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Market news, economic insights, mortgage strategies & tips. For all things mortgage, come enjoy our blog!
Market news, economic insights, mortgage strategies & tips. For all things mortgage, come enjoy our blog!
No rate change at this morning’s Bank of Canada interest rate announcement & no significant change to the outlook.
What most people want to know is where rates are heading & the forecast is still late 2022. The key word to hang on there is forecast. Forecasts are often wrong.. in Jan of this year the Bank expected the economy to contract in Q1 & it grew at an annualized rate of 5.5%. For Q2 the expectation was 2.5% growth & we saw a contraction of 1.1% annualized. For those interested the swaps traders are pricing in 1 rate hike in the next 12 months & 2 more over the following year which has come down from July.
The not-so-silent-killer, which is getting talked about more & more, is inflation as the 3.7% reading is the highest of the last decade. There are record long wait times for raw materials. Canada’s Farm Product Price Index rose 24.4% YOY in June which tied for the highest reading since the high inflation of the 70s. Prices of just about everything are going up.
So how does inflation relate to your mortgage? I can say with confidence that all of your mortgage rates are lower than inflation, which is actually a good thing from a borrowing perspective. That means you’re paying back the money you borrowed with dollars that are becoming less & less valuable. You essentially have a negative rate mortgage. Some of your debt is inflating away without having to do anything. That gives you an opportunity you can play 2 ways:
With the conservative approach, you’ll become debt free quicker, better insulate yourself from market corrections (although following covid it’s hard to see policy makers letting markets crash), but may not benefit from growth in risk assets.
With the higher risk approach, if we continue to see inflation at these levels or higher, your net worth can grow a lot quicker but you do run the risk of your investments performing poorly & being left with a slower path out of debt.
These are the conversations you should be having about your finances & if you could use some help or direction, please get in touch as I have an excellent financial planner I can put you in touch with.
This went longer than usual but I’m just getting more & more questions on this topic so hope you found it helpful & please share to anyone you think will benefit from watching this : )
The Bank of Canada came out with their rate announcement this morning & have kept rates unchanged, shocker! To put this in context the Bank has stated they will not look to raise rates until 2023. That’s what they’re saying. What could change that?
Well, remember that little thing by the name of inflation that for the last year I’ve saying is one of the more important factors to watch? It’s picking up. Commodities have been on a tear, housing is soaring & we’ve certainly noticed an increase in our monthly bills. Fixed rates, which are based on the government of Canada bond yields, have increased significantly in the last 2 weeks. The bond market generally does a good job at front running the economy & things, for now, are better than expected.
Keep in mind there is a great incentive in the powers that be talking down inflation while it slowly creeps up on everything b/c it allows debt to be inflated away as that debt becomes worth less. That’s known as a soft default. You’re not NOT paying your bills, your paying back bills that aren’t worth as much. The risk in talking down doing that is if all of a sudden the market realizes this they could be a sharp increase & shock which could end up being recessionary.
The Bank highlighted inflation is at the lower bound of its 1-3% range & expects it to move to the top end in the next few months but sees that slowing down as the excess capacity in the economy exerts downward pressure. Will they make it to 2023? I have no idea but will be watching it closely.
Thanks for watching & have a great day.
The Bank of Canada kept rates unchanged today in their scheduled rate announcement. The economic rebound in Canada has been better than expected but as we now face a second wave, much of the current outlook is dependent on how covid plays out here at home. Housing has been strong. Personally I’ve seen a lot of clients migrating from the downtown core to places like Victoria, the interior & further out in the lower mainland. Working from home is something many are taking advantage of by upgrading for space.
Of course these record low mortgages rates are a big reason for housing’s strength so how does the interest rate forecast look currently? Officially, the Bank of Canada has said they don’t expect to be raising rates until after 2022. They want to hit a 2% inflation target before moving to any increases & they expect inflation to start to pick up slowly early next year.
The Bank is also continuing its bond purchase program, which suppresses yields (and interest rates). I wanted to include this chart as it really illustrates the eye popping balance sheet growth of Canada’s central bank compared to others around the world since the pandemic started.
Currently our central bank owns 1/3 of our federal debt… so we’re generating debt then buying our own debt. Yes this is something many central banks are doing globally, but as soon as inflation expectations pick up, that means more bond buying is required (so more increases to the balance sheet) in order to keep interest rates from rising. It can turn into a vicious cycle where the end result does not fare well for our currency & the cost of goods.
I don’t think we’ll see much of a change in outlook until the end of this year but we have one more rate announcement coming up in December so will update you then.
That’s it for me today. Thanks for watching & have a lovely Wednesday.
Good morning! This morning our new Bank of Canada governor, Tiff Macklem, carried through with his pledge in July to keep rates at this level for at least 2 years & left rates unchanged at this morning’s policy announcement. Central banks around the world seem committed to letting inflation run hot by keeping rates low. Let’s not forget that low rates has most certainly NOT created meaningful inflation for the last few decades, so what would be different about this time around?
