We joke that mortgage brokering is one of the few industries that likes the word recession – brokers and repo-men (sorry, repo-people). When the economy slumps, so too does the Bank of Canada (BoC) lending rate. For all you variable rate holders this is good news, at least in terms of your mortgage. The BoC lowers rates when times are tough to money easier to borrow thus encouraging consumer spending and pump cash into the economy.
So you can imagine that when Steve Poloz – Governor of the Bank of Canada – starts using much more ‘dovish’ terminology with regards to future interest rate hikes, brokers and borrowers across Canada breath a collective sigh of relief.
Our central bank really wants to bring their overnight lending rate to a normal 2.00%, it’s currently sitting at 1.75% but for now they are staying put.
So what happened?
The BoC had been forecasting economic growth in the fourth quarter of 2018 of a respectable 1.30% but when the numbers came in we only saw growth of 0.40%.
This worse-than-expected result represents continued trade uncertainty both with tariffs coming from the U.S. as well as a more generalized uncertainty of future trade between the U.S. and China. Domestically, low oil prices and reduced consumer spending acted further slow growth. Core inflation remains below the BoC’s 2% target. Combine all that with a sharp slowdown in our housing market brought on by higher interest rates and stricter mortgage qualification rules and what you have is an economy that is gently slowing.
Job and wage growth continued to be strong and we are not in recession so it seem like the BoC will be taking a much more wait-and-see approach to further rate hikes. However, it’s likely that if we see any improvement in sectors that caused the current slowdown the BoC will try and proceed with at least one more increase of 0.25% to achieve their desired overnight lending rate of 2.00%.
Until recently we had been advising our variable rate clients to prepare for two more rate hikes in 2019. Based on the most recent info we are now conservatively expecting one more increase in this year, if any at all. Prime rate (the one you care about) currently sits at 3.95%, one more increase would bring us to 4.20%
For any of you coming up for renewal or hoping to get a new mortgage, good news, we are seeing extremely competitive discounting on variable rate products both for new business and on renewal.
All of this to say: Stick with your variable rate mortgage!