8 Dec

Bank of Canada Holds Rates at 5% / Economic Cracks are Forming

General

Posted by: Adam Sale

Bank of Canada held rates at 5% – Prime Rate remains at 7.20%.

Inflation continues to decrease, and we should be within the Bank’s 2% inflation target range in a couple months.

The higher rates are having a negative impact on the economy and cracks are beginning to form:

  • Third quarter GDP numbers show the economy contracted by 1%. 
  • Unemployment numbers are continuing to trend higher, currently at 8%

It feels like we are setting the stage for a mild recession in 2024.

The biggest challenge with this recession will be the speed at which the Bank of Canada can lower interest rates without increasing inflation.

Economists are predicting we will see the first round of rate cuts as early as March. Personally, I feel this is too optimistic. I am leaning towards the first round of rate cuts in June/July 2024.

The longer the Bank of Canada can put off the rate-cuts, the better chance we have of keeping inflation at bay.

Some relief is on the horizon!

Mortgage Update: 

We are getting weekly updates from lenders with lower rates. The rates you are quoted today will likely be lower 1-month from now. 

If you have a renewal coming up, please let me know 

I will send you a list of market rates, and where we expect them to be when you renew.

The variable rate remains unchanged. Economists expect the Bank of Canada to decrease the variable rate by 2% over the next 2 years. 

Vancouver Real-Estate: 

The lower-mainland naturally slows down in December as buyers naturally shift their focus to the holiday season.

There is no better time than the holidays to find a deal as many buyers are too pre-occupied to be going to open houses on the weekends. 

Don’t expect this lull in the market to last long. 

As soon as middle of January comes the Spring Market quickly picks up speed. When the lower rates hit mainstream news we will have a recipe for a very busy market in 2024.

East & West Vancouver have shifted into a Balanced Market.

North Vancouver is still a Seller’s Market. 

In my next email I will provide you with some common themes to housing prices during a recession – it’s not what you think!

21 Jul

How to Time the Market: Low Sales Volume Indicates Lower Prices

General

Posted by: Adam Sale

It appears the Vancouver real-estate market is setting up for a slow-down this fall as interest rates continue climbing, causing people to qualify for less and scaring many buyers away from the market.

A couple key reports to keep an eye on to confirm if we are heading for a slowdown are:

  • Unemployment Report: August 4, 2023 – If the unemployment rate goes down, then the bank of Canada will stay the course and raise rates again in September
  • CPI Inflation Report: Tuesday August 15, 2023 – If core inflation continues to stay in the 3.6%-3.8% range, then Bank of Canada will continue to stay the course and raise rates again in September
  • Bank of Canada Interest Rate Announcement – Wednesday, September 6th – If rates raise again, mortgage rates will be in the mid-high 6% range.

How to Time the Market

Unlike other real-estate markets in Canada, it is extremely tough for the Vancouver market to turn into a buyers market when the demand to live here is so high due to immigration and lack of supply.

Even if/when the market starts to favour buyers more than sellers the realestate prices do not decrease much unless you are looking at properties priced on the higher end of the spectrum (+1.5 mil), and more so in the (+3 million).

One of the indicators to keep an eye on to spot the best deal is Volume of Recent sales (units sold), such as a condo/townhome/detached house. Pay attention the specific type of property you are wanting to purchase as each of these units have are their own market.

Generally, when interest rates are at their highest (such as last November/December/January) volume of sales (units sold) were at their lowest, leading to less competition and lower prices. Of course, this is most noticeable on the higher-end of the price range where the amount of buyers is the smallest.

Based on the recent rate increases we are setting up for another slow-down in the second half of the year, especially if the Bank of Canada raises rates again on September 6th.

Should you decide to purchase when interest rates are at their highest and volumes are at their lowest, understand this will likely be the time you will get the best price, but it will also be the time you will be paying the highest mortgage costs.

In this situation, it is better to go with a shorter term loan (1-yr/2-yr) even though it will have a higher payment than the 5-yr fixed. After your term is complete you will *hopefully* be able to renew into a much lower interest rate. Then you will have bought at a great price and a ultimately have a lower-rate mortgage when viewed over a 5-yr timeframe.

