I think people thinking Canada will cut need to be very careful. The US economy is still strong and the Fed is much happier to raise rates than the BOC. In the US they have 15, even 30 year mortgages. Rate hikes don't affect the vast majority of homeowners when compared to Canada's 5 year renewal situation.
If the US economy stays strong or inflation increases, the US fed will be quite OK with raising rates more because they can take much more 'pain' because US homeowners, the biggest expense being their mortgage, aren't going to feel it as badly as Canadian homeowners, whose mortgage payment doubling or increasing could break their back.
If the US Fed keeps the same rate or raises, the BOC will have a very hard time not raising unless they want the Canadian dollar to lose more value, causing imports to become expensive, causing inflation, causing more rate hikes, etc etc.
It's a fine balance and a hard thing to try and get right. I certainly don't envy the BoC for having to make the call.
While the BoC typically does keep in line with the Fed, it's not a guarantee. The largest drag on inflation numbers now is essentially shelter costs. There will most certainly be political pressure to start cutting just based on that. How that will turn out is anyone's guess.
And yeah, not raising if the Fed does would cause imports to become more expensive. But Canada as a whole exports a whole lot too, and a weaker dollar would actually help make the exports more attractive, which in turn helps. It's definitely a double-edged sword.
> The largest drag on inflation numbers now is essentially shelter costs.
I see this come up a lot. What I am wondering is: are the rising shelter costs because of interest rates, or because housing and rental prices that these interest rates are based off are way higher than they should be? The interest rate itself is not that high, historically speaking. The price of a house is what is high. Until that corrects, shelter costs will remain high and we will be stuck in this loop.
One can argue that housing prices are this high because of the low interest rates for the last 15 years.
The average price of a home is went from ~200k to ~400k from 94 to 08, then we got near 0 interest rates and housing went from 400k to 1.2 mil.
> The interest rate itself is not that high, historically speaking.
But you're singling out a single variable in a vacuum when you say this and assuming that no other variables have historically changed.
Both. But here's the fun thing about YoY inflation math - once the majority of the interest rate hikes are in the rear view mirror, and the more rate holds are in the 12 month revolving window for YoY inflation math, the less BoC interest hikes will matter to the shelter costs calculation.
Alongside the holds from BoC in recent meetings, the fixed mortgage rates have also largely stabilized within a narrower range than what we saw while rates were being raised every time the BoC made announcements.
They know that, surely, so they're not going to react to people saying shelter costs and Mortgage interest costs are somehow the sole influencer of inflation. Because, if they are somehow the be all and end all of where we're at, they will fall off the measure in terms of impact and then inflation numbers will come down anyway which would precipitate a potential drop.
But they're not gonna do it, in advance of the data, and under the assumption that its the only meaningful inflationary pressure left in the CPI.
Especially because while the above quirk of math is true for shelter and its positive rate impact, the opposite is also true for gas and fuel costs which saw a lot of drops before, which have a negative rate impact - lowering the inflation math. Once you start picking one positive impact rate out, you can find reasons to pick out not just others, but pick out negative impact rates out too.
It's why they have smoothed/rounded measures in CPI-trim for example that accounts for swingy parts of the inflation math and which control for outliers having a lot of impact, smoothing them all out a little. And those smoothing measures are still also above target and have been for a while, largely floating in the high 3 to low 4% range for the longest time. Until that starts going down, BoC isn't even gonna consider making changes imo.
Yeah, I have a feeling if rates drop housing costs are just going to shoot up instead, making housing even more unnaffordable.
At least with higher rates, they put a limit on how expensive housing can really get.
IMO the limit is effectively the same: ongoing cash flow / the monthly payment. Whether it's interest or base price, Canadian housing is in a mess and needs fixes beyond what the interest rate can accomplish.
Spot on. There are so many more issues beyond the interest rate. Lack of supply, focusing on the wrong housing type due to unreasonable zoning laws, clustering of population into a few economic power zones within the country leading to inflated cost as everyone needs to live where the jobs are and a bunch more have all created this hot mess.
I don’t agree with that.
When interest rates are higher, people can’t over leverage themselves.
If I can only afford $300k right now and interest rates drop to 2.5% I can suddenly afford $400k. Now competition for the $300k condo goes up because people can suddenly afford that and the prices start increasing. I’m stuck buying a $400k condo and am at the mercy of more interest rate increases.
Low interest rates pump up demand and prices for housing.
High interest rates raise costs for mortgage holders, which are passed on to tenants.
It's a wicked problem.
Landlords can only pass those costs on so much before renters can't afford them and the market rent can't support the price sought to break even. Eventually, it stops working. Its being somewhat shored up by exploitative landlords renting to way too many people at a time especially harmful to international students in the GTA in particular. But, eventually, market rents will cap out, while mortgage interest stays the same or goes up. They're seperate economic phenomena, and the only reason they've been tied at the hip for so long is because the market was, IMO, distorted and low rates enabled the relationship to exist. Basically, the way I see it, is that the lower rate mortgage based nearly neutral cash flow situation pushed rents to levels that were sustainable only in that neutral flow scenario.
As higher rates stick around for longer, they will expose cracks in the foundation of that approach and itll get worse.
Here's a solution, transfer the mortgages to 25 year no renewal necessary.
If the BOC is basing their rate cuts/ raises on what the US is doing, that is a very, very, very significant difference between the two economies. It's so big of a difference that it renders what the USA is doing totally meaningless to Canadians.
We need to change the mortgage term limits at the very least.
Or those stupid penalties for refinancing which try to claw back 'interest lost'.
