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Economic Update: Where are Rates Headed 2019…

Finance | David | November 19, 2019
For the past few weeks since Bank of Canada’s recent rate increase our office has been inundated with questions surrounding where rates are expected to be headed. A large portion of our book is Variable rate mortgages because of their proven savings advantages over the past decade, no doubt left wondering what they should do especially in the face of another interest rate increase expected January 2019 pending release of Q3 & Q4 economic data.

The numbers out of October are showing unemployment has improved year of year down to 5.8% vs 6.2% in October 2017 which is great but while we have a healthy labour market we see big stalls in wage growth which is down 1.9% from 3.9% earlier this year. Retail sales are declining, and housing starts across Canada are down close to 8%. This number is especially disheartening because a huge contributor to affordable housing is an increase is housing supply that we just aren’t seeing. The CPI inflation has dropped to 2.2% from a higher 2.8% in August. Exports and Imports are also down. The only industry showing what look like large record gains is the auto industry, which seems concerning given their true “value” to consumers.

I say all of this to show, based on economic numbers, that Canada is not quite yet out of the woods economically. I’ve continued to hear people and news media pound the panic button about where rates are headed, some citing 6 increases in the short term. I just don’t see it. While we may see moderate increases in to 2019 many economists are of the mindset that BOC is punting up rates in case they need to bring them right back down as a reaction to a slower market. We/They (BOC) do not want to see themselves in a position where we are going in to negative interest rates. A few years ago I posted about a potential downturn in 2019/2020 after rates started to increase a little bit. I’m not calling back on my crystal ball just yet but I caution anyone to lock in to an automatically higher 5 Year Fixed when such amazing discounts are available like Prime – 1.05% on Variable. These rate discounts made it possible for some of my past clients to enjoy paying their mortgages as low as 1.85% a few years ago when government had to react to a stalling economy. Keep hammering down the mortgage is my motto.

I’m personally hanging tight in my Variable however I have many clients, including close friends, who do not enjoy surfing rates and have sought the security of a 5 Year of even 7 Year Fixed which are the same price with a couple lenders now. If you are a person who has found it more compelling to crave security let’s chat about your personal file. Anyone else too of course : ) Always happy to chat further about each individuals needs. Next Bank of Canada Announcement is December 5th when you can expect our final sign off for the year. Speak to you soon!

David Ford
Sparo Mortgage Partners
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