13 Dec

Bank of Canada Reduces Rate by 0.50% | 2025 Interest Rate Outlook

General

Posted by: Adam Sale

National Bank of Canada Wins the Bank of Canada Rate forecast!

Early in 2024, National Bank had the most aggressive rate forecast, expecting the Bank of Canada to reduce the overnight lending rate 1.75% by the end of 2024.

Thanks to today’s rate announcement by the Bank of Canada, they were the only lender with the correct prediction.

Now, National Bank is continuing with their aggressive rate forecast and expects the Bank of Canada to decrease the overnight lending rate by an additional 1.25% in 2025, bring the overnight lending rate to 2.00% by the end of 2025.

If National Bank is able to accurately predict the Bank of Canada’s movements twice in a row, we could see the Prime Interest rate at 4.20% by the end of 2025.

RENEWALS & RATES

Variable Mortgage Rates

Currently, most lenders are providing borrowers with a discount off the Prime rate between 0.65% – 1.00%. 

Lenders are beginning to reduce these discounts, and will likely continue as the Bank of Canada lowers the interest rate.

Fixed Rate

Bond yields decreased over the last 2-weeks back to lows reached in July/August of 2024.

As we enter 2025, we should see special rates on 3yr/4yr/5yr fixed conventional mortgages in the low 4% range.

5-yr Insured/Insurable mortgages will likely be priced at 3.89%-3.99%.

Ride-the-Rate-Down Strategy

A rate strategy gaining popularity on social media is opting for a variable-rate mortgage with a lender that allows you to lock-in to a fixed-rate mortgage without penalty.

In theory, this strategy will allow you to ride interest rates down and then lock-in to a fixed-rate mortgage when interest rates are at their lowest.

Before jumping on this strategy it is best to weigh the pros & cons.

Market Forecast

In the Greater Vancouver Region, sales activity has rebounded considerably since September.

October & November sales activity showed a significant increase in sales (+25%), and I expect December will post similar results.

A trend appears to be forming as we enter 2025.

I believe this is fueled by several factors:

  1. Lower interest rates, and expectation rates will go lower.
  2. Increased borrowing power for first-time home buyers
  3. Increased number of listings – more selection.

If you have any questions, or would like to explore your borrowing options, lets chat!

Adam Sale 

778-215-4121

21 Nov

Your Buying Power just got a 9% BOOST!

General

Posted by: Adam Sale

Your Buying Power Increased by 9%!

If you are thinking about purchasing or selling your home in the next year, you need to understand the importance of the upcoming CMHC policy changes.

As of December 14, 2024 – First-time homebuyers purchasing with a down-payment less than 20% will see their purchasing power increase by approximately 9.00% due to the government increasing the amortization for these mortgage products from 25-years to 30-years.

Why is this significant?

According to CMHC’s 2023 Survey Pg 8 (SOURCE)

First-Time Home Buyers make up 54% of all purchases in Canada. This is slightly less in BC, at 47.3%

BC Home Sales - First time home buyers 2023

First time home buyers to repeat buyers.

Of these sales, 59% of First-Time Home Buyers used the insured mortgage product. 

First Time Home Buyers Insured Mortgages 2023

Insured Mortgages to Uninsured Mortgages

Meaning, 28% of all Home Buyers in BC will see their buying power increase by 9% after December 14th, 2024.

For example, a first time home buyer qualified to purchase a property for $600,000, will now qualify for a purchase of $654,000.

In response to the upcoming changes, sales activity is increasing in the lower-mainland and a floor on housing prices appears to be setting in.

Home sales in Greater Vancouver increased by +30% in the month of October.

  • September Home Sales: 1,852
  • October Home Sales: 2,632

If this trend continues, we can expect a busier spring market.

Feel free to reach out if you have any questions.

Best,

Adam Sale

778-215-4121

12 Nov

Accelerate Your Net Worth: A How-To Guide

General

Posted by: Adam Sale

Accelerate Your Net Worth!

Now that you own a home, and you’re making regular payments on your mortgage do you have a financial plan to grow your Net Worth efficiently?

In this blog, I’ll highlight 3 competing options to help you Accelerate Your Net Worth!

Keep in mind, each of these options has a different risk level. It is recommended you chat with a financial planner and a reputable mortgage broker to develop a plan matching your risk-tolerance.