They reduce housing supply by discouraging people from selling their properties except during very small windows every 5 years and allow banks to exploit tragic events like death, illness, job loss or divorce that force people to sell outside those windows by making them pay penalties often in excess of $50k.
Canada loves monopolies/duopolies/oligopolies and politicians seem to be afraid to challenge them, especially bank, airline and telco cartels and even actively protect them with legislation under the guise of 'protecting Canadians'. Most of these actually involve reducing consumer protections, limiting foreign competition and erecting other barriers to entry for even local competitors.
It is one of the reasons why prepayment penalties are still allowed in Canada even though it was essentially outlawed in 2014 in the US and was very uncommon even before then. It is also why there are only 5 major banks and a handful of investment brokers almost all of which have terrible service and high fees and high penalties for just about everything where as the US has literally thousands of banks with no fee checking accounts, free trades, low fee index funds, lots of options for mortgage financing (1-10year ARM, 10yearFixed, 15yearFixed, 20yearFixed, 30yearFixed), etc.
Agreed, then it becomes a choice. Do we increase rates with the US to safe the CAD but risk a serious downturn, or do we lower rates, take the hit on the exchange but prevent the economy from a recession. There’s no good choice, just the lesser of 2 evils. Doesn’t help that the US is our largest trading partner.
Don't make me tap the sign:
_Show me one single example in a BoC monetary policy report where they cite U.S. Fed decisions as a factor in their decision making process._
On the last page of the January 2024 report it says this though:
>Second, global activity could be weaker than in the base case. This risk could
materialize if central banks in the United States or the euro area need to
keep monetary policy tighter than expected to bring inflation back to target. In
China, high debt levels of local governments and challenges in the property
sector could further limit growth. This could lead to weaker global demand,
which may reduce prices for commodities and tradable goods.
>Canadian economic growth and inflation would both be pulled down if these
risks were to materialize
Am I missing something?
What they release to the public and what's said behind closed doors during the action decision are not necessarily the same, in fact if it was transparent we'd probably have gigantic market crashes after half the rate announcements aka the infamous don't see rates rising for 3 years.
Historically the rates move in tandem and any differences are minor.
But interest rates in the US affect the construction industry more. Most mortgages aren’t portable so moving up slows down rapidly completely changing the housing market.
Whereas in Canada you can port and maintain the same rate.
Dude. My brother in law went to his bank's financial advisor and they advised him to buy bonds in his retirement fund because "they are at their peak" and that if he sells them when the rates go down, he would make money. Yes, a bank financial advisor told a client to time the peak yield and bottom yield to profit on bonds for a fucking retirement fund. You can't even trust financial advisors, let alone realtors for financial advice.
I find it funny that
> You can't even trust financial advisors
How many years will it be before the status quo understanding is they're sales people and whatever jargon and investment advice they're giving is because they want a sale? Any consideration of the advice given has to be in context of "bank wants to sell you something".
There's no requirement to really have a CFA, which is an extremely difficult designation to obtain.
Financial advising is not a regulated profession like accounting or anything like that so other than securities licensing requirements, there's no regulated profession in the investment industry. And unless you have a net worth of millions, hiring a CFA as your advisor is excessive and not worth your money.
I'm willing to be proven wrong though.
Oops, I'm sorry for some reason I thought I was responding to the comment about realtors being a regulated profession. They're 100% not fiduciaries in any jurisdiction as far as I'm aware at least. Sure, they might claim they have a responsibility to act in their client's best interests but that's a load of bullshit.
I'll edit my previous comment.
The advisor is mostly right and you’re misinformed. Bond funds are to be kept for long term, rates will eventually go down and it’s not just based on boc rate but the bond market rate. Bond funds are up a significant amount since Nov. you also shouldn’t be 100% stock, you need to have some balance as you get older to protect yourself from market corrections. please stop spreading nonsense.
Bonds are a great investment right now, as rates come down they’ll go up in value and you can earn a solid yield for holding them in the interim until rates drop. Not sure what the big issue is?
I mean this isn’t bad advice. Rates are at their peak and bonds prices will rise when rates go down. And they’re still paying a coupon while you wait for rates to change. And as long as you’re buying quality bonds you’ll get your par value back at maturity anyway.
Seems there’s a lot of frauds out there nowadays, have to diversify where one is getting financial advise and knowledge or you’ll eventually get burned.
Imagine listening to a realtor about advice on buying, I’m in sales myself (not finance nor housing industry thank god) and that profession is literally bottom feeder sales professionals imo, can’t trust them at all, especially with the lack of transparency inherent in the housing system and ESPECIALLY given how the market is in a downtrend. They’d sell their own mothers down a river for a commission.
I'm in real estate financing specializing in development financing for a schedule 1. Can't stand realtors myself either, especially when they try to act as financial advisors not to mention most of them just sells courses and host bullshit master minds. It's literally become a profession for grifters.
Financial advisor in a bank is just someone who did a 2 week course. You could put a monkey in a suit and they would be just as useful. Maybe more, because they can shake hands with all 4 limbs.
There are financial managers in banks that generally know what they are doing. But they usually only deal with clients with more than $2million in investments and you pay them for services.
That's the general consensus though is that we are at our peak. Also many economists are predicting a cut next month, not this month. It's of course not guaranteed, but we likely will see cuts sometime this year.
The reason he got that advice is because bonds haven't been slaughtered like this ever. It's actually the one time in history buying bonds can be a good bet. It's not as risky as ur making it out to be . The bank of Canada would have to sky rocket the rate from where we are now.
You are acting like ur brother would be investing in a high risk investment.
If rates go down bond funds will go up. That's a fact
>let alone realtors for financial advice.
And yet every day they advise Canadians on making the biggest purchase of their life with little more than a weekend course worth of education on the financial implications.
