*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[Izzle]

IMO another thing that folks fail to contemplate is this: variable rates work 70% (caveat: I don't know what the true percentage is, whether 60%, 70% or 95%. The important point is that it's not 100%) of the time. They don't contemplate that, what if now is the very few times that fixed is better?

It's like Anchorman: 70% of the time variable beat fixed, everytime.

[tvp2003]

Originally Posted by bizaro86

You don't want to cancel it. You've already spent the premium (it is exactly 0% refundable) and you'll get a better rate with insurance than without it, since the government is guaranteeing your mortgage.

This is true in a sense, but not what a lot of people probably think. The insurance guarantees the mortgage for the lender. In other words, if you end up underwater in your mortgage and the bank has to foreclose on your house, the insurance will make the bank whole, but the borrower can still be liable for any shortfall that the insurance had to cover.

So unlike a conventional mortgage, you can’t just walk away from an insured mortgage because you’ll still be on the hook for any shortfall. In Kiran’s case it won’t be an issue because of what has already been paid off (along with property values increasing), but it’s worth mentioning because I had no idea when we bought our first place that this was the case…

[bizaro86]

Originally Posted by tvp2003

This is true in a sense, but not what a lot of people probably think. The insurance guarantees the mortgage for the lender. In other words, if you end up underwater in your mortgage and the bank has to foreclose on your house, the insurance will make the bank whole, but the borrower can still be liable for any shortfall that the insurance had to cover.

So unlike a conventional mortgage, you can’t just walk away from an insured mortgage because you’ll still be on the hook for any shortfall. In Kiran’s case it won’t be an issue because of what has already been paid off (along with property values increasing), but it’s worth mentioning because I had no idea when we bought our first place that this was the case…

For sure, the only advantage to the borrower going forward is that the guarantee to the lender means you can generally get a better rate.

[MillerTime GFG]

I had the absolute privilege of listening to Benjamin Tal speak yesterday at the National Mortgage Broker conference. He's the Deputy Chief Economist for CIBC, and one of the most respected economists in the country. Guy is brilliant, and a good speaker too.

Highlights:
- "If you give the BoC 2 options - recession vs. inflation, they will choose recession every time"
- Expect a 50bps increase to 3.75% this month, and potentially another 25bps later this year before leveling off, which he does expect to be the case.
- He believes BoC will be overshooting the increases with the next two, "but show me a Central Banker that has the guts to pump the brakes while inflation is still peaking." Thinks anything over 3.75% overnight rate is overshooting

- 55-60% of inflation is caused by supply chain, which is starting to show real signs of improvement/softening
- Wage inflation a real area of focus. Low paying jobs showed the most significant job loss through Covid. Lots of people used this time to change industries completely. It's taking time to get and train new employees
- While low paying job loss was so significant, those entering the job market are more highly educated, with higher salary expectation, so there is a gap here. Most retirees are low paying jobs as well. "Low pay job inflation" --> pressure is coming from the bottom

- 400,000 immigrants to Canada in 2021. This is 6x that of the US. 70% of those were already in Canada. This means the Government is encouraging those on student VISAs just to stay, and get their PR
- Lots of immigrants, but not enough homes, and building costs are going up

- Down payment gifts and co-signing were at all time highs during Covid
- This I found the most interesting of his entire presentation: The BoC will stop before the Fed. We have more household debt than the US, to the point where a 1% increase here would be the equivalent of a 2% increase in the US.

- He is in frequent meetings with the BoC and straight up told them "not to overshoot". Again believes they'll stop at 4%, but they will not be cutting rates in 2023.
- Rates will come down in 2024, but with the new norm for the overnight rate being 2.75-3%, whereas it was 1.75% pre-covid

Other info I learned from another speaker:
- 6% of ARMs (adjustable rate mortgages) have converted to fixed in the last 6 months. Surprisingly low, BUT, this is almost double the statistical average of 3-4%

[Fuzz]

They really do need to keep the rate higher, at least 3%, so they have room to drop them when the next crisis hits.