1) Pre-Pay Your Mortgage – Risk: Low

Paying off your mortgage as quickly as possible is the simplest way to reduce the amount of interest you pay on your mortgage, and increase your net worth. Every lender offers their unique pre-payment options, allowing you to make extra payments on the balance of your mortgage. Each prepayment reduces the amount of interest charged on the balance of the mortgage, effectively paying off your mortgage faster. I’d argue this is the least risky option and the most stable.

2) Invest in the S&P 500 index fund – Risk: Medium

Instead of sinking your hard-earned money into your mortgage, have you considered your money and investing in the S&P 500 index fund? This option has a greater amount of risk, greater upside potential and keeps your money easily accessible.

Your goal with investing, is to achieve an average growth rate on your investment that is higher than your average mortgage rate. Be prepared by anticipating high growth years and low growth/loss years as you go through several economic cycles. If you can achieve a greater average annual growth over a long period of time, your investments will outperform the Pre-Payment Option. Before investing in a fund, do some research and chat with a financial advisor.

History does not predict the future, but there is some comfort in seeing previous rates of return.

S&P 500 Average Rate of Return (Source)

  • 5-yrs: 14.87%
  • 10-yrs: 12.86%
  • 20-years: 10.47%
  • 30-years: 10.733%
  • 50-years: 11.86%

3) Smith Maneuver / Creating a Tax-Deductible Mortgage – Risk: High

The final option, and the one that carries the greatest amount of risk, is using a technique known as the Smith Maneuver.

This is an advanced technique with better upside potential for those of you in a higher tax bracket. The goal behind this technique is converting your mortgage into a tax-deductible expense over a period of 7-10 years. This is a hands-on technique, and is recommended for those who know there way around their online banking website.

Converting your mortgage into a tax-deductible expense is achieved by borrowing from your Home-Equity Line of Credit and using these funds to invest into dividend paying stocks or index funds. Because the loan is being used to purchase income producing investment, the interest on the loan is tax deductible.

The higher your tax bracket the larger your tax refund will be.

Smith Maneuver strategists apply their annual tax refund as a pre-payment on their mortgage. Then, they’ll reborrow this amount from their Home-Equity Line of Credit and purchase more investments. The cycle continues until the entire mortgage is tax-deductible.

If you are in a higher tax bracket, consider using the tax system to your advantage with the Smith Maneuver.

Summary

I’ve outlined 3-different options to accelerate your net worth, but how will you know which one to choose?

Wouldn’t you like to see the numbers from each option before deciding which path is best for you?

This is why I’ve created the Net Worth Accelerator Blueprint.

Using REAL numbers from your current mortgage, you’ll receive a custom blueprint highlighting your accelerated Net Worth based on 2 financial strategies: Investing or Pre-Paying your mortgage.

My goal with the Net Worth Accelerator is to provide you with better information so you can decide if the risks are worth the rewards.

 

Net Worth Accelerator Blueprint

Net Worth Accelerator Blueprint

Do you want More Out of Your Money?

Click the link to complete a mortgage questionnaire and I’ll provide you with your custom Net Worth Accelerator Blueprint

Get Your Custom Blueprint here: Net Worth Accelerator Blueprint

Adam Sale

778-215-4121

1 Nov

Opportunity to Refinance & Opportunity to Purchase in 2025

General

Posted by: Adam Sale

Massive Switching Opportunity & Is 2025 the Right time to Buy?

The bank’s don’t want you to find out about this..

If you purchased a home, or renewed your mortgage, in 2023 and you have a fixed-rate above +5.70% with at least 2-years left on your mortgage term, you are paying to much.

To see if this opportunity applies to your mortgage, send me a message with the details listed below and I’ll send you a Mortgage Health Check-Up clearly outlining your potential savings.

The worst case scenario is we find out there are no savings and you can rest easy knowing you are in the best mortgage at this time!

To discover your savings, please respond to this email with the following information:

  • The date you signed up for your mortgage (Month/Year)

  • Estimated mortgage balance 

  • Interest rate 

  • Mortgage maturity date (Month/Year)

When is the Best Time to Purchase a home?

Slightly biased opinion – but considering my wife & I purchased our first home in September (yay!), I do put my money where my mouth is. 

When is it a good time to purchase an owner-occupied home in Greater Vancouver?

