April 12, 2024 • 8 mins
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EPISODE DESCRIPTION
In this episode, Tom & Brandon explain the recent Bank of Canada Announcement which held the variable rate, meaning still no cuts this year after multiple increases since the pandemic.
What was discussed: → Why we haven't seen any rate cuts yet and when we might see the first rate cut this year. → The influence the US has on Canada and how Canadian politics will play their part. → And why the fixed rates will most likely increase soon.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:07):
and the Canadian Mortgage Guide,simplifying all things mortgages
and Canadian real estate.
Now, let's dive into our first
point.
So why did they hold?
so we all expected the Bank ofCanada to hold in April.
That's not really a shock to us,but the shock and really the
changes that happened over thelast, let's say, month is the fact
(00:29):
that the U.S. economy is stillreally strong right now, which
puts Canada in a really awkwardposition because usually we follow
what the feds Yeah.
So the U.S. job report came back
and it was very strong.
Their economy is rocking and
rolling in that respect.
And it sounds stupid to say that
(00:50):
we want job numbers to come down,but that's actually what the
central bankers are looking for.
If they see that jobs are
continuing and the economy isrocking and rolling, they see no
need to cut rates because it showsthat inflation is continuing,
stimulation is happening.
When you start to see those job
numbers come down, it's a signthat you're heading more in that
recession Yeah.
And so keep in mind, the target
inflation for the Bank of Canadais 2%.
And the last inflation report was2.8%.
So we're not really there yet.
(01:11):
Although if you do take out the
shelter costs, we are actually at1.5% for inflation.
Nonetheless, the Bank of Canada islooking for that 2%.
So that's why we're not seeingthat rate cut yet.
Whether or not we see it before wereach that 2% target, time will
tell.
And even right now, a lot of
people are predicting the ratecuts to happen past June.
(01:31):
And if you asked a lot ofeconomists and just people in
general, we all expected rate cutsto happen at the very latest in
June of this year.
But now a lot of people are
predicted to go past that.
And if you look at the traders,
they were predicting a 70% chanceof rates to cut in June.
But now that's dropped to 42%after this past Wednesday.
and a lot of this sentiment andthings change day to day.
(01:52):
So what a prediction is today willchange tomorrow with some other
stat coming out.
So it's important to not like
ruminate in this too much.
But also, if you're buying a home
or you're thinking about investingin certain areas, these are
important things to considerbecause it will have an impact on
the value of those investmentslong term.
So the big question everyoneprobably came here for is when
(02:13):
will they cut?So let's get to the meat and
potatoes of this.
10 rate increases followed by six
pauses has done its job.
The CPI has dropped from 8% down
to 2.8%.
So that is a massive drop.
Banks are ready for this andthey've set aside several billions
to be ready for bad loans.
Another important thing to watch
is business confidence.
And that is currently frayed.
A lot of businesses could notrepay the COVID loan to get access
(02:36):
to the $20,000 of free governmentmoney.
That's a big indicator that theydon't have the money.
If they couldn't even pay it backto get $20,000 for free, which the
businesses need, it's a sign thatthey are really Yeah.
And another indicator is themortgage default rates.
And although it's still very, verysmall, it has been on the rise in
the past couple months.
and that's something to watch out
(02:56):
for because Canadians historicallydo not default on their mortgages.
People will let a lot of thingsslide before they start skipping
their mortgage payments.
Another lagging indicator we saw
was people defaulting on propertytaxes.
And this has started to increasesignificantly.
People aren't paying themunicipalities.
So that's something to watchbecause it indicates that people
don't have the leftover cashflowat the end of the month to make
(03:17):
these payments.
Touching on the mortgage default
too is the Bank of Canada, theyknow that pretty sure it's between
50 to 60% of Canadian homeownershave their mortgage renewing in
2025 and 2026.
So the Bank of Canada knows this
and they don't want these peopleto have payment shock.
