*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[Slava]

Originally Posted by Fuzz

RBC offered 5.5% interest on savings deposits until August, so I think they are not anticipating a cut.

Yeah but those kinds of things are loss-leaders. You get that rate for like 3 months, up to a certain limit and banking is sticky. So, those funds are still there now that those accounts pay a measly 2.5% (incidentally I was looking at one yesterday).

[opendoor]

Originally Posted by bluejays

I'm not economist but why were people so concerned about x amount of the population having their mortgages coming up for renewal at today's higher rates? When let's say, 40% of the population has experienced the higher rates and have effectively coped, it's fair to say the same should be fine for the remaining 60% (who are going to be experiencing that higher rate), no? I don't understand how this specific part of the population is factoring into the rate cut decision.

They don't really factor into rate decisions, other than the Bank of Canada considering the drop in demand that the higher mortgage rates will lead to.

But in terms of why people are concerned for the renewals in the near future, it's because the disparity between the old and new rates will increase. Until the last 2 years, the majority of fixed rate mortgages were 5-year terms which means most of the fixed mortgage renewals that have happened were originated in 2018 and 2019, when fixed rates were 3-3.5%. I'm an example of that where my rate from 2018 wasn't much lower than my rate in 2023; I think my mortgage payment went up maybe 7-8%. But once we get into 2025 and 2026, people coming off 5-year loans will be renewing from 1.5-2% rates they got in 2020 and 2021. If rates stay at their current level, that represents more like a 40-50% increase in payments.

[bluejays]

Originally Posted by opendoor

They don't really factor into rate decisions, other than the Bank of Canada considering the drop in demand that the higher mortgage rates will lead to.

But in terms of why people are concerned for the renewals in the near future, it's because the disparity between the old and new rates will increase. Until the last 2 years, the majority of fixed rate mortgages were 5-year terms which means most of the fixed mortgage renewals that have happened were originated in 2018 and 2019, when fixed rates were 3-3.5%. I'm an example of that where my rate from 2018 wasn't much lower than my rate in 2023; I think my mortgage payment went up maybe 7-8%. But once we get into 2025 and 2026, people coming off 5-year loans will be renewing from 1.5-2% rates they got in 2020 and 2021. If rates stay at their current level, that represents more like a 40-50% increase in payments.

I get that, but many people have already experienced it and have been able to cope. So as a sample size because the significant population has adjusted on their renewals, the remaining should be able to withstand it as well.


Anyway, to me the government really needs to crack down on investment in housing besides your principle residence. If supply is such a big issue, you penalize investors, issue solved. At least in Toronto, I imagine the investor market is staggering. Anecdotally, friends on mind got jobs 20 years ago right out of high school and invested in houses and now own something like 11. And because it appreciated so much, and because they worked as police or teachers they are now 40ish and can easily retire. While I don't think past performance should be penalized, going forward it should be prohibited in a city like Toronto where there isn't that investment needed.

[Sylvanfan]

I'd argue the opposite that more investment may be needed. Supply needs to be increased, and the costs to the investors need to be lower. The banking system in my narrow minded view is easier for higher leveraged insured mortgages than lower risk options.

My primary residence that had like 7% down got a 5 year fixed for 4.19 last year. The rental which has half as much owing and about 60% of total value owed could get 5.5 on a fixed at best. So my principal which was variable with payment set at 3.5 went up about 8% in payment. My rental which I went variable with saw a 27% payment increase. So with that, taxes, insurance my costs were up 25% and I only passed like 5% of it to the renter, but will up it again this year etc. If my costs were more like the principal residence, the tenants might not have seen an increase. If anything it's smaller investors like my wife and I who will be driven out as it gets harder and big wealthy corporations will end up taking all that share. Who's better for the renter...an idiot like me who likes that they pay the rent on time, take care of the property and will do many minor repairs if I just provide the materials. Or a corporation who sees a balance sheet and says hey we need to fix the revenue problem.

You take risk when you own rentals because you need to keep the house up, and if your renter can't pay you still need to. If you get a bad renter it's not easy to get away from them. So those cops and firemen who accumulated properties thru their 30's are getting rewarded for the risk they took. Toronto type appreciation is pretty rare.

[Sylvanfan]

Originally Posted by opendoor

They don't really factor into rate decisions, other than the Bank of Canada considering the drop in demand that the higher mortgage rates will lead to.

