Chad Moore Calgary Mortgage Broker

Hey Guys!

The market odds of a 0.50% or 50 basis point rate cut this Wednesday by the Bank of Canada is about 90%.  

Here is a link to a Globe and Mail article (archive link) that cites a 0.75% rate cut is more justifiable than a 0.25% rate cut at this point. 

Remember, each of the last three Bank of Canada meetings have been 0.25% rate cuts already.  And now we’re set for another 0.50%.  

Rate are falling—and fast!  

Here’s what this means for Calgary housing

Variable Rates & Payments:

Payments based on a $400K Mortgage, with a 25 year amortization:

Rate today: 5.85%

Payment today: $2,523/mo

Bank of Canada rate cut of 0.50% October 23rd:

Rate: 5.35%

Payment: $2,406/mo

Bank of Canada rate cut of 0.50% December 11th:

Rate: 4.85%

Payment: $2,292/mo

The Mortgage payment on a $400,000 Mortgage could come down by $231/mo before Christmas!

Does Housing Affordability Change?

Not exactly.

Here’s why …

The Mortgage qualifying stress test is the greater of 5.25% OR 2% above the contract interest rate. 

Even with variable interest rates plummeting, housing affordability is about the same because of the stress test dynamic.  For now.  

For example, fixed rates are likely to remain lower than variable rates, although by a smaller margin.  So using a fixed rate is the path for maximum affordability. 

What these rate cuts might change is buyer psychology.  From the pandemic experience, we’ve been trained …low rates equal prices up.  

Conclusion:

This is A LOT of central bank volatility. 

Rates went to down to zero, up to five percent, and now back down again …in about 5 years.  That is a lot of interest rate movement.  

Maybe lower rates are enough to bring investors back into the market?  Or pull some wait-and-see home buyers off the sidelines?  I don’t know.

I hope this is helpful!  Any questions, reply to this email. 

Talk soon,

Chad Moore

P.S.

In many southern Alberta wildlife management units, the general hunting season begins October 25th.  This means licensed hunters can use a rifle to hunt.  Good luck to all!