The Bank of Canada’s Upcoming Rate Decision
The most reliable informant in the Castagna household is back on the job! No, not me (though I’d like to think I’m pretty dependable too). I’m talking about Rosie Rosie, our Elf on the Shelf, who made her grand return this weekend.
For those unfamiliar, Rosie Rosie is our magical scout elf who keeps an eye on the kids’ behavior and reports back to Santa each night. Every morning, she appears in a new spot, keeping the kids on their best behavior (well, mostly).
Rosie’s nightly reports got me thinking about another key December event we’re all watching: the Bank of Canada’s upcoming rate announcement. Just like my kids eagerly checking Rosie’s whereabouts each morning, the mortgage world has been waiting with bated breath for further interest rate relief.
Well, I’ve got good news — all signs point to an early Christmas present from the Bank of Canada!
Why am I so confident we’ll see at least a 25-basis point rate cut next week? Let’s take a look at the economic data Rosie’s been gathering:
- Cooling GDP: Last week’s GDP numbers showed our economy slowing down more than expected, indicating that high rates are doing their job, perhaps a little too well. This slowdown is a clear signal that the Bank of Canada’s rate hikes have effectively cooled the economy and that it may be time to start easing up on the brakes.
- Sluggish Spending: Consumer spending has slowed, as higher borrowing costs make shoppers more cautious. This is particularly evident in the retail sector, where sales have been weaker than anticipated. As consumer spending is a key driver of economic growth, this slowdown further supports the case for a rate cut.
- Housing Hibernation: The housing market has definitely received the message, with activity still relatively slow as buyers are still adjusting to the new rate reality. While this has been challenging for some homeowners and prospective buyers, it’s a necessary part of the economic rebalancing process. As rates start to come down, we may see a gradual uptick in housing market activity.
- Tepid Job Market: Job creation is losing momentum, another sign that the economy is feeling the impact of high rates. Although the unemployment rate remains relatively low, the pace of job growth has slowed in recent months. This suggests that businesses are becoming more cautious about hiring, which could further dampen economic growth if left unchecked.
- Investment Pullback: Businesses are hitting the pause button on major investments, waiting for more favorable economic conditions. This hesitancy to invest can have a ripple effect throughout the economy, slowing growth and productivity. By lowering rates, the Bank of Canada can encourage businesses to start investing again, which would help support long-term economic growth.
In short, the economy has clearly absorbed the Bank of Canada’s message. The question isn’t if rates will fall, but when and by how much.
My prediction? We’ll be welcoming the New Year with at least a 25-point cut, and more relief on the way in 2025. This gradual easing of rates will help strike a balance between supporting economic growth and maintaining financial stability.
What does this mean for you?
- Variable Rate Holders: Relief is on the horizon! Your patience is about to be rewarded. As rates start to come down, you’ll see a reduction in your monthly mortgage payments, which could free up some cash flow for other financial priorities.
- Prospective Buyers: 2025 could bring a wave of opportunity as rates settle into a new normal. While it may take some time for the housing market to fully adjust, lower rates could make homeownership more accessible for many Canadians. Start preparing now by saving for a down payment and getting pre-approved for a mortgage.
- Renewal crew: Timing is everything! Let’s discuss strategies for optimizing your renewal. If your mortgage is coming up for renewal in the next year or so, we can explore options that take advantage of falling rates while still providing long-term stability and peace of mind.
So, while we wait for Rosie to file her nightly report to Santa, let’s make sure your mortgage is ready to take advantage of falling rates. Give me a call and we can plan for a successful 2025 (milk and cookies not required).
Until next week,
Vince
P.S. Whether you’re shopping for a new home, considering a mortgage refinance, or just want to discuss what these changes could mean for you, I’m always here (unlike a certain elusive elf). Let’s talk!
