the cause of a portion of the inflation measured at the moment. For example, a mortgage of $500,000 at 2% over 25 years in 2021 cost $2117/month, today at 5.85% the same mortgage costs $3155/month, an increase of 49%. For people making purchases, the cost per month is very different. For all rental property owners who have seen their mortgage cost change by almost 50%, they are obviously going to charge higher rents. In Canada, there are approximately 100,000 mortgages per month that need to be renewed. Which means that there are 100,000 families who find themselves with payment increases of around 30% (2018 rates were around 3.2%). So every month the economy will slow down a little more. The number of renewals will remain relatively stable, but will start to increase next year to peak in 2025-2026 (5 years after the record years of 2020 and 2021). It is therefore very possible that we saw the last increase in July, but the BoC will not admit it. They want to prevent the markets, particularly the real estate market, from coming back to life like last spring.
This is excellent news for your mortgage. There has been no change. If you are pre-approved, it is more likely that you will have a fixed rate than a variable rate, so there is no change to your qualification amount either.
For those considering purchasing, I suggest starting sooner rather than later. Fixed rates have finally stabilized at a 22-year high. The effect of these higher rates on property values is still young, but we are seeing a slight downward trend in property prices. I don't expect a significant price movement because inventory (the number of properties for sale) is low and there are enough buyers at the moment to maintain de prices.
Sincerely,
Simon Bilodeau
Mortgage Broker
DLC-Mortgage Negotiators
604-828-9864
simon@refinancebc.ca
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