In Vancouver, it is virtually impossible to receive a low-mortgage rate and a low-price on a home. If you can afford it, I feel it is better to receive a low-price on a home and pay a higher mortgage rate instead of receiving a low-mortgage payment and paying a higher price.

The reason I believe this is simple, when rates decrease you immediately see home prices increase, and as home prices increase your home equity also increases.

For example: Lets say someone who’s shopping for a home can only qualify for a property for $750,000 when mortgage rates are at 5.34% this will create $ 4,313/m payment. If rates drop to 4.34%, that same person would now be able to qualify for a purchase price of $825,000. This puts pressure on sellers to increase their home price as they know their home is affordable to a larger market.

Now, if the person had purchased the property for $750,000 and in 3-yrs time their home is now worth $825,000, they would have an additional $75,000 in owner-equity, and only paid $14,580 in extra interest.

I came up with $14,580 by taking a the additional interest charged on a 3-yr mortgage payment on $750,000 purchase price at an interest rate of 5.34% vs 4.34% ($4,313 – $3,908 = $405 x 36 months)
12 Jan

Changes Coming to Mortgage Qualifying Rules

General

Posted by: Adam Sale

Stricter Mortgage Qualifying Rules

OSFI, Canada’s banking regulator, is once again looking at “clamping down” on higher-risk borrowers from entering the market.

In 2016, the Department of Finance introduced the “stress-test” on insured borrowers. Then in 2018 OSFI expanded the stress-test to include uninured borrowers.

OSFI is back at it again, and they are proposing new rule changes to minimize lenders’ risk.

Credit defaults are on the rise in Canada, and OSFI is constructing new policy with the purpose of protecting lenders’ from risk of defaults in case a borrower loses their job, suffers from a divorce or experiences a sudden increase to interest rates.

OSFI is considering the following 3 approaches:

  1. Restrict mortgage debt, OR total debt, to 4.5x annual income – Very aggressive.
  2. Create stricter debt servicing coverage restrictions similar to what we see with insured mortgages – Very aggressive.
  3. Create a more adaptive Interest rate affordability stress test based on different risk characteristics, product types and term lengths.

OSFI said it may choose to pursue “one or more of these measures or others that meet OSFI’s prudential policy objectives.”

OSFI has an open consultation period for industry professionals to give their suggestions until April 14, 2023. Afterwards, OSFI will be reviewing these suggestions and should have new rules to implement by December 2023.

Click the links to learn more:

22 Dec

Inflation Rate, How-To Video & Rate Special

General

Posted by: Adam Sale

Inflation Report, How-To Video & Rate Specials

CPI Inflation Report

We received an early Christmas gift from Statistics Canada yesterday morning regarding the consumer price index (CPI) report.

For the 6th month in a row the CPI remained relatively flat. the CPI has increased only 1.1 points with the last 6 months. This indicates the rate of inflation has slowed considerably, and now it will just take some time for the numbers to catch up.

Check out the video below to see what I mean.

The inflation rate decreased from 6.9% to 6.8%.

Based on the consumer price index (CPI) report from Statistics Canada, I am optimistic we will achieve the Bank of Canada’s goal of decreasing the inflation rate sooner than expected (Q3 of 2023).

Unless, of course, we see another large spike in fuel prices, or possibly another ship stuck in the Suez canal…

The Consumer Price Index is the underlying data used to determine the inflation rate.

Will There Be Another Rate Hike? 

I think so, the CPI numbers for December 2021 decreased slightly before posting ever increasing numbers from January to July 2022.

When the inflation report for December 2022 is released it will be using the December 2021 CPI numbers as the base, and since the base declined in this month, it will be very difficult a show a decreasing inflation rate.

Expect the inflation rate to increase from 6.8% to 7.1% before dropping down in February.

How to Calculate the Inflation Rate – Video
How to Calculate the Inflation Rate - EASY!

RATE SPECIALS

We continue to see mortgage rates decreasing in the 3-year, 4-year & 5-year fixed terms. I believe this trend will continue throughout 2023.

Insured Mortgages

5yr fixed as low as 4.79%

3yr fixed as low as 4.89%

25-yr Mortgages

1-yr & 2-yr – 5.59%

3yr: as low as 4.94% – 5.08%

5yr: as low as 4.79% – 5.09%

30-yr Mortgages

3yr: 4.99% – 5.12%

5yr: 4.79% – 4.99%

If you want to purchase a home in the next year or two, I would love to speak with you!