But in terms of why people are concerned for the renewals in the near future, it's because the disparity between the old and new rates will increase. Until the last 2 years, the majority of fixed rate mortgages were 5-year terms which means most of the fixed mortgage renewals that have happened were originated in 2018 and 2019, when fixed rates were 3-3.5%. I'm an example of that where my rate from 2018 wasn't much lower than my rate in 2023; I think my mortgage payment went up maybe 7-8%. But once we get into 2025 and 2026, people coming off 5-year loans will be renewing from 1.5-2% rates they got in 2020 and 2021. If rates stay at their current level, that represents more like a 40-50% increase in payments.

You're far more qualified than I am to comment on this. But I do anticipate a lot of mortgages will be extended by term to manage payments. So in the end people pay longer and more interest to eventually own their home. As I said the principal residence payment increase for me was more manageable, similar situation to yours. But I do feel like I'm getting squeezed out of owning any other properties.

It's funny one day you read a report where one economist says 4 rate cuts over the next 12 months. The next day job data is stronger than expected and another one is saying they might hold rates at the next meeting. I'm starting to think these higher rates will stick around a bit longer yet.

[opendoor]

Originally Posted by bluejays

I get that, but many people have already experienced it and have been able to cope. So as a sample size because the significant population has adjusted on their renewals, the remaining should be able to withstand it as well.

But very few people have experienced the increases we'd see in 2025 and 2026 if rates stay where they are. Absorbing a 10% increase in mortgage payments like people renewing mortgage from 2018 and 2019 have had to so far is very different than absorbing a 40-50% increase like people who are renewing 2020 and 2021 mortgages would have to if rates remain higher. So the fact that we haven't seen calamity stemming from those 10% increases doesn't mean that the 40-50% increases wouldn't have a wider effect.

Anyway, to me the government really needs to crack down on investment in housing besides your principle residence. If supply is such a big issue, you penalize investors, issue solved. At least in Toronto, I imagine the investor market is staggering. Anecdotally, friends on mind got jobs 20 years ago right out of high school and invested in houses and now own something like 11. And because it appreciated so much, and because they worked as police or teachers they are now 40ish and can easily retire. While I don't think past performance should be penalized, going forward it should be prohibited in a city like Toronto where there isn't that investment needed.

On its own, that would help reduce purchase prices, as people buying a house to live in wouldn't have to compete with investors. But it wouldn't really help the rental market and may even reduce supply there over time because investors fronting money for pre-sales is often needed to make projects viable. Probably the best way to approach it would be to incentivize purpose-built rentals while making property investment in other housing units less attractive.

[opendoor]

Originally Posted by Sylvanfan

You're far more qualified than I am to comment on this. But I do anticipate a lot of mortgages will be extended by term to manage payments. So in the end people pay longer and more interest to eventually own their home. As I said the principal residence payment increase for me was more manageable, similar situation to yours. But I do feel like I'm getting squeezed out of owning any other properties.

It's funny one day you read a report where one economist says 4 rate cuts over the next 12 months. The next day job data is stronger than expected and another one is saying they might hold rates at the next meeting. I'm starting to think these higher rates will stick around a bit longer yet.

Yeah, I think people will generally find a way to make it work, either through refinancing to longer terms or cutting out basically all of their discretionary spending. Selling a house is usually a last resort, though if we do see a recession with significant job losses, people may not have a choice.

But people with 2020 and 2021 mortgages were stress tested at the rates we're seeing now, so unless their income has materially changed for the worse, they should be able to afford the higher rates.

[Harry Lime]

Originally Posted by Slava

The jobs numbers today were higher though. This reduces the likelihood of a June rate cut. I feel like the markets (overall, Canada and the US) got overly excited about a rate cut and started pricing in numerous cuts. In reality though, the economy is in good shape and people are tolerating these rate cuts. The rush to cut rates just doesn’t seem to be there, although we’re closer in Canada than the US.

The jobs numbers were higher, at 90K, but the jobless rate remained stagnant. This is because the creation of jobs has to equal or exceed 90K a month in order to keep up with immigration.

The last two years we have severely underperformed in job creation vs. immigration. So, yes , making the minimum is a big step forward, but that's only in relation to how piss poor we have been at it.

[bluejays]

Originally Posted by opendoor

Yeah, I think people will generally find a way to make it work, either through refinancing to longer terms or cutting out basically all of their discretionary spending. Selling a house is usually a last resort, though if we do see a recession with significant job losses, people may not have a choice.

