Economic Point of View Ahead of Next Weeks Bank of Canada Meeting

Here is an update in advance of the Dec 7^th meeting of the Bank of Canada, from one of our leading economists.

• House prices seem to be stabilizing, being maintained by the dropping inventory levels.
• 20% of Variable rate mortgages have hit the trigger rate, but only about 3% are selling their homes.  That number will grow, but generally Canadians pay their mortgages.
• Covid gave us Recession level rates, but none of the employment losses.  This is why we saw that mad run up in debt and house prices.
• Mortgage volumes are lower now because future mortgages were pulled forward. Many consumers refinanced to take advantage of the lower rates.
• Subprime mortgage delinquency is rising slightly with the increase in rates, these renewals will force sales.
• The number of people renting is on the rise because it’s still cheaper than owning.
• It is expected The Bank of Canada will raise prime another 50 basis points Dec 7^th, but that should be the last raise.  That will take prime to 6.45%
• The 5 year fixed rate mortgage rate has pretty much peaked.
• The prime lending rate should stay high through 2023.
• We should expect prime to drop slowly by 50 to 100 basis points after that time.
• Home prices will drop a bit further in 2023 as supply increases.
• Over the next 5 to 10 years we will see house prices climb steadily as a lack of home building and current immigration levels persist (with no clear solution).
• Mortgage Insurers are looking at possibly bringing back 30 year amortizations for first time buyers.

Due to this forecast the general consensus is to ride out the higher rates in a variable rate mortgage or to take a 2-year term. If you are locked in currently at a low rate for the next 2 years you still will probably see a rate increase at renewal. The new normal will be mortgage rates in the 4% range.

House prices will continue to rise after the end of the current cycle. It will continue to be difficult for consumers to enter the housing market so we will continue to see parents helping out with the down payment or co-signing on mortgages.