Following 2008 the massive amount of money supply creation (which pales in comparison to what we’ve seen in the last 6 months), went almost exclusively into propping up financial assets. What’s different this time around is a commitment to the fiscal side & putting money into the hands of the ppl & the economy, not just wall street. Governments are creating debts, then printing money to pay for those debts. What could go wrong?
On a recent CNBC interview one of the greatest & most successful investors of the last few decades, Stan Druckenmiller, came out saying for the 1st time in a long time that he is actually worried about inflation & that we could easily see 5-10% inflation in the coming years. Ironically, he also pointed out the rising risks also going the other way towards deflation, as every period of deflation is preceded by an asset bubble. With companies are soaring 30%, 40%, 50% on news of stock splits (which add zero value to a company), when bankrupt companies are seeing their stock prices double while their bonds are trading at a few cents on the dollar, when sports bloggers like Dave Portnoy are calling Warren Buffet washed up while they tout the mantra of stocks only go up, it’s hard to argue we are in anything but a mania driven bubble.
So we have 2 risks – deflation & inflation. What does that mean for your mortgage?
Fixed rates are incredibly low right now. You can lock in rates at or under 2% for the 1st time in Canada’s history. Could mortgage rates go lower? Yes. Could they go negative? No. Are we already very close to zero? Yes!
Now on the flipside to that, could inflation impact the central bank’s commitment to keeping rates low? Yes! Could we see a major breakout of rates from this multi decade downtrend towards zero? Yes! Historically have inflation breakouts taken shape quicker than most expect? YES!
The way I see it, mortgage rates are incredibly attractive right now. They could go a bit lower, but they could also go A LOT higher. What impact would having a mortgage rate that’s 0.5% lower have on your life? What about a rate that’s 2% higher?
These are some of the questions I’m having with clients right now & if you’d like some help mapping through these scenarios, please get in touch.
I’m Ryan. Thanks for watching. Have a great day.
Good morning, the Bank of Canada kept rates unchanged this morning with their scheduled rate announcement. From the Bank’s release, the severe impact of Covid appears to have peaked & the gargantuan policy response has helped replace lost income & cushion the effect of the shutdowns. Right now the Bank’s forecast is for a sharp, partial rebound followed by a slower grind back to pre-crisis levels. The grind part of that being the key element.
Let’s remember that policy response was more life support than it was stimulus. Debt, which was already at high levels pre-covid, is giving up future consumption for greater consumption today. Unless that debt is used to create a new income stream that will help pay for that new debt, then it creates a drag on future cash flows. If I take out a mortgage to buy a vacation property, then those payments are going to take away from what I can spend my money on & invest with otherwise. If I use that financing to buy a rental property, I can acquire that asset without my monthly consumption being as impacted. The economic gravity of what has happened in Canada & around the world the past few months is something that will weigh on us for a long time.
What can you do? If you’re able, use this as an opportunity. Take advantage of low rates by creating another income stream, or by reducing your current debt load. If neither of those are options & you are one of the millions turned upside down from has been the worst financial event in anyone’s memory, think about what you can do moving forward to help keep you brace for the unexpected.
I was thinking last night how, through most of my life, it has felt like we have been on a linear path of progress & of course, life is not linear. Life is cycles of booms & busts, bright times followed by dark times. Winston Churchill said never let a good crisis go to waste. Find a way to emerge from this stronger than you were before. If that means taking government help, education, a career change, using technology to improve productivity, re evaluating your monthly budgeting, investing, spending more time with loved ones, find a way to use this situation as a learning experience. It is clear we have entered a darker time as humans. Crisis’s happen & are happening more often than ever in our lifetime. Find a way to better brace for the unexpected.
I’m Ryan, glad to be clean shaven again & to have a reason to iron my dress shirts. I hope you have a great day.
Here is a link to the Bank of Canada release.
Good morning, the Bank of Canada had their scheduled rate announcement this morning & after dropping rates 3 times for a total of 1.5% in rate cuts in the span of 3 weeks, held rates as is. Not that there is much room to move here as the key lending rate is a hair above 0%.
What we saw in the last month was rates hitting all time lows, then bouncing sharply as lenders started seeing rising risk premiums & a higher cost of funds. That’s really an indication of trouble behind the scenes. The feds acted quickly in setting up a number of measures to help liquidity & get rates back in line with where they should be & we are starting to see that take effect now as rates have started to trickle downwards once again.
Couple items of note, Canada started up our own form of Quantitative Easing in buying $5B worth of government securities per week, as well as allocating $10B to purchase corporate debt. That last move is significant. One of the criticisms of how the US handled the great financial crisis was their bailing out of what were essentially bad investments. The question of moral hazard is one to be asked at all levels. In a world of bailouts, what happens to risk? Does it go away, or does it become a slippery slope where bailouts get bigger & bigger as they have in the US? What is the endgame?
Some pretty staggering stats in the last month:
The challenge now facing everyone, is how to open up the economy without putting strain on our healthcare system. There is no great solution to this, at least not yet, but when that happens the question will be if pent up demand is able to bring our economy roaring back.
I’m going to link to the most current info on how to apply for mortgage deferral below, but wishing you all good health & luck in getting through this dark time in our history.
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City Wide Mortgage Services – Zupan Mortgage Services (E, & O, E.).