*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[Sliver]

Originally Posted by Monahammer

I don't disagree- personally I am an always lock in type, so locked in a rate prior to the fall and still have 1.5 years left to look at another term. I think it's likely to end up very near my current rate.

I'm not saying this for the people who are now in jeopardy necessarily- what I think is important here is the responsibility of people leading important public institutions. These people in jeopardy IMO are not very different than people who are convinced to throw money in a ponzi scheme.

These regulator-types are always in a tough spot, though.

I remember when Canada 3000 (an airline in the early 2000s) went belly up. Regulators took a lot of flack for not warning then-stranded travellers that this was going to happen; however, if they had warned travellers they would have just been accelerating the problems for Canada 3000 as literally everyone would have demanded a refund and the airline would have gone tits up even faster.

I don't think the lesson here is the BoC did anything wrong. It's that people should lock in so they have predictable and manageable payments. Variable-rate mortgages have always carried a risk. The risk is clearly explained in the documentation and should be reiterated by the mortgage specialist, although it wouldn't surprise me if that didn't always happen.

If this rate hike has ruined people's finances then they were already taking a risk they couldn't afford to take. And honestly, in their shoes, I'd strongly be considering locking in now. These current rates are still low. If you don't have the stomach or financial ability to withstand another rate increase you have to at least accept that you are still - today - gambling. Hindsight is 20/20...you should have locked in before, but we can't go back in time. If you can handle the new payments at the new rates, I'd consider locking in.

I have a low risk tolerance, though, so that's just me. Variable rates never interested me and I never lost a wink of sleep when rates went down because I was fine with my payments at the rate at which I signed.

[powderjunkie]

Originally Posted by Monahammer

When the people you are talking to specifically in that statement (he said Mortgages) typically are engaging in loans with ~20-25 years in them, then I would say 2 years (10% or less of the total) is most certainly NOT a long time.

Fixed folks tend to go 5 years...a 5 year economic forecast is the equivalent of a 5 month weather forecast.

Rewind to July 2020 and we had unemployment at levels not seen since ??? No clue on when or even if we'd get an effective vaccine. I don't remember the exact timeline, but some countries may have already been ramping into a second wave?

Frankly, for the BoC to do anything other than provide assurance of stability and encourage economic activity would be tantamount to this:

Originally Posted by Monahammer

I don't disagree- personally I am an always lock in type, so locked in a rate prior to the fall and still have 1.5 years left to look at another term. I think it's likely to end up very near my current rate.

I'm not saying this for the people who are now in jeopardy necessarily- what I think is important here is the responsibility of people leading important public institutions. These people in jeopardy IMO are not very different than people who are convinced to throw money in a ponzi scheme.

The Bank of Canada should not give two ####s about the gullible/greedy/reckless morons in this country.

[Muta]

I renewed with a three-year variable in the beginning of 2022 (mainly did it because I didn't like the penalties associated with fixed if things go south and research said with variables you'll always save more in the long run), and was assured that the prime would have to be hiked five-six times before it would hit the fixed rate at that time, which was unlikely... well here we are in bizarro world and I have to do it all on my own no less! No double meat at Subway for me.

[Rutuu]

Originally Posted by Monahammer

Yeah, but we know the majority of people are not "sensible" when it comes to finances. I agree, it was an exceptional and extraordinary time... but to blast it out so publicly? That was a choice. A poor choice.

And yes, he did, here he is saying it:

https://www.bnnbloomberg.ca/interest...klem-1.1465901

"“If you’ve got a mortgage of if you’re considering making a major purchase, or you’re a business and you’re considering making an investment, you can be confident rates will be low for a long time,” Macklem said."

The RBA governor apologized a few weeks ago for similar comments and guidance. I've never seen that, nor did I expect to see that.

There was an article today displaying surprise the Governor is expecting to run for another term instead of resigning. The difference I see is that the RBA admitted fault by apologizing, the BOC has not. Funny how it works, that being the good guy and acknowledging a mistake gets you in more hot water.

[bizaro86]

Originally Posted by Sidney Crosby's Hat

This is a really good idea and I think it would work in the US but not necessarily Canada where you need to raise interest rates if the US does to ensure the dollar isn't devalued. If you just had a temporary GST but the US kept raising their interest rates, there would still be significant inflation in Canada as a result of acquisition cost rising due to a weakened dollar.

Unfortunately, I don't believe the US has a mechanism for a national sales tax but it would definitely work down there (and if they were able to do such a thing, I'd be all for Canada doing it as well).

I think relative changes in money supply would at least partially support the dollar, even if a bit of a carry trade opened up. I don't think Canada could do just the taxation option - likely you'd have to mix it with interest rate hikes. I think the combination would allow you to probably make both the hikes and the taxes much shallower.

[The Fonz]

https://www.cbc.ca/news/business/pow...ttis-1.6685344
U.S. Federal Reserve foresees another year of rising interest rates for 2023

"Canadian borrowers hoping that the U.S. central bank would signal that rate hikes were over were once again disappointed after the Federal Reserve chair Jerome Powell not only hiked rates by a half a point to a 15-year high but promised more increases in the new year....