I help my clients by putting together home-purchasing plans so they can maximize their qualifying potential, and stay on-track with their timeline.

Adam Sale

Cell: 778-215-4121

Email: adamjsale@gmail.com or adamsale@dominionlending
7 Nov

The Secret For Getting The BEST Pre-Approval Rate

Mortgage Tips

Posted by: Adam Sale

Banks Don’t Want You to Know This

Here’s a tip that can help save you hundreds, maybe even thousands of dollars.

Fixed mortgage rates tend to increase before the Bank of Canada increases their interest rates.

The reason for this is because fixed mortgage rates are determined by what happens in the bond market, and as we know, the bond market is determined by savvy investors.

These investors are also anticipating the Bank of Canada will raise interest rates on December 7th, so they are including this rate increase into their investment decisions.

If you want to get the best mortgage rate possible, submit a rate-hold before November 17th, when StatsCanada releases their inflation report.

If you have any questions, feel free to message me or give me a call. I’m happy to help, and let’s get an application started for you.

Adam Sale
778-215-4121
adamsale@dominionlending.ca

24 Oct

CPI Report, Inflation Rate and 2023 Mortgage Rates

General

Posted by: Adam Sale

Consumer Price Index, Inflation Rate and 2023 Mortgage Rates

On October19, 2022 Stats Canada posted September’s data to the consumer price index (CPI), and updated the inflation rate.

For the 4th month in a row, the Consumer Price Index posted results in-line with previous months, showing no significant gain. This decreased the inflation rate from 7.0% to 6.9%.

Monthly Consumer price index

Now I know 0.1% seems like a miniscule decrease, but if we can stay on this path we’ll see large decreases in the inflation rate starting in January through May.

**To learn how the inflation rate is calculated please see the formula outlined below.
As you can see from the last 4 months of data, aggressively raising the interest rate has slowed the economy and kept the CPI index within a range of +/- 0.5. If the bank can maintain this stalled price growth going forward, we will see the inflation rate come down quickly in the first half of 2023.

Expected Inflation Rate for 2023

If (big if) the Consumer Price Index doesn’t exceed 153.6 (current CPI is 152.7) the expected inflation rate for 2023 is as follows:

Monthly inflation rates
** A conservative CPI of 153.6 was used for this chart.

What happens when inflation gets back to the 2% target? Will interest rates decrease immediately?

Once the Bank of Canada hits their target (hopefully by summer 2023 if all goes well), it is unlikely we will see any major decreases in the variable interest rates for a few months. The Bank will want to keep interest rates elevated for sometime afterwards to ensure inflation doesn’t return.

However, there is some good news! As the inflation rate drops, bond yields will decrease as well. The drop in bond yields will then cause the fixed mortgage rates to decrease. The first rates to decrease will be the 5-year fixed, then 4-year fixed and so on.

What to expect in the coming months?

Expect at least 2-more rate hikes this year. Bank of Canada will likely increase the interest rate by 0.50% – 0.75% on October 26, and will likely see another increase on December 7th.

The Consumer Price Report/Inflation Rate Reports releasing on November 17, December 21, and January 17 will provide us with the data we need to know to ensure we are on the correct path.

The Bank is looking for a significant drop in the inflation rate, but (if all goes well) we wont see this drop until the January CPI Report.

How to Calculate the Inflation Rate using the CPI Report

Using the Consumer Price Index graph above, we calculate the inflation rate on a yearly basis.
The formula to calculate the rate of inflation is: (X – Y) / Y * 100 = Inflation Rate

  • X is the current month
  • Y is the base month

Example
X – Current Month: September 2022: 152.7
Y – Base month: September 2021: 142.9
Equation: (152.7 – 142.9)/142.9 * 100 = 6.857%, we round up to get an Inflation Rate of 6.9%

Links to the CPI Report Data
Do you have any home finance questions I can help answer? Let’s connect!
Adam Sale Mortgages
778-215-4121
21 Sep

How to Calculate the Inflation Rate

General

Posted by: Adam Sale

Inflation Data Released Today

Great news today, this is the second month in a row the inflation data is showing the inflation rate decreasing. This is a step in the right direction, especially since we saw the Bank of Canada increase their overnight interest rate on September 7 by another 75 basis points to 3.25%.