And we personally have been seeingthat a lot more in our business
with people coming up for renewal.
(03:38):
They're kind of shocked at what
their payment is.
And yes, there's solutions to
mitigate that for some people,like stretching your amortization
and bringing that payment lower.
But not everybody has that option.
And the Bank of Canada knows this.
And they really do have their
hands tied on this one becausethey know they do have to cut at
some point.
But again, we're in that awkward
(03:58):
situation where the US is juststill thriving as an economy right
now.
So it puts us in that awkward And
while Canada does usually followthe Fed, don't be surprised if
Canada cuts earlier this time.
The reality is this will put a
little bit of pressure on theloonie, but it will stabilize once
the US falls course.
So I still think we're on track
for a June cut.
I don't think it's going to be a
(04:20):
huge one, but I think the economydoes need a little bit of a cut
and some momentum that way.
There is one thing that could
really impact that, and that'scoming this Tuesday.
So while we don't get toopolitical on this platform,
Trudeau does have a habit offucking things up for the Bank of
Canada.
And next Tuesday is the federal
government's big budget release.
So will Trudeau stay on brand and
introduce billions in incentives?Probably.
Will they usher in the return of30-year amortization supported by
(04:43):
the CMHC, potentially.
So in short, will Trudy and his
right-hand woman, ChrystiaFreeland, cause a bunch of
inflationary moves to happen justbefore the Bank of Canada starts
to cut things?There's a decent chance of this.
The big issue with this is thatthe movements by the Bank of
Canada have formed essentially abottom in real estate right now.
When they start to cut rates,prices will increase.
(05:06):
If Trudeau and Chrystia Freelandimplement some of these moves
here, they will start increasingprices on real estate.
And then coupled with the Bank ofCanada cutting, it would gas up
real estate prices right there.
That's a big risk because then
rates have to increase again.
The flip side of that is that if
they do this, prices shoot up andBank of Canada has to increase
rates.
(05:26):
Now we're going to see a move
towards a recession.
So it would be actually a policy
driven recession because Trudeauis going to inflate the economy
with these moves and then therecession would fall course there.
So the hope really is that Trudeaucan park his ego a little bit with
next Tuesday's budget, not try tobuy a bunch of votes on the next
(05:47):
election and recognize what's goodfor Canada as a whole, not just
good for the Trudeau brand.
very well said, Brandon.
And there's a lot of things thatcan change over the course of even
weeks to months.
So really, time will tell.
But let's talk about fixed ratesfor the time being.
And I do want to stress that wetalk about this all the time.
We want to get this message outthere.
(06:08):
Fixed rates are separate fromvariable rates when it comes to
increasing, decreasing, holdingsteady.
Fixed rates are very much volatileon a daily basis, and it's really
tied to the bond market.
So this past Wednesday, when we
saw the Bank of Canada announcethe rate pause, we did see the
bond market spike quite a bit.
And this wasn't because the rates
were paused and because of whatthe Bank of Canada is doing.
It had a direct tie to the US withtheir inflation report.
(06:30):
And that is what spiked the bondmarket.
So we can expect fixed rates toincrease in the near future.
That's my prediction, becauseusually the banks react to
whatever the bond market does.
So I personally hope we don't see
that increase, but I do think itis coming down the line.
But with that being said, it ismore volatile with the fixed
rates.
And we've seen a decrease over the
(06:51):
past couple of months, which a lotof people aren't talking about.
So if you are going out there fora mortgage, if you're renewing,
financing, purchasing a home,whatever the case is, make sure
you talk to your mortgage brokeror the bank, whoever you're
working with, to make sure wherefixed rates are at the time,
because they're moving and shakingon a daily basis.
And a lot of this volatilitycauses people to sit on the fence.
And we shared an episode about howto decide whether you should buy,
(07:13):
whether the timing's right, and afew other things to consider and
reframe.
So check that out.
If you're not a subscriber, pleasesubscribe.
