*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[edslunch]

Originally Posted by Slava

Yeah and despite the rate of inflation appearing stagnant on a monthly basis, when you dive a little deeper things are slowing. I think that when you remove energy and food from the calculation (because they're more volatile, not part of a grand conspiracy!), you get something like 1.87% per month.

100 net new jobs across Canada in December. Just a snapshot to be sure, but consistent with a slowing economy.

[blankall]

Originally Posted by edslunch

100 net new jobs across Canada in December. Just a snapshot to be sure, but consistent with a slowing economy.

And what 100,000 new residents in that time?

[Bill Bumface]

Originally Posted by blankall

And what 100,000 new residents in that time?

Yes, but they are going to recover some of the costs to support those people who inevitably won't be able to find housing, jobs or healthcare by selling naming rights for the TFW program to Tim Horton's.

[The Fonz]

July 2022 8.1% (peak)
August 7.6%
September 7.0%
October 6.9%
November 6.9%
December 6.8%
January 2023 6.3%
February 5.9%
March 5.2%
April 4.3%
May 4.4%
June 3.4%
July 2.8%
Aug 3.3%
Sept 4.0%
Oct 3.8%
Nov 3.1%
Dec 3.1%
Jan 2024 3.4%

[blankall]

Originally Posted by The Fonz

July 2022 8.1% (peak)
August 7.6%
September 7.0%
October 6.9%
November 6.9%
December 6.8%
January 2023 6.3%
February 5.9%
March 5.2%
April 4.3%
May 4.4%
June 3.4%
July 2.8%
Aug 3.3%
Sept 4.0%
Oct 3.8%
Nov 3.1%
Dec 3.1%
Jan 2024 3.4%

Inflation up but the economy is also slowing? Don't know enough about the term, beyond hearing it high school social studies, but "Stagflation"?

[opendoor]

Inflation is still slowing, it's just that last December was abnormally low. So when it dropped out of the year-over-year number and was replaced by a more normal reading, the headline number went up slightly.

But the overall trend is still the same. Inflation is roughly at target, but the headline number is being held up by ~30% mortgage interest inflation. And so far at least, we're not seeing the increase in energy prices that we saw in January 2023, so there's a good chance that early 2024 inflation will be more muted than early 2023.

[The Fonz]

July 2022 8.1% (peak)
August 7.6%
September 7.0%
October 6.9%
November 6.9%
December 6.8%
January 2023 6.3%
February 5.9%
March 5.2%
April 4.3%
May 4.4%
June 3.4%
July 2.8%
Aug 3.3%
Sept 4.0%
Oct 3.8%
Nov 3.1%
Dec 3.1%
Jan 2024 3.4%
Feb 2.9%


2.9% January YOY announced today. Forecast was for 3.3%.

Expectations that we'll see a rate cut in June.

[blankall]

“Shelter inflation has become the biggest hurdle preventing the Bank from cutting interest rates,” TD economist Leslie Preston wrote in a research note.

“Shelter inflation will remain sticky as higher interest rates feed through to mortgage interest costs with a lag, and undersupply of housing continues to boost rent prices,” RBC economists Nathan Janzen and Abbey Xu wrote. However, “the most likely path for inflation going forward is still lower with per-capita GDP and consumer spending continuing to decline,” they added.

https://www.canadianmortgagetrends.c...conomists-say/

Interesting....so increased shelter rate inflation are the culprit for ongoing inflation. These increase rates are, in turn, largely tied to both increases in mortgage payments and increased borrowing costs preventing real estate development.

I guess the worry is that if they cut rates housing prices will march upwards again?

[Azure]

Originally Posted by The Fonz

July 2022 8.1% (peak)
August 7.6%
September 7.0%
October 6.9%
November 6.9%
December 6.8%
January 2023 6.3%
February 5.9%
March 5.2%
April 4.3%
May 4.4%
June 3.4%
July 2.8%
Aug 3.3%
Sept 4.0%
Oct 3.8%
Nov 3.1%
Dec 3.1%
Jan 2024 3.4%
Feb 2.9%


2.9% January YOY announced today. Forecast was for 3.3%.

Expectations that we'll see a rate cut in June.

The rate cut will drive housing which will drive up pricing which will drive up inflation.

Tough call at this point, though the economy could use a small rate cut just to signal some confidence.

[GGG]

Originally Posted by Azure

The rate cut will drive housing which will drive up pricing which will drive up inflation.

Tough call at this point, though the economy could use a small rate cut just to signal some confidence.

Not really, as mortgage serving costs is what is measured. So a drop in interest rates benefits every house that comes up for renewal regardless of it changes hands or not. Purchase price only affects homes bought or sold. In addition mortgage servicing cost on purchases should be relatively constant in the absense of supply or demand changes.

[calgarygeologist]

Originally Posted by GGG

Not really, as mortgage serving costs is what is measured. So a drop in interest rates benefits every house that comes up for renewal regardless of it changes hands or not. Purchase price only affects homes bought or sold. In addition mortgage servicing cost on purchases should be relatively constant in the absense of supply or demand changes.

The mortgage component of inflation is going to skyrocket in 2024 and 2025 as almost half of the mortgages in Canada, 2.2 million mortgages, come up for renewal. Many of those are super low rate, pandemic mortgages and the new interest rates will be two or three times higher this renewal.

[bluejays]

Originally Posted by calgarygeologist

The mortgage component of inflation is going to skyrocket in 2024 and 2025 as almost half of the mortgages in Canada, 2.2 million mortgages, come up for renewal. Many of those are super low rate, pandemic mortgages and the new interest rates will be two or three times higher this renewal.

Not to be rude, but I've heard that a few times and my ignorant self is saying, "so what"? I renewed back in May. What difference does it make if those with renewals coming up also have to renew at a high rate?