[blankall]

Originally Posted by MillerTime GFG

Other info I learned from another speaker:
- 6% of ARMs (adjustable rate mortgages) have converted to fixed in the last 6 months. Surprisingly low, BUT, this is almost double the statistical average of 3-4%

This would fit with the expectation of a 1ish% increase, followed by levelling off, and finally a decreasing. Given the spread between variable and fixed right now, there's no real advantage to fixing unless you think things will go up substantially more than 1%.

[afc wimbledon]

Originally Posted by Fuzz

They really do need to keep the rate higher, at least 3%, so they have room to drop them when the next crisis hits.

yes and also encourage less reckless consumer spending, the whole economy needs a shake out

[fundmark19]

Originally Posted by afc wimbledon

yes and also encourage less reckless consumer spending, the whole economy needs a shake out

Inflation down a bit more to 6.9%. We are at least trending in the right direction. https://www.cbc.ca/news/business/can...tion-1.6621413

[blankall]

Originally Posted by fundmark19

Inflation down a bit more to 6.9%. We are at least trending in the right direction. https://www.cbc.ca/news/business/can...tion-1.6621413

Supply chain issues are expected to persist for at least another year. Unless that's dealt with, there's no way to deal with inflation.

I've already noticed a change in consumer habits though. People are just spending less. Certain goods, like clothes and shoes, are already much easier to come by.

[opendoor]

Originally Posted by blankall

Supply chain issues are expected to persist for at least another year. Unless that's dealt with, there's no way to deal with inflation.

Of course there is, demand just has to match supply for things with elasticity in demand. If the supply of new cars is 10% below equilibrium, but then demand drops by 15% due to monetary policy and economic conditions, then supply is no longer an issue.

And this is showing up in the data. Container shipping prices from Asia to the west coast of North America have now dropped by 85% in the last year (and about 80% in the last 4 months) because demand for goods has been dropping as inventories build up.

[Zarley]

Originally Posted by fundmark19

Inflation down a bit more to 6.9%. We are at least trending in the right direction. https://www.cbc.ca/news/business/can...tion-1.6621413

Don't worry , it's only transitory!

[opendoor]

Over the last 4 months, inflation in Canada has been 0.5%, which is an annualized rate of ~1.6%.

The year-over-year number will continue to be high no matter what happens because of the inflation from March-June of this year, but the monthly data is showing a relatively quick decline. This shows how much the start of the year is impacting the current annual numbers:

https://twitter.com/user/status/1582726827495546880

[chemgear]

So by mid next year the 12 month window will be basically flat(ish) calculation wise?

[blankall]

Interesting. So it's not an ongoing rate of inflation. It's just a total estimate of price increases over the last year, with things leveled off over the last four months. So you could say that inflation is already back to normal.

[PeteMoss]

Originally Posted by MillerTime GFG

I had the absolute privilege of listening to Benjamin Tal speak yesterday at the National Mortgage Broker conference. He's the Deputy Chief Economist for CIBC, and one of the most respected economists in the country. Guy is brilliant, and a good speaker too.

Highlights:
- "If you give the BoC 2 options - recession vs. inflation, they will choose recession every time"
- Expect a 50bps increase to 3.75% this month, and potentially another 25bps later this year before leveling off, which he does expect to be the case.
- He believes BoC will be overshooting the increases with the next two, "but show me a Central Banker that has the guts to pump the brakes while inflation is still peaking." Thinks anything over 3.75% overnight rate is overshooting

- 55-60% of inflation is caused by supply chain, which is starting to show real signs of improvement/softening
- Wage inflation a real area of focus. Low paying jobs showed the most significant job loss through Covid. Lots of people used this time to change industries completely. It's taking time to get and train new employees
- While low paying job loss was so significant, those entering the job market are more highly educated, with higher salary expectation, so there is a gap here. Most retirees are low paying jobs as well. "Low pay job inflation" --> pressure is coming from the bottom

- 400,000 immigrants to Canada in 2021. This is 6x that of the US. 70% of those were already in Canada. This means the Government is encouraging those on student VISAs just to stay, and get their PR
- Lots of immigrants, but not enough homes, and building costs are going up

- Down payment gifts and co-signing were at all time highs during Covid
- This I found the most interesting of his entire presentation: The BoC will stop before the Fed. We have more household debt than the US, to the point where a 1% increase here would be the equivalent of a 2% increase in the US.

