09/22/2024
Good News on all Fronts!
Inflation:
The inflation numbers have been on a record pace upward since covid and the main goal for the Bank of Canada is to bring inflation back to a 2% target. Starting in mid 2023, we have seen this come down and as of August the 2% target has been met. This opens the door to reducing rates to ensure the economy does not stall.
Rates:
We have seen some substantial moves in Canada and the US on interest rates. The Bank of Canada has moved the prime lending rate down 50bps in the last 2 announcements and is fully expected to drop another 25bps in the upcoming announcement in Oct. The US counterpart (US FED) started their reductions in Sept with an aggressive 50bps drop in their base lending rate. Indications are that they will follow this with another 50bps in the next announcement. These moves have been the effect of a slowing economy on both sides of the boarder.
We are expecting the rates to continue to move down so anyone moving to renewal in 2024/25, it would be a good idea to look at a shorter term so you can renew the next term in a lower rate environment. I like the 3yr term as you can renew again in 2yrs 8mths with the RBC early renewal options.
As you can see in the graphic below the trend is downward across the board.
Fixed Rates:
With the pressure coming off the prime rate we are also seeing steady drops in the fixed rates. These are controlled by the bond yields and as you can see below, the 2/3/5/10 bonds have all dropped over the last 12 months. The 2,3 &5 have dropped over 30%. We have seen fixed rates moving down with this cost of funds getting more aggressive. The challenges that the banks are facing is the margins on the fixed rates when operational costs get added are very thin, so we are seeing tremendous volatility in the rates. We are expecting these to continue, and we may see Sub 4% rates in the near future.
Home buyers: 30yr amortizations are back!
There have also been some impactful rule changes announced that will help get first time home buyers into the market. The government announced this past week that they will enable first time home buyers to amortize their home over 30yrs. This was removed as an option several years ago and have now announced that they are bringing back. These changes will be coming into effect in December. With the ability to extend the amortization, coupled with the lower rates (reducing the stress test rate) this will increase the purchasing power of first-time home buyers.
This increased activity will have an impact on supply of homes in the market. When supply becomes more constrained, house prices rise. Keep this in mind if you are looking to purchase a new home in the future. Waiting may be costly.
There was a lot to unpack in the last number of months so please let me know any questions you have.
I hope everyone has a wonderful fall!
please reach out with any questions. These updates are provided for the my clients and if anyone you know is not getting this level of service from their provider please provide my or Dean's Contact information and we woudl be happy to assist.
Geoff & Dean
