Chad Moore Calgary Mortgage Broker

I have a quick story for you that has altered my thinking over the past 15 years.

In 2003 I was playing football for the Calgary Colts Junior team and was invited as a guest to the Calgary Stampeders rookie camp.  

I think it was more “for-the-experience” than an actual “try out”.  Regardless, for a 20 year old guy, pretty cool. 

I remember having a HUGE realization over those three days of practice that I continually remind myself of.

This is something that has turned into an overarching theme in my life that I practice with all of you …and here it is:

It’s my belief that top performing people, in sport/business/relationships etc, are EXPERTS at very basic and simple fundamentals.

I’ll never forget my first positional drill with those players and coaches at that rookie camp …

It wasn’t some whiz-bang drill that was the secret to being a pro football player.  The drill was the same I had been exposed to since high-school!

The secret was these players were experts at fundamentals.  The coaches were experts at teaching fundamentals. 

The players ran well.  Took care of their bodies.  Executed perfect body movement and footwork.  

Even the playbook was not anything I had not already been exposed to.

Everyone (players and coaches) were experts at f-u-n-d-a-m-e-n-t-a-l-s.  I’ve never forgotten that.  

This is a big reason why I like to break down the fundamentals of Real Estate for you. 

Shockingly, one of the fundamentals in my business is to communicate and provide you value so I stay top of mind, earning your trust for future business and referrals.  

Here’s what I have for you …

Canada’s Inflation report was released Friday, August 17th.  Here’s a fundamental break down of what’s happening and my thoughts on what’s next. 

Cool?  Cool.

Inflation: A basket of goods

Consumer Price Index (CIP): This is the overall price change for a basket of goods in Canada.  Are things more expensive to buy?  If yes, this pushes inflation higher. 

CPI came in above the market consensus at 3%.  This is the number being flashed around in the media. 

I think it’s important to note the Bank of Canada (BoC) has created three other measurements of inflation that help guide their decision making to change our overnight interest rate (the Bank rate) or not.  

1. CPI Trim
2. CPI Median
3. CPI Common

CPI Trim excludes about 40% of the most weighted price variations from the total CPI basket of goods.  For example, this would smooth out price variations in food caused by natural disaster etc. 

CPI Median is the price change movement, at the 50th percentile, in the overall CPI basket of goods.  This is fairly similar to CPI Trim in that it strips out volatile goods.  

CPI Common uses a statistical procedure called a “factor model” that track common price changes in a CPI basket of goods looking for common variations. 

Yes, CPI inflation is at 3%, which is at the top of the comfort zone that the Bank of Canada is committed to maintaining.  

However, all other measures of inflation (above) are flat month over month, hovering around 2%.  See image below. 

Some short-term and volatile prices are swinging CPI higher that are not reflected in other CPI measurements (the price of gasoline is one culprit). 

The Bank of Canada has stated they are willing to look through short term, non-economic driven spikes to inflation, focusing more on longer-term inflation targets. 

What Does This Mean For Interest Rates?

Adjustable Rate Movement:

I’m reading the market consensus is the Bank of Canada will NOT raise rates on September 5th.  There is a higher chance rates could rise later this year at October 24th or December 5th interest rate announcement dates. 

Remember, for Adjustable Rate Mortgages movement in the Bank of Canada’s interest rate will trickle into your Mortgage interest rate.

A 0.25% rate increase will equal about $12 a month payment increase for every $100,000 you have borrowed. 

Fixed Rate Movement:

I’m also watching how the Canadian Bond market changes in these coming months.  You’ll recall, the Bond market is where fixed Mortgage interest rates are derived from. 

Bond yields have actually come down since Friday’s inflation report was released. However, I still think it’s prudent to plan for higher yields (higher fixed interest rates) in the near to medium term future.  #BOSSMORTGAGE

Why Rates Move?

Ultimately, higher interest rates are usually in response to higher prices for consumer goods based on increasing wages, low unemployment, higher consumer confidence, growing GDP etc, etc.  

Nationally, Canada’s Central Bankers are seeing the above play out in our economy.  However, Canada is quite diverse, geographically and economically.  

This is a balancing act because higher interest rates create stricter demand for Real Estate, which in Calgary’s market, we could do without.  However, in other parts of our Country, higher rates seem more warranted.

Please continue to read me content, in combination with other news pieces, to help form your own thoughts on near and long term movements in Canada’s interest rate environment.

I hope this fundamental review is beneficial for you ;-). 

Talk soon,

Chad Moore