Current Interest Rates & Analysis – Jan 8, 2024

Current Interest Rates & Analysis – Jan 8, 2024

Summary: Fixed interest rates have been decreasing steadily over the past two months. At the same time, the variable rates have increased (the discounts off of the prime rate have decreased). At this time, the vast majority of clients are going with the 3-year fixed rate.

The changes in rates above in (mostly) green show the difference from two weeks ago.

It’s important to note that these rates are not final – we can get better rates in many circumstances. The rate offered is subject to: your lender, date of closing of your mortgage, as well as mortgage size. The sooner the mortgage closes from the rate request, the better the rate, and the higher the mortgage size, the better the rate.

Fixed rates have come down, specifically due to expectations of the variable rate decreasing in the future. Fixed rates are “leading,” whereas variable rates are lagging.

Remember in 2022 when the fixed rates started increasing quickly in March till May but the variable rate really only increased heavily in July? The bond market (fixed rates) expected rates to increase so they increased their rates beforehand. The same thing is happening now, where rates have decreased over the past two months by over 1% for most terms. It’s a sign of the variable coming down in the future.

Analysis
A few months ago I predicted rates have stopped climbing. It seems like rates have stopped climbing. However, in 2022, I, along with every other pundit out there, thought that inflation was “transitory” and that we would not have an increase in interest rates in the way that we did… Long story short, even the government told us that rates would not increase. They were wrong and we were caught unaware.

Now, rates are on the way down. We’re consistently seeing this with our fixed rates (leaders) and we’re being told by economists that the Bank of Canada will be decreasing their rates, starting this year.

I don’t want to be caught unaware again. However, even if rates DO decrease, the prevailing term and option that we are recommending (at this time) is the 3-year fixed.

I wanted to share the highlights of what Benjamin Tal (Chief economist of CIBC – highly respected) and the Financial Post’s Ted Rechtshaffen expect.

Key Highlights:
The Bank of Canada’s overnight rate in 2023 started at 4.25%, ending the year at 5%, a rise of 0.75% after a 4% increase in 2022.
Predicting a 2% rate decline by the end of 2024, back to a 3% overnight rate.

Detailed predictions for 2024 rate changes:
-No change on January 24 and March 6
-A 25-basis-point drop on April 10
-A 50 bps drops on June 5 and July 24
-A 25 bps drops on September 4, October 23, and December 11

Predictions are based on negative Canadian economic trends, interdependency with other central banks, and historical Bank of Canada rate moves.

Eitan’s Predictions: The prediction of 2% decrease to rates in 2024 above are slightly more than I would expect

I expect rates to decrease by about 1% this year.

It’s speculative (everything is speculative) to think that we will not just have inflation coming back down, but that the economic data will fall precipitously as well (requiring massive rate decreases). There’s a good case for rate cuts but the economic data is generally pretty good – there was a 5.8% year over year wage increase in December and this growth isn’t showing any signs of weakening.

We also have massive immigration, spurring economic growth, although job gains aren’t as high as we would like. It seems to me that a gradual decrease in rates is what the Bank of Canada is going to do, as opposed to cutting too much too quickly.

Further, the Bank of Canada wants, at all costs, to eliminate any possibility of having to hike rates again. A quick decrease in rates, creating a frenzy of economic growth and FOMO in the housing market has a good chance of increasing inflation again… mitigating against this is one of the Bank of Canada’s key goals.

Current Interest Rates & Analysis – Jan 8, 2024

First-Time Home Buyers’ Tax Credit (HBTC)

All About Mortgage Porting

Continue Reading:

First-Time Home Buyers’ Tax Credit (HBTC)

All About Mortgage Porting