Chris Gregoris

On March 6th (as anticipated), the Bank of Canada has decided to hold the overnight rate @ 5%.

They continue to re-iterate that it is too early to discuss rate cuts even though CPI came in at 2.9% in January. They also reiterated its concern for risks of inflation and pledge to continue its policy of quantitative tightening.

Canadian inflation

• Shelter-price (living costs) inflation remains elevated “and is the biggest contributor to inflation” - at approximately 28%

• Underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the 3% to 3.5% range, and the share of CPI components growing above 3% declined but is still above the historical average 

Canadian economic performance and employment

• The Canadian economy grew in the fourth quarter by more than the BoC expected, “although the pace remained weak and below potential” 

• Real GDP expanded by 1% after contracting 0.5% in the third quarter

• A strong increase in exports boosted growth

• Employment continues to grow more slowly than the population, and there are now some signs that wage pressures may be easing

Outlook

• Next interest rate announcement is April 10, 2024 – widely expected to hold again

• BoC expects inflation to “remain close to 3% during the first half of the year before gradually easing.”

• It noted that its Governing Council is still concerned about risks to the outlook for inflation, particularly “the persistence in underlying inflation.” Governing Council wants to see “further and sustained easing” in core inflation and said it continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. 

• Concerns around global risks (Red Sea shipping routes, which have impacted global shipping costs — that could feed into higher inflation if they escalate)

• "The assessment of the governing council is that we need to give higher interest rates more time to do their work," said Macklem.

• The Bank of Canada has maintained that it takes about 18 to 24 months for interest rate changes to work their way through the economy. "It would be great if this worked faster, it would be great if it was less painful. But unfortunately, monetary policy, it does work slowly," Macklem said. "It is an indirect channel. It's got to work through the economy. It takes time to do that."

• Future progress on inflation is expected to be gradual and uneven.

• After Wednesday’s decision, traders in overnight swaps pared their bets on a June rate cut. A cut is still fully priced in for the July decision, just as it was before the policy statement. 

If you have any questions regarding Mortgage interest rates, where they currently are and were they are most likely heading, please do not hesitate to reach out. Our Team is always ready to assist

Kind Regards,

Chris Gregoris

Fingers crossed for those looking forward to Spring… winter looks to be coming to an end soon.  With mild temperatures the residential real estate market has picked right up.  Population growth and a resilient economy has continued to support the overall demand for housing.  Greater Toronto Area home sales were up on an annual and monthly basis in February 2024. Selling prices also edged upward compared to a year earlier, the average selling price was up 1.1% to $1,108,720. 

With the Bank of Canada holding interest rates, homebuyers are coming to terms with the current costs of borrowing and are taking advantage of the new inventory of homes that are coming to market.   There were 5607 homes sold across the GTA in February,  up almost 18% compared to February of last year and up 32.7% from January 2024. 

The Toronto Regional Real Estate Board's Chief Market Analyst Jason Mercer has reported that as we move through 2024, an increasing number of buyers will re-enter the market with adjusted housing preferences due to higher borrowing costs. In the second half of the year, predicted lower interest rates will further boost demand for home ownership. First-time buying activity will also be a contributing factor, as many renters look to trade high monthly rents for a long-term investment in which they can live and build equity.  

Population growth continues at a record pace, with the anticipated lower borrowing costs, the demand for housing, both ownership and rental, will also increase over the next two years. The new construction market has begun to pick up as buyers look for choice and affordability.  New inventory will continue to play a key role keeping supply and price in check.  The GTA desperately requires this inventory and with the growth in population not slowing down the need for housing will only continue.  Therein lies the opportunity to invest in real estate.  Developers of new homes and condominiums, at the moment, have incredible incentives that will not last as our Real Estate market starts to improve.  If you were ever considering investing in real estate or would like to know more about available options please do not hesitate to contact me.  

Be sure to get out and enjoy this unseasonably warm weather and I look forward to connecting with you soon.

Kind Regards,

Chris Gregoris

A look back at 2023 and what's ahead for 2024!