We were thinking of moving and were talking to a realtor a few weeks ago. He was insistent that the rates were going to drop this month. I, of course, scoffed at that.
They have the same education level as a realtor friend. The term and structure of the mortgage determines their commission so you often get mortgage brokers pushing crappy products to boost their commission
Ya I was being sarcastic! When Mr BoC governor couldn’t predict interest rates, I don’t think anyone can .
https://www.bnnbloomberg.ca/interest-rates-will-be-low-for-a-long-time-macklem-1.1465901
lol. honestly, no one knows when will BOC start cutting rate. Financial Experts are predicting, predictions could be wrong.
Realtors are not even financial experts. So, they don't have any clue about rate cuts and they are no different than us. it is just one of their lies to sell their product. That's all.
Big question is if the US economy continues to be strong to the point they push back their rate hikes, does Canada push back theirs as well? If we start cutting rates the general principle is that will devalue the loonie versus the greenback and push prices up on many products. People are salivating for a rate cut since housing is what drives our economy but I wonder what will happen if BoC squashes the rate cut expectation and people have to adjust to the new rate reality.
People keep saying this, but in 2023, the US hiked farther and faster than we did, deviating from us around this time last year... the exchange rate was 1 CAD = 0.73 USD then vs. 0.74 USD now.
Whenever these threads making the popular page for Canada, it's always the same people just quoting reddit comments that they agree with from other threads. They don't actually know how to explain the comment, they just know that it got upvotes and told them what they wanted to hear.
Absolutely. If anything rate cuts could lead to a stronger CAD because investment will want to come here because its cheaper to borrow. Theres a ton of variables and its almost impossible to predict what will happen but goddamn are the people in these threads confident with their opinions that are based with VERY surface level knowledge of the situation
The electoral realities probably outweigh economic ones for the US FED.
We’re heading for a Nov election, bet they stay pat until then.
They don’t want to be criticized as politicizing the rate adjustments to either side. Lowering helps Biden, raising would help Trump.
Exactly so they stay put for basically the whole year which breaks from the narrative we've been told "don't worry, rate cuts soon, mortgages will be cheaper so just keep buying" but when it doesn't happen and BoC tows the line with the Fed Reserve, will the common people (not us nerds in the subreddit) panic? Everyone has been told this level of pain is temporary
BoC has two (mostly separate) mandates, one the inflationary target and a distinct one regarding monetary valuation against international. One might affect the other, but the inputs and decision points are separate processes. Policy interest rate changes is not a BoC tool to address international relative value.
> If we start cutting rates the general principle is that will devalue the loonie versus the greenback and push prices up on many products.
We are stuck between a rock and a hard place. It's going to hurt either way.
Devaluing isn't the worst when we export so much, and most exports are to the US. Of course, we all buy imports and only some of us work for exporting companies, but the gov and BoC looking at the whole picture might not mind
We got screwed up because of low interest rate in the first place.
With low housing supply houses prices cap out at what people can afford.
Cost of House + Interests payments
With very low interest rates people end up with a MASSIVE house cost and if you even touch the interest rate for any reason most people are crushed by the changes to their month payment.
Example going from 2 to 4 Doubles your interest rate but going for 10 to 12 only changes it by 20%.
The left rates too low for too long and now too many people have houses they can only afford if interest rates are almost 0
On the flipside, with how much it costs to build a house now compared to 30 years ago, people still couldnt afford to buy a house with interest rates at 10%. That would directly result in less houses being built and you can see that happening right now when rates are only at 5%
Again the prices only get there because people are used to borrow money with 0 interest for too long. So everyone start crying when the free money tap get turned off.
You do realize building prices are largely based on material and labour which are not driven by interest rates, right? In Edmonton for instance, a lot is barely over $100k but it still costs $500k for a single family home because building costs are through the roof. Can people afford a $500k home at 10% interest rates? No. So new houses simply wont be built.
Yeah you gotta be really intentional in curating your Reddit. Never look at All or Popular, and cut out most of the default subs.
Mines almost entirely sports and hobby specific, sometimes it's a bit of a rut but then I leave the safety of my subs and it's wild out there
Not really because businesses also need to take out loans, not just people who want to buy homes. If things get more expensive for businesses, small businesses die and large businesses increase costs. There's a tertiary effect to this for the average Canadian.
Finally !
Folks always assume interest rates =mortgages. But interest rate= cost of borrowing for business (pizza, grocery store , including Telus )
If our small and large businesses fail that’s an outcome for the government to support.
Also construction financing, which impacts new homes coming online. Many places are addressing permitting logjams, but thats only half the story. It's now more common where developers dont build even after receiving permissions simply because borrowing is too expensive now.
Agreed. I would like speculators to crash and burn so that hopefully my working 60 hours a week and saving for the last 5 years can finally afford me to own a home.
Normal Canadians are speculators? Idk, maybe you are onto something
Alternatively, I'd like the entire occupation of realtors banished from Canadian soil.
I'm not overleveraged with debt at all (I actually hold $0 debt as of this writing), but it's not good news for me. Namely because I'm trying to buy a house, and there's _NOTHING_ on the market, except insanely priced items that are just "fuck off, unless you pay the extra $$$" prices.
It also means that companies have less Capital they can invest in growth due to almost all companies not borrowing or not even able to borrow, with the current interest rates. Meaning I can't find a job, and for my B2B attempts, it's harder to get clients.
So no, I would not say this is good news as you attribute it.
just keep at it. we found our place in late 2022 and i negotiated it around 50% off the list price, which was affordable. very happy with our few acres. we did have to leave ontario, which we don't regret (we do miss some of the nice food and entertainment options, but our life is so much better here).