Is it when mortgage rates are high, or when sales activity is low? Or is it when inventory levels are high?

Well, consider these indicators…

  • Interest rates are above the 15-year average, but decreasing

    • Housing is becoming (slightly) more affordable

  • Inventory is 24% above the 10-year seasonal average

    • Downward pressure on housing prices

  • Sales activity is 25% below the 10-year seasonal average

    • Downward pressure on housing prices

  • BC’s unemployment rate is at 6%, the 15-year average is 6.25%

    • BC’s economy is relatively stable unlike Eastern Canada.

  • Government changes to mortgage policy, making it easier to qualify for a mortgage in 2025

    • Desired effect: Stabilize housing prices, protect the banks’ investment

  • Federal Government Reducing Immigration numbers

    • Decrease in the average rent. Less pressure on housing prices to increase 

  • 48% of BC’s Condo’s & Townhomes being built are specifically designed as rental units. You are unable to purchase these units. The 5-yr average is 31%

    • Upward pressure on future housing prices – 2026 and beyond

Is now a good time to buy a home in Greater Vancouver?

Yes, now is a great time to buy.

Interest rates are decreasing, housing inventory is way above the average, and the government is actively releasing new mortgage policies to stimulate the housing market.

Over 2025, it is expected that starter homes (condo’s & townhomes) will continue transitioning from over-leveraged investors to first-time home buyers as rental rates decrease. I anticipate this will keep condo prices flat and sales activity will increase.

At some point, however, once the inventory levels decrease back to the 10-year average, the effects of 48% of new builds being purpose built rentals will put upward pressure on housing prices.

2023 was a good year for the number of new builds registered, but it was one of the lowest production years of homes built for home-ownership. Only 52% of condos & townhomes were built for re-sale, and this trend is accelerating.

Lower supply of condos & townhomes available for first-time home buyers will continue putting upward pressure on housing prices once inventory levels decrease back to 10-year average.

16 Sep

Breaking News: Massive Policy Change for First-Time Home Buyers

General

Posted by: Adam Sale

Breaking News: Massive Policy Change for First-Time Home Buyers

30-Year Mortgages & $1.5-million Purchases

Every so often the federal government makes a massive policy change to influence Canada’s real-estate market.

In 2017, the government brought in the stress-test. This essentially threw a wet-blanket on a hot real-estate market. It helped end runaway housing prices, and it worked – until 2020.

Today, the federal government released a massive change to CMHC’s mortgage policies in an attempt to help first-time home buyers.

New Policy Coming December 16th, 2024.

CMHC is expanding the maximum amortization on their insured mortgage product for First-Time Home Buyers from 25-years to 30-years. Additionally, they will increase the maximum purchase price for these mortgages to $1.5-million.

Increasing the amortization from 25-years to 30-years will help improve affordability by lowering the mortgage payment by $49/m for every $100,000 borrowed.

A $500,000 mortgage with a 25-yr amortization @ 4.50% has a monthly payment of $2,767/m. Increasing the amortization to 30-years lowers the payment to $2,521/m. A difference of $246/m.

Increasing the amortization will increase first-time home buyers’ purchasing power.

Let’s look at an example:

Average BC Household Income: $100,000

Down-Payment: $50,000

Interest Rate: 4.50%

Current Max Purchase Price: $476,000

Max Purchase Price (New Rules): $506,000

Increased Purchasing Power: +$30,000

Key Take Aways

The lower the household income is, the less effect these policy changes will have on one’s purchasing power:

Annual Income: $60,000

  •    Increased Purchasing Power: +$16,000

Annual Income: $80,000

  •    Increased Purchase Power: +$22,000

Annual Income: $100,000

  •    Increased Purchasing Power: +$30,000

Annual Income: $150,000

  •    Increased Purchasing Power: +$52,000 

Annual Income: $200,000

  •    Increased Purchasing Power: +$64,000

These policy changes are a direct result of slow sales, rising inventory and falling house prices in certain parts of the country. The government is attempting to kick-start the real-estate market by allowing first-time homebuyers to increase their purchasing power without changing the stress-test.

I believe this change will motivate many first-time homebuyers to jump into the housing market. However, there is a risk this policy could do the opposite and increase home prices

It seems to me, allowing 30-year mortgages and increasing first-time home buyers’ purchasing power, the government is inadvertently setting a “floor” on housing prices.

