This morning, December 6th, the Bank of Canada (BoC) announced that it will maintain the interest rate at 5.0%, marking the third announcement with no change since the last increase in July. However, the BoC started easing the tone on the possibility of future rate increases. They do not exclude the possibility of increasing rates, but they do see the previous increase working as intended, reducing the likelihood of future hikes. The next BoC meeting will be held on January 24th 2024.
Inflation is now at 3.1% and economic growth is now at negative 1.1% . The BoC's target for inflation is 2.0% with a range of 1 to 3%. So we are almost there. The economy is no longer in excess demand, so it is just a question of time before inflation goes back to normal. Now the big question, when are the rates going to be cut. The BoC did not give us any clues, but they think that rates are high enough to bring inflation back to target. However, the bond market is pricing cuts in the second to third quarter of 2023 (April to September). The bond market is back at the level from May 2023. This is the same level as before the last 2 hikes of June and July. It is therefore possible that the BdC will cut rates by at least 0.5% before the end of 2024. We are now seeing the fixed rate going down from their peak. As of today, the best rate advertised is 5.44% for a 5-year fixed insured rate. Fixed rates have room to go down some more because in May the 5-year fixed insured was 4.99 - 5.25%. So, I expect banks to wait after the holiday season to go to their lowest level unless bond yield continue to drop.
This is excellent news for your mortgage. There has been no change. If you are pre-approved, it is more likely that you have a fixed rate instead than a variable rate, so you may qualify for a little more than you were. If you are still searching for a property, please contact me for an update. This is also good news for incoming renewal. Yes, there will still be a payment chock because most people will see at least a doubling of their interest rates, but this is better than 3x. There are solutions to avoid your payment to go 40% up at renewal, but every customer is different, so every case will have to be looked at individually. If you have a renewal in the next 4 months, please contact me sooner rather than later.
For those considering purchasing, I suggest getting pre-approved now. With fixed rate trending lower. We might get a repeat of last spring, when rate hit in the mid 4%, the inventory (number of property for sale) dried up quickly and bidding wars became normal. The short-term effect on property values is likely a price stabilization or if rates continue to go down, prices might start creeping up again. I don't expect a significant price movement for now because of the holiday season, but the 2024 spring market might come earlier than expected.
To make an appointment with me for a pre-approval:
To make an appointment for a followup or for another topic (Renewal, refinance):
Sincerely,
Simon Bilodeau
Mortgage Broker
DLC-Mortgage Negotiators
604-828-9864
simon@refinancebc.ca