I saw some report from MNP yesterday that claimed 50% of Albertans are $200 from insolvency....that seems pretty extreme. I could see it for students and young people but I don't think that's 50% of the population.
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I mean things aren't going well, but in my industry I can only see this leading to higher inflation.
I don't know, I think they're just as worried about the downside risk of getting too close to deflation at this point. Last July and August were big inflation months because of energy prices. But in the 10 months since then, inflation has only been 1.8% annualized after adjusting for seasonality. And that's with mortgage interest alone adding over 1% to that figure, which means the other 95% of the basket, which is supply/demand driven, is in the 0.6-0.7% range which is below where they want to be.
Maybe July and August will come in hot again. But if they don't, then I think they're going to shift to being concerned about maintaining restrictive monetary policy while inflation is dropping fast, which would mean more cuts this year.
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I saw some report from MNP yesterday that claimed 50% of Albertans are $200 from insolvency....that seems pretty extreme. I could see it for students and young people but I don't think that's 50% of the population.
That's also bull####. We're constantly on the brink of financial disaster according to MNP, please buy their debt solutions!
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There are a lot negative economic indicators right now. Most notably production in Canada is falling. Canada is masking a lot of its issues with heavy immigration, which is going to cause a temporary upsurge in economic activity relative to the population. GDP growth, however, is well below population growth right now.
Not as a simple as just cutting rates to fix things though. The US economy, unlike Canada's, is surging. So they have far less pressure to cut rates. If Canada's interest rates fall to far below the USA's we end up with a very weak dollar. That may be the only course of action though. A weak dollar will stimulate exports. Not such a bad thing to have a massive nation down south clamoring for goods and a favorable exchange rate for Canadian exporters. Would mean that vacationing or buying goods in the US for Canadians wouldn't be so easy, but we'd see a lot more US consumers and tourists in Canada spending cash.
Anyways, I do think the BoC will go ahead with the two more rumoured cuts by the end of the year.
Not as a simple as just cutting rates to fix things though. The US economy, unlike Canada's, is surging. So they have far less pressure to cut rates. If Canada's interest rates fall to far below the USA's we end up with a very weak dollar. That may be the only course of action though. A weak dollar will stimulate exports. Not such a bad thing to have a massive nation down south clamoring for goods and a favorable exchange rate for Canadian exporters. Would mean that vacationing or buying goods in the US for Canadians wouldn't be so easy, but we'd see a lot more US consumers and tourists in Canada spending cash.
Anyways, I do think the BoC will go ahead with the two more rumoured cuts by the end of the year.
The US economy isn't really surging though ~2.5% GDP growth when the government is running deficits equivalent to 6-7% of GDP isn't really the sign of a strong market-based economy, it's the government inducing activity through borrowing money. There's a reason why the market is pricing in 3 rate cuts in 2024 in the US (vs. Canada's 4).
The US economy isn't really surging though ~2.5% GDP growth when the government is running deficits equivalent to 6-7% of GDP isn't really the sign of a strong market-based economy, it's the government inducing activity through borrowing money. There's a reason why the market is pricing in 3 rate cuts in 2024 in the US (vs. Canada's 4).
In terms of total production, I'd say Canada is falling behind, and this has been a trend for quite some time. Canada getting their deficit under control is a fairly new thing.
My mortgage is up for renewal shortly and many people have said to consider variable again with rates decreasing. What are people’s thoughts on that?
Seems like 3 year fixed numbers are a bit of sweet spot. The premium on variable doesn't necessarily seem worth it even assuming the economy continues to need additional rate cuts. 3 year numbers should be under 5% now.
They said 2 more rate cuts. I’d probably do 1 or 2 depending on the rate and early renew when rates drop more for longer as rates probably settle into what we will see more going forward.
Yeah, you'd need to consider the delta between 5 year fixed and 5 year variable and see if you are comfortable with that delta being your "insurance" piece.
If there is a 100 basis point difference between fixed and variable, then Bank of Canada will need to cut 4 times at 25 basis points before you're breaking even. Even then, they might have to cut 5 times in order for your bet to be fruitful.
Yeah, you'd need to consider the delta between 5 year fixed and 5 year variable and see if you are comfortable with that delta being your "insurance" piece.
If there is a 100 basis point difference between fixed and variable, then Bank of Canada will need to cut 4 times at 25 basis points before you're breaking even. Even then, they might have to cut 5 times in order for your bet to be fruitful.
Wouldn't they need to cut more than 4 times just to offset the time it took them eat through your 100 basis points (meanwhile you were paying the higher rates in the near term)? Just to break even? You'd need probably like 6-7(?) cuts given the near term dollars NPV?
Wouldn't they need to cut more than 4 times just to offset the time it took them eat through your 100 basis points (meanwhile you were paying the higher rates in the near term)? Just to break even? You'd need probably like 6-7(?) cuts given the near term dollars NPV?
You're right. I was clumsy in my wording. You'd deffo need more than four 25 basis points cuts to break even.
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Don't forget too that there's less penalty to break your mortgage with a variable than with a fixed. So there are other benefits to a variable if those types of clauses matter to you (such as if your financial situation and/or your ability to carry a mortgage changes).
Yeah, you'd need to consider the delta between 5 year fixed and 5 year variable and see if you are comfortable with that delta being your "insurance" piece.
If there is a 100 basis point difference between fixed and variable, then Bank of Canada will need to cut 4 times at 25 basis points before you're breaking even. Even then, they might have to cut 5 times in order for your bet to be fruitful.
The issue with the Variable/Fixed decision is that the people making the decisions know a lot more about the subject than you do. Plus fixed is controlled by bond markets, which are based on market predictions about where the rates are going. So right now the fixed is significantly lower, because the decrease is already factored in.
I'd still probably go variable right now. I think we'll see a 1% drop over the next year, with all the talk about deflation and recession. I'm not an expert though. I also think we'll see sub 4% fixed by the end of 2024/beginning of 2025.
Seems like 3 year fixed numbers are a bit of sweet spot. The premium on variable doesn't necessarily seem worth it even assuming the economy continues to need additional rate cuts. 3 year numbers should be under 5% now.
There are 5 year fixed rates under 5%. I just renewed at 4.79%, and could have gotten a bit better if I moved lenders.
