On my way home from work on Wednesday night, I stopped by my parent’s house to pick up a loaf of my mom’s homemade bread.
That’s a genuine smile on my face!
Nothing better than my mom’s homemade bread.
Although she would probably be upset with me for posting this… she wasn’t satisfied with this batch… but I was…
These days, I cannot go to my parent’s house without the topic of politics rearing its ugly head…
My father has always been into politics, but my mother, like many others, has just recently taken the plunge.
She’s traded in her cooking shows and General Hospital for a different soap opera… CNN and CBC.
Heck, I can’t blame them… it’s damn good TV…
I can see how it can get addicting… there’s breaking news every 10 minutes.
As for me, I watch very little TV.
And when I do, it’s not the news.
Instead, I usually consume my current affairs by way of podcasts and social channels.
What fascinates me is how different the messaging can be between what I hear and what my parents hear.
It sometimes feels as if we live in two different worlds.
It’s kind of scary, actually.
No wonder why there is so much chaos these days.
My parents always told me that there are always three sides to every story… when it comes to politics, I often have to remind myself of that… and my parents!
Moving on…
The Bank of Canada recently cut interest rates, as was widely expected, but instead of seeing a corresponding drop in mortgage rates, they’ve actually gone up!
Seems counterintuitive, right?
First, let’s talk about how mortgage rates are determined.
When you take out a mortgage, the bank borrows money to lend to you.
The cost of this borrowing is influenced by the bond market, not just the Bank of Canada’s overnight rate.
The bond market is like a big, fancy IOU system.
When the government or companies need money, they issue bonds, which are essentially promises to pay back the money with interest.
The Bank of Canada’s rate cut signaled that they’re worried about the economy.
This made investors nervous, causing them to sell riskier investments and buy safer ones like bonds.
When more people want to buy bonds, their prices go up, and their yields (the interest they pay) go down.
This seems like it should lead to lower mortgage rates, but there’s a catch!
Banks rely on short-term lending to finance mortgages, and when investors are worried, this short-term lending gets more expensive.
So, even though bond yields are down, the cost for banks to borrow money has gone up, and they pass this cost on to borrowers through higher mortgage rates.
Adding to the upward pressure on bond rates and mortgage rates is the recent inflation figures.
Canadian inflation came in at 2.6%. They were expecting 2.1%.
As a result, the likelihood of another rate cut by the Bank of Canada on April 16th has decreased.
However, there are also counterarguments for why rates could come down, such as tariffs, unemployment, and the possibility of a recession.
Our medium-term prediction is that rates will continue to drop.
If economic conditions in Canada worsen before improving, the Bank of Canada has limited tools at its disposal, primarily interest rates and money supply.
We believe they will continue to cut rates before implementing any significant quantitative easing measures.
While mortgage rates may not decrease at the same pace, they would likely come down.
But here’s the kicker: if rates continue to drop, inflation rises over time!
And when inflation rises, interest rates start to climb again.
This yo-yo effect seems to be the new normal in our economy.
The bottom line is that we need to get used to interest rate volatility.
When faced with a decision involving interest rates, choose the option that works for you today, but doesn’t leave you too vulnerable in the future.
If you can afford 4.50% today but can’t afford 5.5% tomorrow, lock in at 4.50% today for as long as you can.
And don’t look back. Who cares if rates are down slightly in 6 months… they could just as easily have gone up.
It’s all about understanding the market, exploring your options, and making informed decisions.
If you’re feeling overwhelmed or unsure about your next steps, we’re here to help.
We can guide you through the process, answer your questions, and help you find the best path forward.
So, if you’re ready to navigate this exciting world of real estate, give us a call or shoot us an email.
Together, we can make sense of all of this craziness!
All the best,
Vince
P.S. If you found this email helpful, don’t forget to share it with your friends and family who might be considering a home purchase.