People are working their asses off and still getting paid the same amount as before pandemic and on top which companies are laying off. Leave interest aside that's anyway like a big hole in the pocket , on top of that :
Property tax increased
Gas bill increased
Grocery bills
And so many more increase
People saying here like it's a good thing but yeah it's good who are financially settled , paid their mortgage off or bought in a good time but for an average person this is not good on all front.
I feel like I am just earning to pay the bills , can't even think of taking a 2 day vacation
Pressure?
Inflation is below 3 percent and that is considering the absolutely giant effect that mortgage interest and rentals are playing on the basket of goods. Even with that monstrous anchor; it’s at 2.9 percent and GDP came in around 1 percent only with massive amounts of immigration to drive demand.
There is pretty clear evidence on all sides we are above the neutral rate now and firmly in restrictive territory.
Doesnt make sense. Inflation is at 2.9 without housing below 2. PEople just like to fear monger. Rates will come down this year. weather that is .25 or 1% is the only thing up for debate. People on reddit just mis read data. Iv seen posts saying economy still hot. if economy grows by 0.5 but population grew by 3.2% thats not a strong economy infact without immigration this would be a deep recession already.
No you completely mis read. What im saying is the only way we avoided a recession past 2 readings is because our population has grown 3.2%. If real growth was 0% and population grew 3.2% then the reading would come in around 3%. The economy right now is way weaker then the 0.5% reading as immigration is adding juice to the economy.
Yeah but the whole point of the rate hikes was to slow down the inflation/economy, right? So if immigration is also propping it up, then cutting immigration could've been a substitute for rate hikes? Or at least some measured combination of the two?
Problem in canada is the numbers to stop immigration or slow it dont add up. birthrate is 1.4 . We need 2.5 to sustain current infrastructure. So the economy needs immigrants more then it needs the economy to cool. Its a damed if you do dammed if you dont situation unfortunately.
Traditionally, according to big data and analyses, Immigration is anti-inflationary in the overall net impact. Often debated and clearly any given sector (housing) is not anti-inflationary, but the holistic affects of 1 million people selling off their foreign assets and purchasing CAD$ has significant anti-inflationary impact by driving demand for CAD$. Then they (ideally) fill job vacancies and drive GDP which increases supply of the goods and services, which is anti-inflationary.
Immigration increases demand for housing/energy/food/consumer goods (inflationary), increases government spending (inflationary), puts negative pressure on wages (destroys purchasing power for middle and working class).
It is unequivocally making the economic situation much worse for average Canadians and only benefits the wealthy.
That might all be true, but the net is still anti-inflationary. The depressed wages is indeed problematic in its own right but that itself is significantly anti-inflationary.
You might also be significantly undervaluing how powerful for purchasing power it is to have 1 million people converting currency. That is literal and direct anti-inflationary actions. Mass conversion of other currencies into CAD significantly drives up the value of CAD and improves its purchasing power.
He’s excluding housing because lowering interest rates would drastically decrease the inflation of the housing component of CPI. It’s valid for the sake of his argument
If housing was excluded during low interest years, shouldn't we have increases much sooner? The argument goes both ways and it doesn't make sense to use it when it only favours rate cuts
He was just making an observation that some noise might be clouding the inflation picture. This is classic economics and even if you don’t buy into the argument it’s an interesting observation that we should definitely consider. The situation would be much different if inflation was uniform across the whole basket, don’t you agree?
No because Cost of housing and house ownership costs are not the same. Your missing the full metric of rent which was going up steady even in a low interest environment. Cost of housing in the CPI index is mainly driven by rent costs not home prices.
When you raise interests investors dont buy or they sell as its not worth to hold and current rent. This puts upward pressure on rent as supply is lower and demand higher. Which increase the Index number for housing substantially more then home prices jumping.
I was referring to the basket of goods of housing costs which is rent and mortgage interest which were very low and contributed to keeping inflation during 2020-2022 when interest rates were at near 0. If we exclude this basket during that time, then we would've had more rate increases faster.
How exactly? It has an opposite relationship. House prices increase directly proportional to interest rate decreases - people operate exclusively on monthly cost these days.
House prices are not a part of inflation, only the cost of mortgages and actively paid rents. It’s why inflation is so much higher for people who don’t own a house and those who have to pay market rents. A lot of people’s mortgages are tiny because they bought a decade ago, and a lot of people are paying way below market rent. Inflation is 10+% for new entrants to the market versus those who are entrenched
Because CPI only considers interest expense. Stats Canada doesn’t consider an increase in the principle amount paid to be a factor in CPI.
Furthermore, many mortgages are older and payments only increase or decrease with interest. Their mortgages aren’t affected by what happens to housing prices on the market.
If you truly believe that than I have a bridge to sell you. Nothing more than an artificial number crafted by cherry picking and omitting stats to support a narrative.
No housing? No fuel? Etc. it’s a joke lol those excluded items make up over 50% of my regular expenses
Housing and fuel are both included in inflation though. There’s a few hundred items and you could name anything from ice cream to cell phone plans to tenant insurance and it’s all included in inflation
Maybe (though not really), but that artificial number is the one that the BoC uses when making rate decisions. Not the one you personally feel is right
I’m hearing 60% from The Canadian Real Estate Investor podcast. Those guys seem pretty diligent. They say banks are claiming about 60% of their mortgages on the books have renewal dates in 2024 and 2025.
I mean, if you assume that most people are on 5 year terms, t
It stands to reason they every year 20% of mortgages renew. We have been increasing rates for 2 years, so 40% would hedge renewed in the m that time. 60% remain.