As 2023 draws to an end and a new year begins, let’s look back on Canada’s Economic Landscape and ahead to what the economists foresee in 2024.

The past year deonstrated Canada's economic resilience through robust job growth and increased investments at the beginning of the year. However, by year’s end, the current high-interest rates had contributed to a slowdown in business and consumer activities, leading to forecasts of weaker growth in the first half of 2024. Despite this, economists anticipate the economy to begin to rebound in the latter part of 2024.

In 2023, the inflation rate began at 5.9% and gradually decreased to 3.1% by November (December's report 3.4%). While the Bank of Canada doesn't anticipate inflation reaching its 2% target until late 2025, it aims for comfort within the 2.5% - 3% range. The evident impact of the Bank of Canada's rate hikes has resulted in prospective buyers feeling priced out of the market, impacting consumer confidence and leading to a 'wait-and-see' approach throughout 2023. Concurrently, the Bank of Canada's strategic rate adjustments have effectively moderated the housing market's pace, contributing to a gradual slowdown without significantly affecting property values in most parts of the country.

In 2023, Canadians also came to terms with the reality that rock-bottom interest rates are a thing of the past, and these new normal rates are now a permanent fixture. While we will see some modest decreases in rates in the coming year, many Canadians will no longer be able to delay their entry into the housing market in hopes of further rate drops.

Now, let's focus on what lies ahead in 2024:

There are emerging signs indicating the tangible effects of the Bank of Canada's (BOC) rate hikes are beginning to take root. Coupled with the anticipation of inflation dropping below 3%, we are finally witnessing movement in rates. Anticipated rate cuts from both the Bank of Canada and the US Federal Reserve have triggered a positive response in bond markets. This has resulted in lowered fixed rates, especially the 5-year rates, with some Insured rates dropping as much as 1%, fostering competition among lenders. As they gear up for the spring market, this competition benefits borrowers, especially first-time home buyers who have less than a 20% down payment.

There's a glimmer of hope on the horizon for Floating Rate holders (Variable or Adjustable). Most economists and markets are predicting a potential 1% - 1.5% rate cut to the current policy rate in 2024. However, the transition won't happen abruptly; the Bank of Canada (BoC) is likely to proceed cautiously, implementing gradual decreases while monitoring inflation and the economy. This will benefit Adjustable Rate holders with reduced mortgage payments and Variable Rate holders seeing a shift towards principal repayment.

With housing affordability and supply shortages pressing all levels of government, there will be a continued push for new construction developments aimed at bolstering the housing supply. Though this issue isn't something that will be swiftly resolved within a year or even a few, it remains at the forefront of all levels of government, underscoring the ongoing necessity of addressing the housing shortage.

What this all means for you, the consumer:

It’s estimated that about $251 billion in mortgages will come up for renewal in 2024, with another $352 billion worth in 2025. As a result, many Canadians will soon face a significant increase in their monthly mortgage payment—a major expense—and will have to adjust their spending. With that said, many lenders are going to be competing for your business. Working with mortgage professionals, with access to multiple lenders, is essential, allowing for better rates and products. It will also be important to get ahead of your renewal so you can adjust the family budget for a certain increase in your monthly mortgage payment.

For those dealing with high-interest debt, now is an opportune time to consider refinancing for debt consolidation, especially with declining rates, providing a chance to manage debt effectively. Consider this the “reset button” that can get you back on track and increase your monthly cash flow.

Finally, as there's a growing anticipation that the period of interest rate hikes might be coming to an end, this prospect will rekindle buyer interest in the market. With the expected decrease in fixed and variable rates, increased purchasing power could spur more demand in the housing market, causing an uptick in values. Choosing a variable rate or a short-term fixed rate now enables you to buy before the surge in demand while also positioning yourself to secure a potentially lower rate in the near future rather than waiting for rates to drop significantly.

While uncertainties remain, it's crucial for those planning mortgage transactions in 2024 to review their needs sooner rather than later. Together, we can determine the best course of action that suits your family’s budget and needs.

My team and I work with the top Mortgage Brokers in the country. We are here to assist whenever you're ready.

Kind Regards,

Chris Gregoris