We're going to share a lot ofthese details and juicy analysis
for you as things go forward.
So we'll probably give an update
on the federal budget next week.
And if you have anything that you
want us to do a deep dive on,please throw it in the comments
below.
Cheers.
and the Canadian Mortgage Guide,simplifying all things mortgages
and Canadian real estate.
Now, let's dive into our first
point.
So why did they hold?
so we all expected the Bank ofCanada to hold in April.
That's not really a shock to us,but the shock and really the
changes that happened over thelast, let's say, month is the fact
(00:29):
that the U.S. economy is stillreally strong right now, which
puts Canada in a really awkwardposition because usually we follow
what the feds Yeah.
So the U.S. job report came back
and it was very strong.
Their economy is rocking and
rolling in that respect.
And it sounds stupid to say that
(00:50):
we want job numbers to come down,but that's actually what the
central bankers are looking for.
If they see that jobs are
continuing and the economy isrocking and rolling, they see no
need to cut rates because it showsthat inflation is continuing,
stimulation is happening.
When you start to see those job
numbers come down, it's a signthat you're heading more in that
recession Yeah.
And so keep in mind, the target
inflation for the Bank of Canadais 2%.
And the last inflation report was2.8%.
So we're not really there yet.
(01:11):
Although if you do take out the
shelter costs, we are actually at1.5% for inflation.
Nonetheless, the Bank of Canada islooking for that 2%.
So that's why we're not seeingthat rate cut yet.
Whether or not we see it before wereach that 2% target, time will
tell.
And even right now, a lot of
people are predicting the ratecuts to happen past June.
(01:31):
And if you asked a lot ofeconomists and just people in
general, we all expected rate cutsto happen at the very latest in
June of this year.
But now a lot of people are
predicted to go past that.
And if you look at the traders,
they were predicting a 70% chanceof rates to cut in June.
But now that's dropped to 42%after this past Wednesday.
and a lot of this sentiment andthings change day to day.
(01:52):
So what a prediction is today willchange tomorrow with some other
stat coming out.
So it's important to not like
ruminate in this too much.
But also, if you're buying a home
or you're thinking about investingin certain areas, these are
important things to considerbecause it will have an impact on
the value of those investmentslong term.
So the big question everyoneprobably came here for is when
(02:13):
will they cut?So let's get to the meat and
potatoes of this.
10 rate increases followed by six
pauses has done its job.
The CPI has dropped from 8% down
to 2.8%.
So that is a massive drop.
Banks are ready for this andthey've set aside several billions
to be ready for bad loans.
Another important thing to watch
is business confidence.
And that is currently frayed.
A lot of businesses could notrepay the COVID loan to get access
(02:36):
to the $20,000 of free governmentmoney.
That's a big indicator that theydon't have the money.
If they couldn't even pay it backto get $20,000 for free, which the
businesses need, it's a sign thatthey are really Yeah.
And another indicator is themortgage default rates.
And although it's still very, verysmall, it has been on the rise in
the past couple months.
and that's something to watch out
(02:56):
for because Canadians historicallydo not default on their mortgages.
People will let a lot of thingsslide before they start skipping
their mortgage payments.
Another lagging indicator we saw
was people defaulting on propertytaxes.
And this has started to increasesignificantly.
People aren't paying themunicipalities.
So that's something to watchbecause it indicates that people
don't have the leftover cashflowat the end of the month to make
(03:17):
these payments.
Touching on the mortgage default
too is the Bank of Canada, theyknow that pretty sure it's between
50 to 60% of Canadian homeownershave their mortgage renewing in
2025 and 2026.
So the Bank of Canada knows this
and they don't want these peopleto have payment shock.
And we personally have been seeingthat a lot more in our business
with people coming up for renewal.
(03:38):
They're kind of shocked at what
their payment is.
And yes, there's solutions to
mitigate that for some people,like stretching your amortization
and bringing that payment lower.
