Bank of Canada Increases Prime again Sept 2017
Many of us were surprised today when Bank of Canada Governor Stephen Poloz announced another increase in the Prime rate raising it to 3.20%. This means that your mortgage rate has likely risen by the same .25%.
The Variable rate mortgage has consistently been an excellent choice because of the savings weve generated compared to the 5 year fixed rate. Those savings have not dissappeared because of a slight increase over the past few months. The variable rate mortgage still has a spread of .40-1.20% compared to the prevailing 5 year fixed rate of 3.39% today. Meaning it is still not the right time to convert to a fixed term. That being said I would be happy to discuss your specific situation.
The recent increase in interest rates is a result of the stronger than expected performance in the Canadian economy. The year over year Canadian GDP (Gross Domestic Product) jumped 3.6% in the first quarter of 2017, to 4.5% in the second quarter. This growth rate exceeds the predictions of the Bank of Canada.
You wouldnt be wrong in assuming that the Bank of Canada is pumping the brakes on our economy. The growth was unexpected by almost all. Last month in August 2017 there was a slight dip in manufacturing numbers and unemployment continues to be low. Canada actually has the best performing economy in the entire G7, and that is factoring in the downward pressure on housing, and lower oil prices. Todays increase put prime back to where it was in January 2015 just before the crash in Oil prices.
So what will happen with housing? Well I believe that you will see a continue softening of values. The likely result of todays rate increase will likely cause housing market to decrease by another 5 to 10 percent. I estimate a more normal 3 - 7% annual increase in home values beginning next year. The days of 20% year over year price increases are done for now. And that is a good thing.
When you got your Variable Rate Mortgage we did a stress test. Even a mortgage at Prime today is still about 35% lower than what we used to Qualify you for your mortgage. So please dont worry about affordability. You can expect an increase in the interest portion of your mortgage of approx 25 dollars per 100k per month. Its not money anyone wants to spend, but it is still a far better deal than a fixed rate.
I hope this information has been of value to you. Please feel free to reach out to me directly at email@example.com or by cell at 905 334 9111.
Almost no annual growth for national HPI
The national HPI has grown at a below-inflation rate of 0.5% over the last 12 months, the smallest gain since November 2009. Moreover, the fact that monthly gains are reported for May and June does not mean that the market recently turned the corner. These two months typically register the strongest growth rates in a year. Indeed, the two latest rises were among the weakest in history for months of May and June. If seasonally adjusted, the national HPI would been down in both months this year. However, the weakness is not regionally broad-based. The national HPI was dragged down by 12-month home price declines in Western Canada metropolitan areas (Vancouver, Calgary, Edmonton and Winnipeg) and a tiny increase in Victoria. In Central Canada and in the East, home price growth ranges from decent to strong (left chart). This is consistent with the state of home resale markets. For example, the Vancouver market turned favorable to buyers at the end of last year, while the Toronto market remained balanced and Montreal’s market has never been this tight since 2005. That being said, a rebound in home sales recently occurred in Canada which was also felt in the largest Western metropolitan areas. This should help limit home-price deflation in these areas.
The Teranet–National Bank Composite National House Price Index increased 0.8% in June, a second gain in a row after an eight-month string without a rise.
On a monthly basis, the index rose in 8 of the 11 markets covered: Winnipeg (0.1%), Quebec City (0.3%), Montreal (0.8%), Toronto (1.3%), Halifax (1.5%), Hamilton (+1.6%), Victoria (+2.1%) and Ottawa-Gatineau (+2.2%). The index was down in Calgary (-0.1%) and Vancouver (-0.3%), and flat in Edmonton.
From June 2018 to June 2019, the Composite index rose 0.5%, the smallest 12-month gain in ten years. The HPI declined in Vancouver (-4.9%), Calgary (-3.8%), Edmonton (-2.6%) and Winnipeg (-0.4%). It was up in Victoria (0.3%), Quebec City (1.5%), Halifax (2.7%), Toronto (2.8%), Hamilton (4.8%), Montreal (5.4%) and Ottawa-Gatineau (6.3%).
Source: National Bank Financial Markets; Marc Pinsonneault
NORTHERN STAR (FOR NOW...)
In contrast to the US, Canadian growth is accelerating sharply going into the second quarter, following a solid gain in domestic demand to start the year.
Fast, and accelerating, population growth, and remarkably strong employment growth are providing a solid underpinning to consumer spending and the housing market.
Positive export data suggest that the ongoing strength in domestic demand will be buttressed by net exports in the second quarter, and possibly beyond.
Canadian inflation is at the Bank of Canadas target, in sharp contrast to the US, where it has moved away from the Feds objective. This gives the BoC room to keep rates on hold if inflation remains on target.
Downside risks remain important and are all linked to US-centric developments, with worries about US trade policy ongoing despite the pause with China.
Recent Canadian developments stand in sharp contrast to events in much of the rest of the world. Whereas US growth is clearly decelerating, Canadian growth is on an upswing, with recent indicators pointing to a very sharp rebound from a somewhat sluggish start to the year. Canadians appear to be, for the time being, largely insulated from the broader malaise facing the global economy as consumer and business confidence has improved sharply in recent quarters, owing to strong sales and job creation. While there are a number of factors suggesting that the growth rebound observed will persist through 2020, there is a risk that a divergence between Canadian and US outcomes may not last.
Source: Scotiabank Economics