In June, we saw the Bank of Canada switch their strategy for tackling inflation from being too passive to a much more aggressive tightening tactic. The Bank stated they plan on front-loading rates by raising the overnight rate quickly to stop inflation in its tracks.

According to the new inflation data this is exactly what’s happening, but there is still a long way to go. The current inflation rate is at 7% and the Bank is trying to bring it down to 2%.

How Inflation is Calculated

Most people understand inflation is calculated using the CPI index, which is essentially an index of prices for a group of random goods & services. The changes in prices of this group of goods & services over a period of time indicates the amount of inflation in the economy.

Fewer people understand how the rate of inflation is calculated. The inflation rate is calculated on a yearly basis. To determine the inflation rate for August 2022, we use the CPI index for August 2021 as our starting point and the CPI index of August 2022 as our current date.

The formula to calculate the rate of inflation can be presented as X-Y/Y * 100, where Y represents the consumer price index at the starting point, and X represents the consumer price index of the current date.

For example 
Starting point: August 2021: 142.6
Current date: August 2022: 152.6
Equation: (152.6 – 142.6)/142.6 * 100 = 7.01%
CPI and Inflation Data is posted monthly here: https://www.rateinflation.com/consumer-price-index/canada-cpi/

When looking at the data from the website above we notice a few things:

  1. The CPI index grew an enormous 6 points in 2021, and so far, it has grown 7 points in the first half of 2022.
  2. Based on CPI index data recorded over June – August 2022 it appears the CPI index has peaked (fingers crossed!).
  3. If the Bank of Canada is able to keep the CPI index between 152.6 – 155.0 over the next 9-months we will achieve reaching the Bank’s inflation target of 2% by May 2023.
    1. (155.0 – 151.9) / 155.0 * 100 = 2.00%

Once we achieve an inflation target of 2% it will be anyone’s guess as to how long the Bank will keep their overnight interest rate elevated before bringing it back within their target level of 2% – 3%.

Where are Rates Heading?

October 19th is when September’s inflation data will be released, and the Bank of Canada is meeting on October 26th to determine if there will be any changes to the overnight interest rate.

If the October data continues to show the inflation rate is decreasing (the CPI index is stagnant), then I believe we will see a 0.25% rate hike or possibly no hikes.

If the data shows the CPI index is still increasing, then we will likely see a 0.50% rate hike and possibly (but unlikely) another 0.75%.

If you have any questions about your mortgage and would like me to perform a calculation to determine what your monthly payments should be to maintain your desired amortization schedule please don’t hesitate to reach out.

Best,
Adam Sale Mortgages

11 Aug

What is a 2nd Mortgage, and why are they so popular?

General

Posted by: Adam Sale

2nd Mortgages are rising in popularity

Over the last 2 months I’ve had several conversations with homeowners interested in finding alternative ways to unlocking their home equity to either purchase a rental property, or consolidate debts.

When rates were significantly lower last year it made sense for homeowners to refinance their property, take out equity, and take advantage of a lower rate. But now that fixed rates are at 4.59% or greater, it doesn’t make financial sense to refinance a property: pay the penalty for breaking a mortgage, and end up paying a much higher mortgage payment.

This is why 2nd mortgages and Home Equity Lines of Credit in the 2nd position are increasing in popularity. These mortgages are a cheaper option for homeowners to tap into their equity without having to pay a penalty or disturbing their current low monthly payment.

They operate like this:

Original Purchase Price $600,000
Original Mortgage amount $556,000
Current Home Value $750,000
Current Mortgage amount $500,000
Available Equity – (*80% of Current Home Value – Current Mortgage) $100,0000
  • When adding a 2nd mortgage or a Home Equity Line of Credit, we are only required to stress-test the new funds.
  • Generally, this makes the 2nd mortgage an available option as long as the value of the property has increased enough.

What is a 2nd Mortgage?

A second mortgage is like a regular mortgage except it is considered to be in the “2nd position” on the property’s title. Which means should the property be foreclosed on, the original mortgage would be paid out first, the leftover funds (if any) would go towards paying off the 2nd mortgage and then finally all the remaining funds would be distributed to the owner.