But people with 2020 and 2021 mortgages were stress tested at the rates we're seeing now, so unless their income has materially changed for the worse, they should be able to afford the higher rates.

I don’t even know about that. There are three year variable mortgages taken in 2020 and 2021 and those have come up for renewal and those were lower. I’m not pushing for high rates or lower rates. Certainly lower rates help all of us, but in many ways I question certain logic that’s mentioned in the media. Plus I don’t think bank of Canada’s major purpose is to appease the mortgage market. Isn’t it primarily around investing in the country and when to attract foreign capital around imports and exports?

[Slava]

The BoC mandate is pretty mundane, but in the US the two main concerns are inflation and unemployment. Canada dresses this up as economic well-being, so I suppose you could argue a pretty wide swath of things would fall into that category.

[blankall]

Originally Posted by bluejays

I don’t even know about that. There are three year variable mortgages taken in 2020 and 2021 and those have come up for renewal and those were lower. I’m not pushing for high rates or lower rates. Certainly lower rates help all of us, but in many ways I question certain logic that’s mentioned in the media. Plus I don’t think bank of Canada’s major purpose is to appease the mortgage market. Isn’t it primarily around investing in the country and when to attract foreign capital around imports and exports?

The government and BoC are also likely to introduce a bunch of measures to increase amortization lengths. That should prevent a lot of defaults.

[GGG]

Originally Posted by blankall

The government and BoC are also likely to introduce a bunch of measures to increase amortization lengths. That should prevent a lot of defaults.

Hopefully they only do it for existing mortgages. Increasing term length on new buyers just increases upward price pressure.

[Bill Bumface]

Originally Posted by GGG

Hopefully they only do it for existing mortgages. Increasing term length on new buyers just increases upward price pressure.

I swear we tried this and learned it was awful 15 years ago. Short memories I guess.

[calgarygeologist]

Originally Posted by Bill Bumface

I swear we tried this and learned it was awful 15 years ago. Short memories I guess.

The longer terms are great for investors. When I bought my rental condo it was back when $0 down, 40 year mortgages were available and it was really nice to have very little cash exposed upfront and low monthly payments spread out over a long period.

[Bill Bumface]

Originally Posted by calgarygeologist

The longer terms are great for investors. When I bought my rental condo it was back when $0 down, 40 year mortgages were available and it was really nice to have very little cash exposed upfront and low monthly payments spread out over a long period.

Temporarily. The bar for investment was lowered, so more people flooded in, and prices just went up to cover the difference.

People shop for houses based on what they qualify for/pay each month.

This is a great way to help banks make more money while doing absolutely nothing for affordability.

[Sylvanfan]

Originally Posted by calgarygeologist

The longer terms are great for investors. When I bought my rental condo it was back when $0 down, 40 year mortgages were available and it was really nice to have very little cash exposed upfront and low monthly payments spread out over a long period.

There are both pro's and cons to this. For the investor low up front capital and with interest being tax deductible the longer amortization is easier to handle. But it also puts upward pressure on prices as payments look low.

I might be okay with allowing 30 year amortization to renew a principal residence. But I would rather see the mortgage rates on places with more equity have rate discounts to incentivize people to pay them down.

[bizaro86]

Originally Posted by GGG

Hopefully they only do it for existing mortgages. Increasing term length on new buyers just increases upward price pressure.

I'd like a bit of FYGM in the housing market also.

[GGG]

Originally Posted by bizaro86

I'd like a bit of FYGM in the housing market also.

This is the opposite.

Existing owners benefit from the loosening of financing requirements for new buyers because it increases the maximum loan amounts which increases demand at a given price point which increases prices.

[chemgear]

June cut?

https://financialpost.com/news/econo...cut-economists

With inflation cooling to a three-year low in April, some economists are now all but guaranteeing that the first interest rate cut of the Bank of Canada‘s tightening cycle will come in June.

On Tuesday, Statistics Canada reported that Canada’s annual inflation rate fell to 2.7 per cent in April, down from 2.9 per cent a month prior.

Andrew Grantham, executive director of economics at CIBC, said the data “provided the all clear” for the Bank of Canada to begin cutting rates.

[Paulie Walnuts]

I lost the link, but someone said if we don't start cutting rates soon we face a recession.