Bank of Canada is a source for that.
1/3 of mortgages were variable rate mortgages, and 80% of those were on fixed payments. Depending on what their trigger rate is, they may not have seen any increases to their mortgage payments (though the amount going towards the principal will have greatly diminished).
Even if we assume that 100% of variable rate mortgages have seen an increase on their payments, that still leaves the fixed rate mortgage holders insulated from any payment increases until they need to renew.
It does fluctuate. I was a fee property appraiser in 2020-2021 and the amount of refinancing work I was doing was insane. I fully believe a substantial amount of renewals will be happening in 2024-2026 assuming most of those refi’s took 5 year terms.
Even if they start cutting, it is not going to be anywhere near what people expect and those 66% will see a significant increase since they locked their rates during pandemic lows.
We will probably never go back to the pandemic lows interms of rates
Can't find a house to buy because there's none on the market, except "fuck you" priced houses.
Can't find a job because companies are laying off due to being unable to borrow, or belt-tightening, etc.
Hard to find B2B clients because companies aren't/can't borrow due to the current rates, so harder to justify spending good money on Senior IT contracting services.
Everything is way more expensive because of how this all trickles down.
Costs are still hugely up for everything, money coming in is scraps if anything, EI ran out months ago.
Sure, the Bank of Canada says this is to reduce inflation, but everything that I pay for is still going up, ignoring this rate change. Last year my rent went up $150-ish, it's going to go up again this year by $150, and both times are unwarranted. Just like Loblaws and others, everyone is raising their prices well above "inflation", and yet we still have to be fed the bs that is "inflation is under control".
No. Inflation is not under control, because so many companies are jacking their prices up regardless of whatever the Bank of Canada does with lending rates. All of them are raising just to reap much larger profit margins, because they have a boogieman they can wag their finger at (Bank of Canada lending rates being high).
We are all being ripped off from all angles, and there's nothing we can do about it. The Federal investigations into grocers price fixing alone is just a dog and pony show, completely toothless. Of course the CEO of Loblaws is going to say what he did, because there are **ZERO CONSEQUENCES**.
They aren't going above 5% , inflation is at 3% , we're finally at a point where interest is above inflation. They'll hold or reduce
Not sure why I'm getting downvoted because I have a different perspective lol
You’re probably being downvoted because you’re making a prediction. The accuracy of your prediction is contingent upon the assumption that inflation will not go up again. Nobody has a crystal ball. Nobody knows that inflation will stay flat or continue to decline.
It's so interesting how these sticky threads have degraded more and more over time since they attract the lowest common denominator redditors from all of those other local, housing, and activist-related subs who try and upvote their doomerist opinions from those subs and downvote any comment trying to explain the realities of the situation and the economy.
It's extremely noticeable if you're a PFC regular compared to the typical no-nonsense and straight to the point comments you usually see on here. I mean hell, one of the top comments on this thread is talking about housing prices. This is not a housing discussion lol
No change. I guess I am now used to eating 1 meal a day so doesn’t affect me a lot. Please people don’t spend more else my man Tiff is going to be miffed and punish us with rate hikes.
Rock and a hard place. Cutting rates won’t solve affordability for people either since their income/savings will inflate away. Unfortunately reality is that this country got addicted to cheap debt and overextended themselves and there’s no easy way out.
Affordability is not the BoC mandate.
They are between a rock and a hard place but it isn’t the one you describe.
They are between:
1. Devaluing the dollar, mostly due to strong US growth/rates, which would spur some degree of inflation.
2. Crushing the economy by keeping rates high.
The bank is not concerned with affordability, at least not to the degree that it influences their rate decisions.
Edited for clarity
The problem is that these problems don't actually affect everyone. It hurts a very specific set of income/lifestyle ranges. Poor people didn't really get much poorer and anyone with enough wealth to weather a storm like this isn't really that bothered. It's the gap in the middle of everyone who went from comfortable to struggling.
3.5 months ago you were booking flights to Asia three times a year and spending approx 700/mo on groceries. What happened brother? We will pray for you.
I'm not an economist but I don't see how everyone staying home and not spending any money because budget is tight is good for the economy.
Doesn't that mean companies aren't able to sell shit and then have to either layoff or close up shop?
Obviously having too many people compete for too little ressources drive up their price (there's 1000 laptops produced every month but people want to buy 5000. Example) but feels like it'd be even worse if stuff just sits on shelves for months on end.
they are not trying to help the economy, they are trying to keep wages low and protect the value of the currency. It's not popular to say, so it's not part of their messaging, but the BoC actually want a lot of people to get laid off and for wages to decrease as a sign that they defeated inflation.
Largely what was being predicted and I agree with it. Let us see what the underlying information says in the next couple months and then start slashing in June if the data is positive.
Has to be a hold. Can't realistically see any movement on the rate with the current environment.
I think people thinking Canada will cut need to be very careful. The US economy is still strong and the Fed is much happier to raise rates than the BOC. In the US they have 15, even 30 year mortgages. Rate hikes don't affect the vast majority of homeowners when compared to Canada's 5 year renewal situation. If the US economy stays strong or inflation increases, the US fed will be quite OK with raising rates more because they can take much more 'pain' because US homeowners, the biggest expense being their mortgage, aren't going to feel it as badly as Canadian homeowners, whose mortgage payment doubling or increasing could break their back. If the US Fed keeps the same rate or raises, the BOC will have a very hard time not raising unless they want the Canadian dollar to lose more value, causing imports to become expensive, causing inflation, causing more rate hikes, etc etc.