Upcoming POTENTIAL CHANGES

OSFI has been relatively quiet lately. In April, there was talks of OSFI creating a stress-test 2.0 limiting uninsured mortgages to 4.5x Loan-to-Income at the big 5 banks. I believe we will receive an update to this policy within the next 4 weeks.

10 Sep

Fixed Rate Mortgage or a Variable Rate Mortgage?

General

Posted by: Adam Sale

Is it better to go with a Fixed Rate Mortgage or a Variable Rate Mortgage?

The Bank of Canada’s decreased the Prime Rate for the 3rd time last week, which is re-igniting the question above.

Over the past 24-months, the 3-yr fixed-rate has risen in popularity over the 5-yr Variable rate and the 5-yr fixed rate mortgages, primarily because:

  1. Rates were the highest they’ve been in 20 years ,and it didn’t make sense to lock-in for 5-yrs.
  2. The difference between the 3-yr fixed rate and the 5-yr fixed rate was very small (0.20%), and so paying the premium for a shorter-term mortgage with the expectation of renewing the mortgage 2-yrs earlier at a lower rate is easily justifiable.
  3. The 5-yr variable rate is 1% higher than fixed mortgage rates.

As of Wednesday last week, the Bank of Canada lowered the variable interest rate for the 3rd time, bringing the Prime lending rate down to 6.45%.

Many Economists predict we will see the Prime rate to drop to 4.7% by the end of 2025 – a further decrease of 1.75%.

Considering the mortgage rates listed below, we ask ourselves, “is it better to go with a variable-rate mortgage or a fixed-rate mortgage?”

  • 30-yr Conventional 5-yr Fixed: 4.69%
  • 25-yr Insured 5-yr Fixed: 4.44%
  • 30-Yr Conventional 3-yr Fixed: 4.99%
  • 25-yr Insured 3-yr Fixed: 4.74%
  • 30-yr Conventional Variable Rate: Prime – 0.70% (5.75%)
  • 25-Yr Insured Variable Rate: Prime – 1.00% (5.45%)

Let’s do a quick dollar-to-dollar comparison. We’re not going to consider lifestyle changes or potential future moves. We are only focusing on the costs of each mortgage as if it is held until completion.

To compare each option, we need to ASSUME future interest rates of the variable and fixed mortgages.

Assuming future interest rates opens us up to risk, but for the sake of this analysis let’s assume:

  1. By the end of 2025 (1-yr), Prime rate decreases to 4.70%.
  2. In 3-yrs time (October 2027) interest rates are at 4.00%

These mortgage products are compared over a 5-yr period

Variable vs fixed

Variable vs fixed

Conclusion:

Forecasting interest rates is virtually impossible to achieve correctly – just think of how high interest rates climbed over the last 2-years. At the beginning of 2022, not a single economist predicted Prime Interest Rate would increase by +4.75% in the year that followed.

A better alternative too predicting the future economy, is to focus on your personal 3 – 5 – 10 year plan, and then find a mortgage aligning with your plan.

Ask yourself these questions:

  • Can you see yourself living in this for the next 5-years?
  • Would your home support a growing family?
  • Would you move city/provinces if the right job opportunity came?
  • Do you know what is a better fit for your plan, paying off your mortgage quickly or investing?
  • Is your financial profile optimized for the most tax savings?

If you have any questions, or would like me to run a specific scenario for you, please reach out with the details and I can help.

All the best,

Adam Sale

778-215-4121

17 Jul

How to get out of a recession?

General

Posted by: Adam Sale

Did you know housing PULLS an Economy out of a recession?

First, lets quickly recap what a recession is.

A recession is defined as declining GDP, and high unemployment.

A simplistic way of thinking about GDP is to think of it as a collection of all the small businesses like a grocery store, a furniture store, or a sub-contractor.

A declining GDP essentially means the majority of these businesses are earning less money today than they were last year.

If a business earns less today than it did last year, then it will find a way to either reduce their costs and/or increase their sales to increase their profitability. Often, the quickest way to reduce costs is to let go of an employee. This leads to rising unemployment rates.

So how does the housing market PULL an Economy out of a recession?

When an economy is in a recession, the only tool the Bank of Canada can use to help the economy get out of a recession is to lower the interest rate.

