How will Bank of Canada’s recent development affect you?

The Bank of Canada announced they are no longer printing money to purchase the Government of Canada’s bonds, but what does this mean for the consumer, and where are mortgage rates going in the near term?

Ending the bond buying program is the initial step required before the Bank of Canada increases their target interest rate. The bond buying program provided the Canadian Government with the necessary funds to weather the Covid storm, but it also kept fixed & variable mortgage rates at all-time lows.

Following the Bank of Canada’s announcement today, all the Government of Canada’s bond yields increased significantly, especially the 2-year & 3-year bonds which saw increases of 24% & 17%.

Outlook

In the short-term (1 – 6 months): We will continue to see increases in the fixed interest rates, as well as decreases in the discount on the variable interest rate. The current discount on variable interest rates is Prime minus 1.00%

In the longer-term (6 month – 1-year): The Bank of Canada has accelerated their timeline to increase their target interest rates as early as April 2022. An increase to the target interest rate will directly increase the Banks’ Prime Lending rate, which is the cornerstone of all variable interest rate products (variable mortgages, credit cards & lines of credit). The current prime interest rate is 2.45%, down from pre-pandemic levels of 3.95%.

Prediction – Vancouver’s Real Estate Market: It is unlikely we will see a downturn in prices, but we could see a drop in the rate that these house prices are increasing. Vancouver continues to suffer from lack of housing supply which continues to put upward pressure on housing prices.

Increases to mortgage interest rates will not decrease buyers’ purchasing power because buyers are already qualifying for mortgages at the Stress-Test interest rate of 5.25%.

For more information on this topic, or mortgage inquiries please contact me at adamjsale@gmail.com or by phone at 778-215-4121.

Best,