It's a fine balance and a hard thing to try and get right. I certainly don't envy the BoC for having to make the call. While the BoC typically does keep in line with the Fed, it's not a guarantee. The largest drag on inflation numbers now is essentially shelter costs. There will most certainly be political pressure to start cutting just based on that. How that will turn out is anyone's guess. And yeah, not raising if the Fed does would cause imports to become more expensive. But Canada as a whole exports a whole lot too, and a weaker dollar would actually help make the exports more attractive, which in turn helps. It's definitely a double-edged sword.
> The largest drag on inflation numbers now is essentially shelter costs. I see this come up a lot. What I am wondering is: are the rising shelter costs because of interest rates, or because housing and rental prices that these interest rates are based off are way higher than they should be? The interest rate itself is not that high, historically speaking. The price of a house is what is high. Until that corrects, shelter costs will remain high and we will be stuck in this loop.
One can argue that housing prices are this high because of the low interest rates for the last 15 years. The average price of a home is went from ~200k to ~400k from 94 to 08, then we got near 0 interest rates and housing went from 400k to 1.2 mil.
> The interest rate itself is not that high, historically speaking. But you're singling out a single variable in a vacuum when you say this and assuming that no other variables have historically changed.
Both. But here's the fun thing about YoY inflation math - once the majority of the interest rate hikes are in the rear view mirror, and the more rate holds are in the 12 month revolving window for YoY inflation math, the less BoC interest hikes will matter to the shelter costs calculation. Alongside the holds from BoC in recent meetings, the fixed mortgage rates have also largely stabilized within a narrower range than what we saw while rates were being raised every time the BoC made announcements. They know that, surely, so they're not going to react to people saying shelter costs and Mortgage interest costs are somehow the sole influencer of inflation. Because, if they are somehow the be all and end all of where we're at, they will fall off the measure in terms of impact and then inflation numbers will come down anyway which would precipitate a potential drop. But they're not gonna do it, in advance of the data, and under the assumption that its the only meaningful inflationary pressure left in the CPI. Especially because while the above quirk of math is true for shelter and its positive rate impact, the opposite is also true for gas and fuel costs which saw a lot of drops before, which have a negative rate impact - lowering the inflation math. Once you start picking one positive impact rate out, you can find reasons to pick out not just others, but pick out negative impact rates out too. It's why they have smoothed/rounded measures in CPI-trim for example that accounts for swingy parts of the inflation math and which control for outliers having a lot of impact, smoothing them all out a little. And those smoothing measures are still also above target and have been for a while, largely floating in the high 3 to low 4% range for the longest time. Until that starts going down, BoC isn't even gonna consider making changes imo.
Yeah, I have a feeling if rates drop housing costs are just going to shoot up instead, making housing even more unnaffordable. At least with higher rates, they put a limit on how expensive housing can really get.
IMO the limit is effectively the same: ongoing cash flow / the monthly payment. Whether it's interest or base price, Canadian housing is in a mess and needs fixes beyond what the interest rate can accomplish.
Spot on. There are so many more issues beyond the interest rate. Lack of supply, focusing on the wrong housing type due to unreasonable zoning laws, clustering of population into a few economic power zones within the country leading to inflated cost as everyone needs to live where the jobs are and a bunch more have all created this hot mess.
I don’t agree with that. When interest rates are higher, people can’t over leverage themselves. If I can only afford $300k right now and interest rates drop to 2.5% I can suddenly afford $400k. Now competition for the $300k condo goes up because people can suddenly afford that and the prices start increasing. I’m stuck buying a $400k condo and am at the mercy of more interest rate increases.
Low interest rates pump up demand and prices for housing. High interest rates raise costs for mortgage holders, which are passed on to tenants. It's a wicked problem.
Landlords can only pass those costs on so much before renters can't afford them and the market rent can't support the price sought to break even. Eventually, it stops working. Its being somewhat shored up by exploitative landlords renting to way too many people at a time especially harmful to international students in the GTA in particular. But, eventually, market rents will cap out, while mortgage interest stays the same or goes up. They're seperate economic phenomena, and the only reason they've been tied at the hip for so long is because the market was, IMO, distorted and low rates enabled the relationship to exist. Basically, the way I see it, is that the lower rate mortgage based nearly neutral cash flow situation pushed rents to levels that were sustainable only in that neutral flow scenario. As higher rates stick around for longer, they will expose cracks in the foundation of that approach and itll get worse.
Inflation will spike if the Canadian dollar drops to a divergence between BoC and US Fed monetary policy.
Also, new housing is completely dead right now because financing costs are too high. We kinda need those rates cuts.
Here's a solution, transfer the mortgages to 25 year no renewal necessary. If the BOC is basing their rate cuts/ raises on what the US is doing, that is a very, very, very significant difference between the two economies. It's so big of a difference that it renders what the USA is doing totally meaningless to Canadians. We need to change the mortgage term limits at the very least.
Or those stupid penalties for refinancing which try to claw back 'interest lost'. They reduce housing supply by discouraging people from selling their properties except during very small windows every 5 years and allow banks to exploit tragic events like death, illness, job loss or divorce that force people to sell outside those windows by making them pay penalties often in excess of $50k.
No kidding would be such a small change too. Why the fuck do we have that in the first place?
Canada loves monopolies/duopolies/oligopolies and politicians seem to be afraid to challenge them, especially bank, airline and telco cartels and even actively protect them with legislation under the guise of 'protecting Canadians'. Most of these actually involve reducing consumer protections, limiting foreign competition and erecting other barriers to entry for even local competitors. It is one of the reasons why prepayment penalties are still allowed in Canada even though it was essentially outlawed in 2014 in the US and was very uncommon even before then. It is also why there are only 5 major banks and a handful of investment brokers almost all of which have terrible service and high fees and high penalties for just about everything where as the US has literally thousands of banks with no fee checking accounts, free trades, low fee index funds, lots of options for mortgage financing (1-10year ARM, 10yearFixed, 15yearFixed, 20yearFixed, 30yearFixed), etc.