...In fact, of the 19 Federal Reserve officials on the monetary policy committee, 17 offered independent estimates that the Fed's target interest rates would have to rise above five per cent in 2023."


Suggests Federal Reserve officials foresee atleast another 75bps worth of increases coming, and BOC would likely follow pretty closely.

[BlackArcher101]

Ohhhh boy. Lovely.

[Cowboy89]

Not great news, but honestly it's the medicine the economy and asset prices need. Rates need to stay here or higher at least 5 years so that no one escapes without having to re-evaluate their finances incorporating a real cost for borrowed money. If you need sub-5% rates to make your house, car, and finances to go around, your cost structure is/was unsustainable and it needs to be fixed. It's also what's needed for a new generation to be able to afford to house themselves.

[MillerTime GFG]

I think the BoC will have to tread carefully, given our debt levels are twice as high in Canada. We can't mirror the Feds.


Hoping we don't see 0.75 here too.

[calgarygeologist]

Originally Posted by MillerTime GFG

I think the BoC will have to tread carefully, given our debt levels are twice as high in Canada. We can't mirror the Feds.


Hoping we don't see 0.75 here too.

It is going to get ugly next year. The debt level is around 185% debt to income and if a good portion of this is in line of credits with variable interest rates it is going to put many households into crisis mode very soon if it hasn't happened already. Some people might be able to adjust spending habits while others might be able to tap into more equity as a temporary measure but I suspect that a lot of people are nearing the breaking point.

[PeteMoss]

Originally Posted by The Fonz

https://www.cbc.ca/news/business/pow...ttis-1.6685344
U.S. Federal Reserve foresees another year of rising interest rates for 2023

"Canadian borrowers hoping that the U.S. central bank would signal that rate hikes were over were once again disappointed after the Federal Reserve chair Jerome Powell not only hiked rates by a half a point to a 15-year high but promised more increases in the new year....

...In fact, of the 19 Federal Reserve officials on the monetary policy committee, 17 offered independent estimates that the Fed's target interest rates would have to rise above five per cent in 2023."


Suggests Federal Reserve officials foresee atleast another 75bps worth of increases coming, and BOC would likely follow pretty closely.

Part of that is to keep inflation sinking rather than complete reality. If you indicate that interest rates may decrease soon - you risk turning the inflation faucet back on.

There's a good chunk of inflation that just occurs because of people's expectations - if they are expecting that interest rates are going to keep going up - inflation expectations lower.

[Yoho]

https://twitter.com/user/status/1603865437715980315

Interesting differences province to province.

[bizaro86]

Originally Posted by MillerTime GFG

I think the BoC will have to tread carefully, given our debt levels are twice as high in Canada. We can't mirror the Feds.


Hoping we don't see 0.75 here too.

Yeah, 30 year fixed rate mortgages make the US consumer much more insulated from rate hikes as well. Even among the people who take 5 year fixed roughly 20% of them come up for renewal every year, plus everyone who has variable is immediately affected.

By comparison if you have a 30 year mortgage in the US if interest rates go up you just keep it at the low rate until its paid off.

[Cowboy89]

Originally Posted by MillerTime GFG

I think the BoC will have to tread carefully, given our debt levels are twice as high in Canada. We can't mirror the Feds.


Hoping we don't see 0.75 here too.

I'm not too keen on the Canadian dollar diving much lower and increase the cost of food and essential imports to save those who are overlevered.

[Slava]

Put me in the camp that we see less than 0.75 next year in Canada and the US. It’s clear that inflation is easing and with retail sales and decreasing housing demand, that should continue. The thing is, a rate hike takes about a year to work it’s way through the system, and we’re not at a year for the initial hikes yet. In other words, the impacts are yet to be seen for these hikes.

I’d expect 0.25 in January, if anything and then we’re probably holding for a while to see how things go. They’re not likely cutting unless things get uglier than expected, but I can’t see them continuing the outsized hikes either.

[tony-soprano]

Rate hikes won’t stop until they’re higher than rate of inflation.

[Slava]

Originally Posted by tony-soprano

Rate hikes won’t stop until they’re higher than rate of inflation.

Well, once the real rate is positive I think you’ll see the “pivot” from the fed. At this point that real rate is still slightly negative, but it could come up pretty quick if inflation turns to deflation and just keeps easing in general.

[opendoor]

I mean, it already is higher than recent inflation. The current US effective Federal Funds rate is 4.33% while inflation over Q3 and Q4 2022 will end up in the 2-3% range annualized.

[Weitz]

At this point the only goal is to cause recession. Weird strategy but will see how it plays out.

[Geraldsh]

Global news had an bit on the housing / interest rate conundrum. Their anecdote was a senior who bought her house 34 years ago and still has a mortgage on which she can no longer afford the monthly payments due to recent interest hikes. Thirty-four years! And the problem is this month?