Lowering the interest rate, makes the cost of money more affordable.

The monthly interest costs on a multi-million dollar development project is unimaginable when interest rates are high. Often, these interest costs are enough to make new developments un-profitable. Causing many developers to pause these projects, which leads to rising unemployment rates.

But, when the Bank of Canada cuts interest rates these projects become more profitable and incentivizes developers to keep building.

Each one of these multi-million-dollar development projects has a ripple effect on the economy. Development projects provide jobs for the: lumber industry, cement industry, steel industry, engineers, sub-contractors, furniture stores, hardware stores, etc.

When the Bank of Canada lowers the interest rate: developers build more projects -> creating more jobs -> increasing the GDP -> and helps pull the economy out of a recession.

5 Jun

BOC Rate Decrease / Is it too late to break my mortgage for a better rate?

General

Posted by: Adam Sale

Bank of Canada Decrease’s Policy Rate to 4.75%

Bank of Canada’s announcement today reduces the policy rate to 4.75%, down from 5% it has held since July 2023. This change aims to address economic pressures Canadians have been facing due to rising costs and high mortgage payments.

This reduction comes at a critical time. Many Canadians have been struggling with rising costs and higher mortgage payments and today’s announcement will provide a small amount of relief, but more importantly – HOPE.

Today’s announcement will lower monthly payment by $15 per every $100k borrowed, it’s expected that this is just the beginning, and we’ll see continued rate relief in the months and years ahead.

Bond Yields Dropping

In response to the Bank of Canada’s rate reduction, we are seeing the Bond Yields decreasing. Generally, this signifies fixed-rate specials are coming soon!

If you currently have a fixed-rate mortgage in the HIGH 5% – 6% range you may be able to refinance your mortgage early and save some money without incurring a massive penalty.

Lender’s use the posted rates on their website to determine the penalty for breaking a mortgage mid-term. When the posted rates decrease, your penalty increases.

Oftentimes, there is a short opportunity to capitalize on lower-rates before posted rates decrease.

As always, I am here to help you navigate these changes. Reach out if you need assistance or have questions

5-year bond yield June 5, 2024

5-year bond yield June 5, 2024

24 May

Vancouver Real-Estate Prices: Up or Down? This graph holds the answers

General

Posted by: Adam Sale

Where are BC’s Housing prices going? Up or Down?

 I believe this graph holds the answers…

Canada's new housing units to working population

Canada’s new housing units to growth in working age population

*Disclaimer* – I am from Vancouver, British Columbia and my bold prediction of double digit price increases is meant for Metro Vancouver Condo’s, NOT Canada as a whole.

THIS GRAPH TELLS US..

For every 1-housing unit being created, there are 5 people entering the Canada’s working-age population.

Working-age population is defined as anyone turning 15, or entering Canada who is +15.

The last time we saw a similar housing deficit was in 2008, but the economics were different..

INSIGHTS

During the 2008 financial crisis developers pressed pause on their building projects.  This created a lack of development and housing for the future.

BC Housing Start History

BC Housing Start History

BC’s real-estate market didn’t feel this lack-of-supply until 2014 and 2015.

This is when everyone who had reached the age of 15 in 2008-2010, was now 19-22 years old and moving out of their parents house.

In 2014, 2015 and 2016, the province of BC experienced housing price growth of 5%, 11% and 8.6%.

In Vancouver the price growth was even higher.

The lack of supply was created primarily from a lack of development from 2008 to 2015.

CURRENT TREND 

Today, we are in a different situation. We are dealing with massive immigration and, in my opinion, I believe the demand will hit the real-estate market much quicker than what we experienced from 2008 to 2015. As 64% of everyone coming to Canada is between the ages 25-54.

Canada's Immigration History

Canada’s Immigration History

Over the last 3 years developers in BC are building at an excellent pace. Averaging close to 50,000 housing units a year.

Unfortunately this is not enough. According to CMHC forecasts, BC needs to increase production to 80,000 units per year to keep up with demand due to population growth.

Thanks to higher interest rates over the last couple years, and coming off of insane price growth from 2020 to 2022, we are technically experiencing a lull in the Metro Vancouver Real-Estate Market.

Sure, it may not feel like this is a “lull,” but just wait until this pent-up demand comes back to the market.