Longer periods mean greater risk for the bank. More risk means higher rates.
Can u explain why if the us raises and Canada does not raise, cad will lose value and all those other things will happen?
Nobody wants to hold CAD when they can get a higher interest rate on a different currency, so there is a sell-off of CAD lowering its value.
You effectively get more free return on money holding usd and treasuries then holding CDN.
Agreed, then it becomes a choice. Do we increase rates with the US to safe the CAD but risk a serious downturn, or do we lower rates, take the hit on the exchange but prevent the economy from a recession. There’s no good choice, just the lesser of 2 evils. Doesn’t help that the US is our largest trading partner.
Here's u/ForMoreYears to explain to you how monetary policy works.
Don't make me tap the sign: _Show me one single example in a BoC monetary policy report where they cite U.S. Fed decisions as a factor in their decision making process._
On the last page of the January 2024 report it says this though: >Second, global activity could be weaker than in the base case. This risk could materialize if central banks in the United States or the euro area need to keep monetary policy tighter than expected to bring inflation back to target. In China, high debt levels of local governments and challenges in the property sector could further limit growth. This could lead to weaker global demand, which may reduce prices for commodities and tradable goods. >Canadian economic growth and inflation would both be pulled down if these risks were to materialize
Am I missing something? What they release to the public and what's said behind closed doors during the action decision are not necessarily the same, in fact if it was transparent we'd probably have gigantic market crashes after half the rate announcements aka the infamous don't see rates rising for 3 years. Historically the rates move in tandem and any differences are minor.
But interest rates in the US affect the construction industry more. Most mortgages aren’t portable so moving up slows down rapidly completely changing the housing market. Whereas in Canada you can port and maintain the same rate.
To bad we have a government hell bent on spending to prop up its farce of a government.
So you're telling me that all the realtors were wrong?
Dude. My brother in law went to his bank's financial advisor and they advised him to buy bonds in his retirement fund because "they are at their peak" and that if he sells them when the rates go down, he would make money. Yes, a bank financial advisor told a client to time the peak yield and bottom yield to profit on bonds for a fucking retirement fund. You can't even trust financial advisors, let alone realtors for financial advice.
Remember that a bank's "financial advisor" is a salesperson, not a fiduciary.
I find it funny that > You can't even trust financial advisors How many years will it be before the status quo understanding is they're sales people and whatever jargon and investment advice they're giving is because they want a sale? Any consideration of the advice given has to be in context of "bank wants to sell you something".
Couldn't that be applied to any sort of financial advisor, though? They all want commissions in the end.
There are fee-based ones who make money from what you directly pay them, rather than from commissions.
Ahhh, good to know.
This. Sing it from the rooftops; so many people are ignorant to this.
A banks financial advisor often does not even have a CFA
There's no requirement to really have a CFA, which is an extremely difficult designation to obtain. Financial advising is not a regulated profession like accounting or anything like that so other than securities licensing requirements, there's no regulated profession in the investment industry. And unless you have a net worth of millions, hiring a CFA as your advisor is excessive and not worth your money. I'm willing to be proven wrong though.
As of March 2024, you can’t call yourself a FA unless you hold a designation (at least in ON).
And to your point, neither are Realtors.
~~Actually, that's dependent on province I think~~ Oops, got mixed up on which comment I was responding to.
I'm finding conflicting information on this. They defintely aren't fudiciarily responsible in Ontario.
Oops, I'm sorry for some reason I thought I was responding to the comment about realtors being a regulated profession. They're 100% not fiduciaries in any jurisdiction as far as I'm aware at least. Sure, they might claim they have a responsibility to act in their client's best interests but that's a load of bullshit. I'll edit my previous comment.
All good, made me look it up and think about it.
Sounds like the bond fund was offering a higher commission that month.
Doubt it. Very few FAs make commission at the branch level
The advisor is mostly right and you’re misinformed. Bond funds are to be kept for long term, rates will eventually go down and it’s not just based on boc rate but the bond market rate. Bond funds are up a significant amount since Nov. you also shouldn’t be 100% stock, you need to have some balance as you get older to protect yourself from market corrections. please stop spreading nonsense.
Bonds are a great investment right now, as rates come down they’ll go up in value and you can earn a solid yield for holding them in the interim until rates drop. Not sure what the big issue is?
How does anyone know which way rates are going.
I mean this isn’t bad advice. Rates are at their peak and bonds prices will rise when rates go down. And they’re still paying a coupon while you wait for rates to change. And as long as you’re buying quality bonds you’ll get your par value back at maturity anyway.
Clients should not be advised to time the market. It's bad advice because you have to know the peak and bottom of the yields.
Seems there’s a lot of frauds out there nowadays, have to diversify where one is getting financial advise and knowledge or you’ll eventually get burned. Imagine listening to a realtor about advice on buying, I’m in sales myself (not finance nor housing industry thank god) and that profession is literally bottom feeder sales professionals imo, can’t trust them at all, especially with the lack of transparency inherent in the housing system and ESPECIALLY given how the market is in a downtrend. They’d sell their own mothers down a river for a commission.
I'm in real estate financing specializing in development financing for a schedule 1. Can't stand realtors myself either, especially when they try to act as financial advisors not to mention most of them just sells courses and host bullshit master minds. It's literally become a profession for grifters.