Because the 2nd mortgage is paid out after the original mortgage, the lender is assuming additional risk so they lend these funds out at a higher interest rate.

Even with the higher interest rate, a 2nd mortgage or a Home Equity Line of Credit in 2nd position is often a much cheaper option than the current costs to refinance a property.

If you are interested in exploring your options to tap into your home equity to either purchase an additional property or consolidate debts and increase your monthly cashflow please don’t hesitate to reach out.

Adam Sale Mortgages

778-215-4121

13 Jul

Key Points of Bank of Canada’s 1% interest rate increase

General

Posted by: Adam Sale

Key Points from Bank of Canada’s 1% Rate Increase

As I’m sure you’ve heard by now, the Bank of Canada increased they’re overnight rate by 1%, this will increase the Prime interest rate to 4.70%.

Below is a snippet of the monetary policy report & key points

Tiff Macklem discusses the Bank’s strategy 10:55 – 14:20

Key Points from the Report

  1. The Canadian economy is in excess demand and short supply, this is causing inflation to increase.
  2. To bring inflation back to the 2% target the Bank is raising interest rates to reduce demand.
  3. The previous strategy to raise rates over a 2-year period would’ve lead to prolonged inflation and the need to raise rates even further.
  4. Bank of Canada has decided on a new strategy to “Front-Load Interest Rates” in an attempt to stifle demand and allow supply to catch up.
  5. The Bank was not prepared for the global economy to rebound from covid so quickly, which lead to excess demand for fuel and created many supply chain complications.
  6. Once demand is reduced, this will alleviate stress on fuel & supply chains and we should see inflation come back down.
  7. Expect a few more months of inflation in the 8% range before it begins decreasing.

Looking forward:

The Bank considers the neutral range of the overnight lending rate to be between 2% & 3%. Today’s rate increase is putting us right in the middle at 2.5%.

Tiff Macklem has said in the report he is considering raising the rate again to the upper bound (3%) or even slightly higher (3.25%). In the future I think its safe to say we can expect another (0.50% – 0.75%) rate hike.

Where’s the Opportunity?

If you have clients looking to purchase, renew or refinance the best mortgage rates are still being found at the Credit Unions for Fixed Rates and Monoline lenders for Variable rates.

Prospera Credit Union is still offering their 1-3 years fixed interest rates in the 4% range, and a 5-year fixed special at 4.99%

First National Financing has the best variable rate on the market at Prime – 0.90% for an insured mortgage.

If you would like to know more, lets connect!

Adam Sale Mortgages
778-215-4121

29 Jun

How to get the Best Mortgage at Renewal

Mortgage Tips

Posted by: Adam Sale

Did you know you can shop various lenders when you renew your mortgage?

You may be close to completing your first-term or finishing up your 2nd, 3rd or 4th term, but did you know that at your renewal period you can shop other lenders to find a more competitive offer?

The 120-days before your renewal date is when it really pays to do your due diligence and see what’s available on the market.

Did you know about 40% of homeowners take their banks first offer, but this isn’t necessarily the best option, because its in the 2nd, 3rd, and 4th terms where banks really make their money. You see, banks understand how their clients operate, they know that most clients would rather pay a higher interest rate then go through the process of switching lenders.

There are many industries that work this way, but none more popular than our favorite phone & internet companies. You’ve probably had this happen to you, you sign up for a 2-year internet package at a great rate and hell they probably threw in a free a tv too! But what happens after that 2-year honeymoon phase, well they jack up the rates. And now when you try to get them to lower the rate they say something like Sorry, we keep those specials for new clients only.

If only there were some sort of internet plan broker to help make switching from one provider to the next a breeze, well unfortunately, I can’t help you with your internet package, but what I can do is help make transitioning from one lender to the next simple, and easy.

When you transfer your mortgage from one lender to another lender you will receive that lenders’ lowest rates available, and often times  lenders will even provide a cash incentive for switching.

So, before you sign that renewal form, come talk to me and lets see if we can find you a better mortgage and some free cash.

I’m Adam Sale Mortgages, and I look forward to helping you grow your wealth!