Here are the main things we expect to kickstart the Metro Vancouver’s Real-Estate market:

  • Rate cuts in the 2nd half of 2024, and throughout 2025 and 2026
  • High Immigration -> which leads to increasing rental prices-> which leads to people being fed up with renting and deciding to purchase.
  • Lifting of foreign buyer ban January 2027 <- Hopefully this will be delayed again..

The Benchmark prices for Metro Vancouver from April 2022 to April 2024 have DECLINED as follows:

  • Detached Home: -4.8%
  • Townhomes: -2.1%
  • Apartment: -8.7%

I believe apartments will make the strongest rebound in prices, as this is the largest market for first-time home buyers and property investors.

BOLD PREDICTION

I believe we will see double digit price increases on Metro Vancouver apartments in the next 12-18 months.

Every rate cute will unlock increasing demand from buyers, with many of them being First-Time Home Buyers.

According to TD’s Top Economist, Derek Burleton, we’ve experienced an economic soft-landing due to rising interest rates, and when interest rates begin decreasing (likely July 2024) we will experience a soft-take off.

Metro-Vancouver Real-Estate generally moves much quicker than the rest of Canada, so it will be interesting to see how long it takes for momentum to build in one of the top liveable cities in the world.

I’d love to hear your thoughts, what do you think is brewing in the Vancouver/BC housing market?

Adam Sale

Mortgage Broker – Sale Mortgages

Phone: 778-215-4121

Adam@salemortgages.ca

28 Mar

(PROPOSED) Stress-Test 2.0

General

Posted by: Adam Sale

(Proposed) New Changes to Lending Regulations

OSFI (the banks’ regulator) proposed a new maximum borrowing limit of 4.5x borrowers’ annual income.

This proposed change will LIKELY come into effect in the first quarter of 2025. We do not have an official launch date, or confirmation of whether or not this will become the new rule. I’ve spoken with our TD & Scotiabank representatives and they have not received any guidance as of yet.

How this rule is to be applied

Read the Financial Post News Article HERE

According to the news article above, this regulation won’t be applied directly to the consumer. Instead, OSFI will monitor each banks overall portfolio and apply the new rule to each lenders’ mortgage portfolio.

This new regulation is intended for new mortgage applications – purchases and refinances, not renewals.

This new regulation would essentially be stress-test 2.0.

It will not apply to insured borrowers because the maximum mortgage an insured borrower will qualify for is already roughly 4.5x their annual salary when not factoring the added cost of default insurance.

How will this impact borrowers?

I disagree with this news article. Even with rates at their peak, these changes will certainly have an effect on borrowers’ lending capacity.

Currently, clients qualifying for a new mortgage with a stress-test around 7% can borrow approximately 4.75x their annual salary without any fallback in their savings. And approximately 5.15x if they have +$50,000 in savings.

When rates were lower and we used government stress-test rate of 5.25%, clients could borrow approximately 5.5X their annual salary with little fallback, and upwards of 5.85x their annual income if they had +$50,000 or more in savings.

What will this mean for the Real-Estate Market?

If this regulation is formally announced, there will be a large push by informed buyers to purchase before these rule changes are in place – think 2017.

Once the new regulation is in place, the Real-Estate market may struggle to find the correct pricing on properties – think 2017.

My thoughts

I believe the proposed changes are being slightly down-played by the media. This is essentially stress-test 2.0 and will effect many first-time home buyers and the real-estate market in general.

The regulatory changes would also create more control for the regulator, creating room for manipulation where borrowers ultimately suffer. Bank’s already adhere to strict lending requirements on their loan portfolio, and they control much of their borrowing limits by being competitive with their interest or uncompetitive – Scotiabank just recently went through this period of uncompetitive rates to re-align their borrowing portfolio.

By installing these new regulations borrowers may find themselves paying excessive interest rates if there is only one-bank-in-town making exceptions to the 4.5x loan-to-income rule.

I also foresee lenders qualifying all conventional mortgages at the 4.5x loan-to-income rule to streamline their process, and granting exceptions to clients:

  1. with secure jobs (accountants, doctors, lawyers)
  2. those with a large amount of fallback in savings (+$75)
  3. larger mortgage sizes (+$750k).

In the GVA and GTA the majority of first-time homebuyers are using a gifted down-payment to qualify for the purchase of their first home, but if this goes through, they will also need their parents to co-sign.