Chad Moore Calgary Mortgage Broker

Hey Guys!

I wanted to get some information out to you related to movements in interest rates (fixed and variable).

1.  Bank of Canada potentially raising rates in January. 
2.  Bond market yields moving higher. 
3.  Thoughts and links. 

Bank of Canada (BoC):

The BoC moves the “key lending rate” or “central interest rate” up and down in Canada.  At the most basic level, moving this interest rate up or down adds or removes stimulus from the economy. 
 
The BoC key lending rate effects the Prime lending rate at commercial banks (RBC, CIBC etc).  The Prime rate is attached to all sorts of lending in Canada (student loans, personal lines of credit, Mortgages).

I’ve seen several headlines and news articles calling for the Bank of Canada to raise rates in January.  This is ahead of “schedule” communicated to the market …we’ve been told middle months of this year is the target to raise rates.  As we know, plans do change. 

OPINION:  I don’t think the Bank of Canada is going to raise rates in January.  I think the narrative of rising rates in the media is creating some of the desired effect the Bank of Canada wants. 

The most recent “monetary policy report” (MPR) the Bank of Canada published was October 2021.  The Omicron virus, and related economic head winds, were not even mentioned in that report as this new corona strain did not exist (in the media anyways). 
 
Statistics Canada just reported headline inflation at 4.8%!  The Bank of Canada also just renewed their 5 year mandate with the federal government targeting inflation between 1-3%.  So they should raise rates, right?  Yeah, I agree.  However, so much more is at stake and so many inputs are at play in these rate hike decisions.
Inflation rhetoric went from “oh this is transitory

“ok, this is not short lived

“ahh, this is supply side related and rate hikes won’t fix it” … tough spot right.

I’ve written you about stagflation for years.  This is where we have decreasing or anemic national economic output (GDP) with rising inflation. 
 
Clearly, rate hikes are coming.  The requirement for emergency low interest rate is behind us.  Let’s see how the “system” responds.

Variable Rate Mortgage Clients:

Guys, stay calm.  We know rate hikes are coming.  We spoke of this at the time we arranged your Mortgage.  The market goes up, and it goes down.  One general plan is to raise your payment AS IF you are in a fixed Mortgage rate.  

Please consult with me if you are thinking about converting your variable rate Mortgage to a fixed rate.  

I posted this on LinkedIn (connect with me there) …If I’m anxious about rates rising, I raise my payments ahead of time.  I go on offense.  I feel more in control.  I like that. 

Bond Market Update:

Bond prices and bond yields are the inverse of each other (I put my thumbs up and down beside each other, LOL).  Bond yields influence fixed Mortgage interest rates. 

The pandemic brought about MASSIVE monetary intervention from Central banks around the world.  This intervention is unwinding so markets are adjusting.  

Here in Canada, the Bank of Canada has exited the pandemic bond purchase program.  The BoC is still purchasing bonds that are renewing, which is a much smaller form of stimulus.  With all do respect to Canada’s bond market, we are a small player on the global scale.  

The elephant in the room is the U.S. Treasury market.  The U.S. Federal reserve is planning to unwind their Treasury purchases and raise rates.  All eyes are on the U.S.  

The closest anecdote we have to U.S. quantitative tightening (bond purchase reduction) and hiking interest rates is 2017-2018.  When the stock market dropped 20% December 2018 (oops), liquidity was again injected into the market again. 
 
John Mauldin wrote, “COVID era monetary policy could end how it came in: with a flurry of uncertainty and confusion.”

Links:

I’m well aware of the “echo chamber” that is social media.  I can generally find a link to an article that supports the narrative that works for me.  
I like to remain, what I think, is more balanced.  Here are some links of interest to articles about rate movements for you:

BNN article relating to markets, technology and wages.
BNN article relating to markets, immigration and wages.

I hope this is helpful!

Talk soon,Chad Moore

P.S.
If you haven’t heard, Calgary’s detached Real Estate market is very tight.  There is little supply and a lot of demand.  I’m hearing interesting stories from my clients and Realtor partners about buyers lining up to view homes, list Realtors sometimes receiving 20+ offers, homes selling $100K over list price.  

I hope for many reasons, listing inventory comes up for sale this Spring.  

P.P.S.
 
I alluded earlier in my email, I’m posting on LinkedIn.  Connect with me there.  I hope to add value on that platform with my thoughts and data. 

P.P.P.S.

I’m upgrading some tech in my business.  Talk about a “give to get” mentality …migrating my database, linking systems with API’s isn’t exactly easy.  Long term though, I hope my efficiency increases. 

Thanks for reading!