[Slava]

Originally Posted by bluejays

Not to be rude, but I've heard that a few times and my ignorant self is saying, "so what"? I renewed back in May. What difference does it make if those with renewals coming up also have to renew at a high rate?

Well, so far, people have adapted and made it work. It might not be a huge issue, because presumably people with mortgages coming up know what’s coming and have at least thought about how to manage it. But it will be interesting to see if more houses start to hit the market because people are afraid that they can’t cope.

[calgarygeologist]

Originally Posted by bluejays

Not to be rude, but I've heard that a few times and my ignorant self is saying, "so what"? I renewed back in May. What difference does it make if those with renewals coming up also have to renew at a high rate?

That increase in mortgage interest drives up the inflation rate potentially making it more difficult for the Bank of Canada to combat inflation appropriately. In January, mortgage interest continued to be the #1 driver of inflation with a 27% growth rate. If the Bank of Canada is trying to hit 2% and one component of the calculation is going to be increasing at 20%, 30% or 40% that target could be out of reach.

That doesn't even touch on the issue that housing is the biggest part of a household budget and the upcoming increases could be brutal for household finances.

[bluejays]

Originally Posted by Slava

Well, so far, people have adapted and made it work. It might not be a huge issue, because presumably people with mortgages coming up know what’s coming and have at least thought about how to manage it. But it will be interesting to see if more houses start to hit the market because people are afraid that they can’t cope.

Thanks Slava. I’m not saying anything one way or another but I didn’t quite understand why we’re worried about the other half of the population coming up for renewal when others have managed to adapt. Further, I’m in Toronto and the prices are still out of whack. Even as a home owner for a few years things need to come down for sustainability purposes.

Originally Posted by calgarygeologist

That increase in mortgage interest drives up the inflation rate potentially making it more difficult for the Bank of Canada to combat inflation appropriately. In January, mortgage interest continued to be the #1 driver of inflation with a 27% growth rate. If the Bank of Canada is trying to hit 2% and one component of the calculation is going to be increasing at 20%, 30% or 40% that target could be out of reach.

That doesn't even touch on the issue that housing is the biggest part of a household budget and the upcoming increases could be brutal for household finances.

The first part yes. The second paragraph I frankly hope continues. Too many real estate investors need to be shaken out of the market.

[FLAME ENVY]

Originally Posted by calgarygeologist

That increase in mortgage interest drives up the inflation rate potentially making it more difficult for the Bank of Canada to combat inflation appropriately. In January, mortgage interest continued to be the #1 driver of inflation with a 27% growth rate. If the Bank of Canada is trying to hit 2% and one component of the calculation is going to be increasing at 20%, 30% or 40% that target could be out of reach.

That doesn't even touch on the issue that housing is the biggest part of a household budget and the upcoming increases could be brutal for household finances.

I read today (sorry, can't find the article source now) that the BoC is likely to exclude mortgage interest (and its impact on overall inflation) as a factor in its future rate decisions. As you stated, mortgage interest will have an increasingly negative impact on overall inflation as over 2 million Canadians renew their mortgages at much higher rates in 2024/2025.

[DoubleK]

Originally Posted by calgarygeologist

That increase in mortgage interest drives up the inflation rate potentially making it more difficult for the Bank of Canada to combat inflation appropriately. In January, mortgage interest continued to be the #1 driver of inflation with a 27% growth rate. If the Bank of Canada is trying to hit 2% and one component of the calculation is going to be increasing at 20%, 30% or 40% that target could be out of reach.



That doesn't even touch on the issue that housing is the biggest part of a household budget and the upcoming increases could be brutal for household finances.

Somebody smarter than me can probably put me in my uneducated place, but I think this means we are going to see is a divergence between affordability and inflation, as it relates to setting the funds rate. Including the impacts of mortgage interest directly impacts affordability, excluding it gives a better measure of inflation.

Inflation to me used to be the change in the cost of raw materials only, now it's everything.

Does this change mean now it's only some things?

[calgarygeologist]

Originally Posted by FLAME ENVY

I read today (sorry, can't find the article source now) that the BoC is likely to exclude mortgage interest (and its impact on overall inflation) as a factor in its future rate decisions. As you stated, mortgage interest will have an increasingly negative impact on overall inflation as over 2 million Canadians renew their mortgages at much higher rates in 2024/2025.

I'm not sure what good comes out of removing mortgage interest from CPI other than turning a blind eye on a bad situation.

[Slava]

Originally Posted by bluejays

Thanks Slava. I’m not saying anything one way or another but I didn’t quite understand why we’re worried about the other half of the population coming up for renewal when others have managed to adapt. Further, I’m in Toronto and the prices are still out of whack. Even as a home owner for a few years things need to come down for sustainability purposes.



The first part yes. The second paragraph I frankly hope continues. Too many real estate investors need to be shaken out of the market.

How is the market there? I thought that prices had come down considerably over the past year or two there, but maybe it’s still a supply issue?

[bluejays]

Originally Posted by Slava

How is the market there? I thought that prices had come down considerably over the past year or two there, but maybe it’s still a supply issue?

I don’t have stats off hand, which would be useful, but I think you’re seeing a bifurcation in the market at this time. While all types have come down considerably, condos and towns have come down a lot more, while detached seem to have hit a floor for months now. You probably don’t have that twenty person bidding war at its peak, but there seems to be people getting what they want from their listed price with sometimes conditional offers being accepted. But generally there’s a sense in the air that this is the worst and in a few months the market will pick up again. So I’d estimate in the gta the average home is well over $1.1M when at its peak it may have been $1.4M. Still a huge chunk of our may goes towards the mortgage. Supply is definitely still an issue. Any new home builder offerings have crazy lineups for days before to snatch one.