But not everybody has that option.
And the Bank of Canada knows this.
And they really do have their
hands tied on this one becausethey know they do have to cut at
some point.
But again, we're in that awkward
(03:58):
situation where the US is juststill thriving as an economy right
now.
So it puts us in that awkward And
while Canada does usually followthe Fed, don't be surprised if
Canada cuts earlier this time.
The reality is this will put a
little bit of pressure on theloonie, but it will stabilize once
the US falls course.
So I still think we're on track
for a June cut.
I don't think it's going to be a
(04:20):
huge one, but I think the economydoes need a little bit of a cut
and some momentum that way.
There is one thing that could
really impact that, and that'scoming this Tuesday.
So while we don't get toopolitical on this platform,
Trudeau does have a habit offucking things up for the Bank of
Canada.
And next Tuesday is the federal
government's big budget release.
So will Trudeau stay on brand and
introduce billions in incentives?Probably.
Will they usher in the return of30-year amortization supported by
(04:43):
the CMHC, potentially.
So in short, will Trudy and his
right-hand woman, ChrystiaFreeland, cause a bunch of
inflationary moves to happen justbefore the Bank of Canada starts
to cut things?There's a decent chance of this.
The big issue with this is thatthe movements by the Bank of
Canada have formed essentially abottom in real estate right now.
When they start to cut rates,prices will increase.
(05:06):
If Trudeau and Chrystia Freelandimplement some of these moves
here, they will start increasingprices on real estate.
And then coupled with the Bank ofCanada cutting, it would gas up
real estate prices right there.
That's a big risk because then
rates have to increase again.
The flip side of that is that if
they do this, prices shoot up andBank of Canada has to increase
rates.
(05:26):
Now we're going to see a move
towards a recession.
So it would be actually a policy
driven recession because Trudeauis going to inflate the economy
with these moves and then therecession would fall course there.
So the hope really is that Trudeaucan park his ego a little bit with
next Tuesday's budget, not try tobuy a bunch of votes on the next
(05:47):
election and recognize what's goodfor Canada as a whole, not just
good for the Trudeau brand.
very well said, Brandon.
And there's a lot of things thatcan change over the course of even
weeks to months.
So really, time will tell.
But let's talk about fixed ratesfor the time being.
And I do want to stress that wetalk about this all the time.
We want to get this message outthere.
(06:08):
Fixed rates are separate fromvariable rates when it comes to
increasing, decreasing, holdingsteady.
Fixed rates are very much volatileon a daily basis, and it's really
tied to the bond market.
So this past Wednesday, when we
saw the Bank of Canada announcethe rate pause, we did see the
bond market spike quite a bit.
And this wasn't because the rates
were paused and because of whatthe Bank of Canada is doing.
It had a direct tie to the US withtheir inflation report.
(06:30):
And that is what spiked the bondmarket.
So we can expect fixed rates toincrease in the near future.
That's my prediction, becauseusually the banks react to
whatever the bond market does.
So I personally hope we don't see
that increase, but I do think itis coming down the line.
But with that being said, it ismore volatile with the fixed
rates.
And we've seen a decrease over the
(06:51):
past couple of months, which a lotof people aren't talking about.
So if you are going out there fora mortgage, if you're renewing,
financing, purchasing a home,whatever the case is, make sure
you talk to your mortgage brokeror the bank, whoever you're
working with, to make sure wherefixed rates are at the time,
because they're moving and shakingon a daily basis.
And a lot of this volatilitycauses people to sit on the fence.
And we shared an episode about howto decide whether you should buy,
(07:13):
whether the timing's right, and afew other things to consider and
reframe.
So check that out.
If you're not a subscriber, pleasesubscribe.
We're going to share a lot ofthese details and juicy analysis
for you as things go forward.
So we'll probably give an update
on the federal budget next week.
And if you have anything that you
want us to do a deep dive on,please throw it in the comments
below.
Cheers.
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