Bank of Canada signals low rates for longer

Cdn Mortgage Rates

The Bank of Canada announced on July 16th, 2014 that it was keeping its trend-setting overnight lending rate at 1 per cent.


The overnight rate has not moved in almost four years, and the Bank’s July announcement and accompanying Monetary Policy Report (MPR) suggest the most likely scenario right now is that the overnight rate will remain parked where it is for at least another year and a half.


That said, the Bank made clear that it was “neutral” with respect to not only the timing but also the direction of any future change to the policy rate. The Bank is taking a wait and see approach at this point, saying that any future moves “will depend on how new information influences the outlook and assessment of risks.”


With inflation having “moved up to the 2 per cent target in recent months, sooner than expected,” talk of a rate cut has all but gone away; however, the Bank attributes the recent rise in inflation to temporary effects, specifically higher energy prices, a lower Canadian dollar, and other sector-specific shocks rather than to any change in domestic economic fundamentals.


As such, headline inflation is expected to continue to bounce around in the 2 per cent range over the next two years, while under the surface there will be a symmetrical unwinding as the temporary effects currently pushing it up gradually fade away and the economic fundamentals currently holding it down, namely slack in the economy and elevated retail competition, also become less of a factor.


The Bank noted that global economic growth has been on a lower track than was forecast in the April MPR, and the forecast for global growth has been lowered accordingly, specifically this year but also for next year. The forecast for Canadian economic growth has likewise been trimmed from the 2 ½ per cent range this year and next to 2 ¼ per cent on average this year and next and into 2016 as well.


As a result, the economy is now not expected to get back to full capacity until mid-2016 compared to the April MPR’s prediction of early 2016. As such, bets on when the first interest rate hike could come will likely be pushed from mid-2015 to later in the year and possibly even into early 2016. The bottom line is, once again, interest rates will be lower for longer.


The Bank still expects that “the lower Canadian dollar and a projected strengthening in global demand will lead to a pickup in Canadian exports and business investment and, eventually, a more sustainable growth track,” although this may take a little longer than expected to materialize with the Canadian dollar having recently popped back up a bit and the forecast for global growth, and particularly growth in the U.S., having been downgraded.


The Bank also re-iterated that “household imbalances continue to evolve constructively and recent data are broadly consistent with a soft landing in Canada’s housing market.”


As of July 16th, 2014, the advertised five-year lending rate stood at 4.79 per cent, unchanged from the previous Bank rate announcement on June 4th, 2014 and down 0.35 percentage points from the same time one year ago.


The next interest rate announcement will be on September 3rd, 2014.


(CREA 7/16/2014)

Attention all new home buyers!

So Christmas is over and you are getting itchy feet to start looking around at some homes.  Getting tired of your current accommodations and you need a place to call your own. Why not? Interest rates are still low and you’ve plopped some numbers into a handy mortgage calculator online and it appears that you should be able to get into something cheaper then you currenlyt have!

So, you hop in the car and start driving around the neighbourhood looking for something that catches your eye.  You see an open house sign in the distance, so you quickly drive over in anticipation to look at what this home has to offer!  Wow!! Okay.. this is a cool house and it is so big and has a great sized yard with a  POOL (albeit, all covered with snow)!!  Now you know you are definitely hooked and your pursuit to make this happen begins.


The picture, that i’ve painted, is how most new home buyers begin the course of looking for a new home.   But if this is all that you have done to prepare for this day then you may be in for a huge disappointment.  Buying a home can be described as an “INTENSE & EMOTIONAL ROLLER COASTER” and what we typically find is that most first time home buyers haven’t started the process to prepare for this day.

What do you mean “PREPARE” for this day?

According to a 2012 Nanos Research1 study, commissioned by CREA (Canadian Real Estate Association), found that more than 63% of respondents indicated a “major need” for more information about the financial details of buying a home. Does it surprise you to know that this number rose to over 70% when considering respondents between the ages of 18 and 29 only.

Buying a house requires a well laid out plan including an intense look at your finances.  This roller coaster ride is felt by both the buyer and seller and as Realtors we attempt to mitigate the causes of the ups and downs.  We engage the proper professional at the proper times to ensure a positive outcome.  Teaming up with the right mortgage professional can make the difference between you getting your home or not!

Chris Matthey, Mortgage Agent with The Mortgage Professionals, indicates that the biggest surprises to First Time Buyers normally have to do with their credit and/or with the realization of the total costs associated with buying and financing their first home.

“With credit, it is something most people do not check on a regular basis. As such, there could be a number of issues with their credit history and/or score that could negatively affect their mortgage application with potential lenders. By meeting with a mortgage professional early, these issues can be identified and rectified 

 As for the costs associated with buying and financing a home, First Time Buyers may have saved just enough for their 5% downpayment, but did not realize how much more they needed to save over and above their 5% downpayment. These costs include but are not limited to: legal fees, property tax adjustments, land transfer tax, title insurance, inspection costs, utilities set up, any many more. A mortgage professional can outline all these fees and costs to allow for proper planning and savings. This avoids the stress associated with having to come up with money last minute that the buyers did not plan or save for. “prior to the start of the buying process. 

As a realtor, we can certainly help to minimize the train wrecks and recommend a team of professionals at every step of the way.    As a buyer, your first step (if not your second) should be to find and talk with a mortgage professional that will take the time to map a plan to home ownership.


Additional Information:

HomeBuyers Road Map – CREA

It Pays to Know –  Federal Consumer Agency of Canada

Buying your First Home:  Three steps to successful mortgage shopping – Federal Consumer Agency of Canada


1 Survey conducted by Nanos Research and commissioned by The Canadian Real Estate Association. The survey was a random national telephone survey of 1000 Canadians aged 18 and over and is considered accurate ± 3.1%, 19 times out of 20.