It should come as no surprise that many Canadians are watching the current mortgage and housing conditions like a hawk. Our alignment with Mortgage Professionals Canada allows us to bring you current housing and mortgage market trends designed to give you key insights to help you better plan and succeed with all things real estate.
Hawks are wonderful birds known for many stand-out features such as intelligence, hearing, and even speed (fun fact: they are known to reach speeds up to 190 kilometres per hour). But what they are really known for is their amazing eyesight which is about eight times more acute than humans. So with the big story again this month being the relentless rise in Canadian interest rates when the Bank of Canada hiked the overnight interest rate by 50 basis points (bps) on April 13th, it’s no wonder many are hawk-eyed at their next move.
Just a few days ago, Bank of Canada Governor, Tiff Macklem, said in his Opening Statement before the House of Commons Standing Committee on Finance:
It’s important to recognize that there are two issues dominating the Bank of Canada’s thinking right now and help explain why it has an inclination to hike further: Inflation and inflation expectations.
On the inflation front, headline CPI spiked to 6.7% year-over-year in March…the highest rate since 1991. But what’s more concerning is that inflation is still accelerating and can no longer be viewed as a transitory issue related primarily to energy and supply chains. The core consumer price index, which excludes food and energy, has jumped by 1% in the past two months alone. That’s the strongest two-month increase since at least 1992. So much for being transitory! The other concern for the Bank of Canada is that inflation expectations are beginning to rise.
The reason this is such a concern is that when people and businesses expect inflation to remain high, they naturally want to go out and spend their money on goods and services today. For example, a business that needs raw materials may be inclined to stock up on those materials before prices rise further. When that happens across an economy, it means demand runs stronger than it otherwise would, which can push prices higher and in turn create a self-feeding dynamic of higher inflation expectations and higher prices. In that context, this has to be the most concerning chart for the Bank right now.
What it means: We can expect the Bank of Canada to continue hiking rates until both inflation AND expectations of future inflation come back in line with their 1-3% target. At this point, barring a significant shock to the economy, it looks like another four to six rate hikes by mid-2023 are likely. Another reason why working with an Edmonton mortgage team, like Benchmark, can help ensure that your mortgage plan works not only for today’s rates but for what is expected to come in the near future.
Mortgage market update: Big push into variable rates continues: Households continue to pile on debt, with total credit growth now running at 8.4% year-over-year, the highest since 2009: Mortgage credit growth is currently running at 14-year highs, which is probably not sitting well with policymakers…… particularly as we are now firmly into a rate-hike cycle. It wouldn’t be at all surprising if the Office of the Superintendent of Financial Institutions (OSFI) were to tighten financing conditions on second property purchases via higher minimum down payments unless credit growth begins to slow soon. Variable-rate mortgages are currently priced nearly 150bps below 5-year fixed, and that is incentivizing borrowers to opt increasingly for floating rate mortgages. These now account for 55% of new originations and nearly 30% of all mortgage debt outstanding, up sharply from 18% in early 2020.
What it means: While this saves consumers on interest costs, it does leave some of them vulnerable to moves in prime lending rates, which are driven by the Bank of Canada overnight rate.
than before the pandemic. The unemployment rate has fallen to 6.5%, the lowest reading since 2018.
If all of the above info has got you a bit perplexed, fear not! We can break it all down and have a real conversation about what the current market conditions may mean for you and your mortgage. Our locally Edmonton-based mortgage team is here to help. Just reach out and let us know what’s on your mind and we’ll explore all the solutions available so you can have complete confidence in your mortgage strategy.
P.S. Have you heard about our Second Chance Mortgage™? What is a second chance? An opportunity to try something again, a fresh start, or a do-over (or if you play golf consider it a mulligan). If you’re buying a home this year or even if you already have a mortgage, you need to talk to our team so we can outline the right strategy and provide the proper insights on how to succeed with the current market conditions. We have access to a wide range of lenders and know the right questions to ask to assess your situation and make sure you have the best mortgage strategy.
Source: Mortgage Professionals Canada
Source: Bank of Canada
We establish meaningful long-term relationships with clients and help them achieve financial freedom faster with diverse and customized mortgage options. The term “benchmark” originates from the chiseled horizontal marks that surveyors made in stone structures as an established point of reference.
About Mortgage Professionals Canada
Mortgage Professionals Canada is a non-profit, national mortgage industry association representing 11,500 individuals and 1,000 companies, including mortgage brokerages, lenders, insurers, and industry service providers. Our members make up the largest and most respected network of mortgage professionals in the country.