What is happening with Interest Rates?

Let’s start with it is truly anyone’s guess as we are living in unprecedented times. Yes, we expect the bank of Canada to increase rates again today…. No we don’t believe it is cause for worry or stress… but if you want to talk about your situation let us know, we are here to help.

But here are the basics of it…. the Bank of Canada is making changes that increase the prime rate to try to offset inflation. But here is the problem….The supply chain may actually be what is causing price increases…. Not spending…. so how is changing the rates going to fix things? Well, it isn’t. But what it does do is makes people nervous, so they pause. The think maybe I will wait to buy a house, or move up or refinance and book that kitchen reno. And if enough people pause maybe that gives the supply chain time to catch up with the demand.

So, what happens next?

Well, if the rate increases continue to be imposed on Canadians there is a possibility of forcing a recession to occur. What does that mean for rates? Well, they would be expected to drop at that point as that is what happens in a normal recession. So people who panicked and locked in to a higher fixed at 4% might truly regret that decision and wind up paying thousands extra in interest to their bank. For clients in variable or adjustable rate mortgages they will continue to pay less interest through these tumultuous times and if the rates drop could have the opportunity to then lock in to lower rates in the future.

Can we also mention that If we do enter a recession we will actually be the most prepared people to enter into one ever? Honestly, recessions are typically caused by higher interest rates, low consumer activity, business failures, reduced income in the labour market or stagnant wages….But we aren’t refraining from purchasing because we have run out of money or spent all our savings (like previous generations did) we are not purchasing because there are no goods to purchase. The supply chain is the issue, not the savings of Canadians. Business failures are not only the result of no goods to buy but also the unique situation of the pandemic and multiple closures & pressures on business. Our government has provided a lot of support for businesses through the pandemic but for some impacted hard it just isn’t enough. Jobs and wages are not the issue because everyone is hiring right now…. we do not have enough people to fill the available jobs. So truly if we do end up in a recession we should fair better than any group of Canadians ever have before.

What is my point?

It isn’t all doom & gloom. We are in a pretty good spot in unprecedented times. And just a reminder…..Canadians have had to stress test at higher interest rates since late 2016…. So we can afford our mortgages. Will housing prices dip a little? Yes, they go up and down and right now we are on a bit of a down turn…. But there is still opportunity and still equity in peoples homes and over time you should still expect your home to go up in value. The home we bought in 2006 was worth the same price we bought it for in 2008…. Two years later it was worth double, in 2017 it was worth triple what we paid…. If your plan is to hold real estate your property value will go up. If your plan is to time the market then we need to talk about best & worst case scenarios.

So what should you do?

Ignore the media, enjoy your home life & continue on as planned. This too will pass and it isn’t as bad as they say. For anyone who is worried or nervous please reach out…. We would love to have a conversation about your specific situation, goals & how to help you get there is these unprecedented times.

Happy Wednesday,

Denise PS We have heard of many mortgage finance companies and banks calling clients to tell them to lock into fixed rates now. If the person telling you to lock in is paid an hourly wage by the institution that benefits financially from you locking in let's talk. I have been with the same bank since I was 15 years old.... they have never called me to save me money... not once.... but they call me when there is an opportunity for them to sell me something new or for them to make money.... keep that in mind!

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