- He is in frequent meetings with the BoC and straight up told them "not to overshoot". Again believes they'll stop at 4%, but they will not be cutting rates in 2023.
- Rates will come down in 2024, but with the new norm for the overnight rate being 2.75-3%, whereas it was 1.75% pre-covid

Other info I learned from another speaker:
- 6% of ARMs (adjustable rate mortgages) have converted to fixed in the last 6 months. Surprisingly low, BUT, this is almost double the statistical average of 3-4%

As someone who does financial statement forecasting... these bank economists know more than pretty well anyone.. but their future predictions tend to leave a lot to be desired.

[PeteMoss]

Originally Posted by blankall

Interesting. So it's not an ongoing rate of inflation. It's just a total estimate of price increases over the last year, with things leveled off over the last four months. So you could say that inflation is already back to normal.

Its also impacting food more of late (for whatever reason) - so people are seeing on their grocery bill which is one those indicators that slaps people in the face (like when gas prices rise) so it's noticeable now while something like housing prices dropping by a bit doesn't really get noticed by people who aren't closely watching that market (particularly when they are coming down a bit from a super high point)

[blankall]

Originally Posted by PeteMoss

As someone who does financial statement forecasting... these bank economists know more than pretty well anyone.. but their future predictions tend to leave a lot to be desired.

These are the exact same people who, a year ago, were telling Canadians to get massive mortgages as interest rates would stay very low for a long time.

[opendoor]

Originally Posted by blankall

Interesting. So it's not an ongoing rate of inflation. It's just a total estimate of price increases over the last year, with things leveled off over the last four months. So you could say that inflation is already back to normal.

The big caveat is that a lot of what's keeping overall inflation at a normal level the last 4 months has been declines in energy prices compared to earlier in the year, which isn't going to continue indefinitely. So if non-energy prices keep rising while energy levels off, then we have inflation again.

At the same time, energy affects basically everything, but its impact isn't necessarily felt immediately in terms of consumer prices. So a lot of the prices for goods now are based on energy, raw material, and transport prices from months ago. And all of those things have come down in price recently, so there's some reason to think that price pressures will soften a bit (barring another spike in energy prices).

[GGG]

Originally Posted by opendoor

The big caveat is that a lot of what's keeping overall inflation at a normal level the last 4 months has been declines in energy prices compared to earlier in the year, which isn't going to continue indefinitely. So if non-energy prices keep rising while energy levels off, then we have inflation again.

At the same time, energy affects basically everything, but its impact isn't necessarily felt immediately in terms of consumer prices. So a lot of the prices for goods now are based on energy, raw material, and transport prices from months ago. And all of those things have come down in price recently, so there's some reason to think that price pressures will soften a bit (barring another spike in energy prices).

The other thing though is as we get into months which had 7-8% inflation instead of 3-4% inflation inflation naturally decreases because the starting point was higher. Sept 2020-2021 was 4%. Once you get to Feb when the energy prices peaked inflation from the previous year accounted for those spikes.

The Month to Month number is more more interesting until about February.

[Izzle]

Originally Posted by blankall

These are the exact same people who, a year ago, were telling Canadians to get massive mortgages as interest rates would stay very low for a long time.

But that isn't quite a fair statement to make. When BoC said interest rates would be low, it was prior to the war in Ukraine. The war threw a mess of spanners into the works. Literally no one could've predicted it.