Some not-so-great news from the Bank of Canada yesterday: the target rate was raised yet again by 0.25%. This one wasn’t a complete surprise. Rates have been climbing for the last year to battle red hot inflation. Inflation is now at 4.4%, which is huge progress from 8.1% this time last year. But last month’s Consumer Index Report logged an unexpected 0.1% jump in inflation from the previous month.
That’s not the only reason for the rate hike. The economy grew by 3.1% in the first quarter of 2023, which is much higher than the expected 2.5% growth rate. A growing economy means Canadians are spending money. This is exactly what fuels inflation.
It’s difficult to understand why consumer spending is up when the price of consumer goods is so high. What is easy to understand, however, is that our central bank has no idea what to do about this issue other than lowering and raising rates.
What Does This Mean For Borrowers?
Of course, this rate hike impacts different people in different ways. If you have a variable rate, your rate will go up by 0.25%. If you’re locked into a fixed rate, your rate won’t change. Even if you haven’t locked in yet, but you’re looking at fixed rates, those have already increased in anticipation of this hike.
Either way, experts believe this latest hike will only accelerate the slowing of the economy resulting in falling rates sooner than expected. That’s how it’s always worked in the past: slower economy = lower rates. The only thing standing in our way this time around is our own federal government. While the BoC lowers rates, Trudeau’s record high spending and budget deficits are working against those measures. Green taxes will also keep prices that much higher.
For now, anyone looking to renew, refinance, or get a new mortgage will have to pay higher interest rates for the next 6 to 10 months. That’s just the way it is right now. Choosing the right mortgage product has never been more important, so make sure you’re choosing wisely.
Could This Be Good News For Homebuyers?
To answer simply, yes. If you’re looking for a home, inventory is likely to pick up pretty soon. Summer tends to slow down the market, meaning you might just find that home you were looking for at the price you were hoping for. Just keep your eyes open and make sure you work with professionals as you sort out your financing.
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis: 416-224-0114; steve@canadamortgagenews.ca