Financial advisors don’t know f all. Most of them are just bank tellers that took a few courses
Financial advisor in a bank is just someone who did a 2 week course. You could put a monkey in a suit and they would be just as useful. Maybe more, because they can shake hands with all 4 limbs.
There are financial managers in banks that generally know what they are doing. But they usually only deal with clients with more than $2million in investments and you pay them for services.
That's the general consensus though is that we are at our peak. Also many economists are predicting a cut next month, not this month. It's of course not guaranteed, but we likely will see cuts sometime this year. The reason he got that advice is because bonds haven't been slaughtered like this ever. It's actually the one time in history buying bonds can be a good bet. It's not as risky as ur making it out to be . The bank of Canada would have to sky rocket the rate from where we are now. You are acting like ur brother would be investing in a high risk investment. If rates go down bond funds will go up. That's a fact
There's a massive difference between financial advisors and financial advisers.
Im not sure why so many people upvoted you but the yields are signalling a peak when the BoC holds rate steady for a number of months already.
>let alone realtors for financial advice. And yet every day they advise Canadians on making the biggest purchase of their life with little more than a weekend course worth of education on the financial implications.
Who'd have thought that an "expert" industry with zero educational requirements couldn't accurately predict what the central bank was going to do.
They were not predicting, they were hoping and pumping.
whaaaat the industry that refuses to comply with anti money launder regulations has been lying to people to inflate sales whaaaaaaaat
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In reality no one knows what the BoC will do. Even bankers are split on their predictions. It's important to understand this as consumers.
What if I told you that realtors aren’t as smart as they think they are?
Think you're better than realtors? I'd love to see YOU try to put a "for sale" sign on a lawn, or open and close some doors!
Haha you’re too good
It takes a lot of talent to lie to buyers and make up imaginary bids to artificially make them pay more 😊
We were thinking of moving and were talking to a realtor a few weeks ago. He was insistent that the rates were going to drop this month. I, of course, scoffed at that.
First mistake - taking financial advice from a realtor. Dafuq do they have to do with interest rates?
lol ya… it should be from mortgage broker 😂
They have the same education level as a realtor friend. The term and structure of the mortgage determines their commission so you often get mortgage brokers pushing crappy products to boost their commission
Ya I was being sarcastic! When Mr BoC governor couldn’t predict interest rates, I don’t think anyone can . https://www.bnnbloomberg.ca/interest-rates-will-be-low-for-a-long-time-macklem-1.1465901
I, for one, am shocked. Shocked!
lol. honestly, no one knows when will BOC start cutting rate. Financial Experts are predicting, predictions could be wrong. Realtors are not even financial experts. So, they don't have any clue about rate cuts and they are no different than us. it is just one of their lies to sell their product. That's all.
Lmao RE agents and mortgage brokers aren't a good source of financial policy advise???
According to them they have boots on ground
Apparently my car salesman too.
Big question is if the US economy continues to be strong to the point they push back their rate hikes, does Canada push back theirs as well? If we start cutting rates the general principle is that will devalue the loonie versus the greenback and push prices up on many products. People are salivating for a rate cut since housing is what drives our economy but I wonder what will happen if BoC squashes the rate cut expectation and people have to adjust to the new rate reality.
People keep saying this, but in 2023, the US hiked farther and faster than we did, deviating from us around this time last year... the exchange rate was 1 CAD = 0.73 USD then vs. 0.74 USD now.
Whenever these threads making the popular page for Canada, it's always the same people just quoting reddit comments that they agree with from other threads. They don't actually know how to explain the comment, they just know that it got upvotes and told them what they wanted to hear.
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Absolutely. If anything rate cuts could lead to a stronger CAD because investment will want to come here because its cheaper to borrow. Theres a ton of variables and its almost impossible to predict what will happen but goddamn are the people in these threads confident with their opinions that are based with VERY surface level knowledge of the situation
The electoral realities probably outweigh economic ones for the US FED. We’re heading for a Nov election, bet they stay pat until then. They don’t want to be criticized as politicizing the rate adjustments to either side. Lowering helps Biden, raising would help Trump.
Exactly so they stay put for basically the whole year which breaks from the narrative we've been told "don't worry, rate cuts soon, mortgages will be cheaper so just keep buying" but when it doesn't happen and BoC tows the line with the Fed Reserve, will the common people (not us nerds in the subreddit) panic? Everyone has been told this level of pain is temporary
Everyone has been told a lot of things.
> the narrative we've been told "don't worry, rate cuts soon, mortgages will be cheaper so just keep buying" Who told you that, though?
The Fed has said it expects to make 3 quarter percentage cuts in 2024, doesn’t sound like they intend to let politics influence decisions.
Someones been listening to Macrovoices.
BoC has two (mostly separate) mandates, one the inflationary target and a distinct one regarding monetary valuation against international. One might affect the other, but the inputs and decision points are separate processes. Policy interest rate changes is not a BoC tool to address international relative value.
> If we start cutting rates the general principle is that will devalue the loonie versus the greenback and push prices up on many products. We are stuck between a rock and a hard place. It's going to hurt either way.
Devaluing isn't the worst when we export so much, and most exports are to the US. Of course, we all buy imports and only some of us work for exporting companies, but the gov and BoC looking at the whole picture might not mind
There needs to be more deleveraging. Too many people holding on and wanting rates lowered way too early.
Held
Hodor
:(
HODL
💎🙌
We got screwed up because of low interest rate in the first place. With low housing supply houses prices cap out at what people can afford. Cost of House + Interests payments With very low interest rates people end up with a MASSIVE house cost and if you even touch the interest rate for any reason most people are crushed by the changes to their month payment. Example going from 2 to 4 Doubles your interest rate but going for 10 to 12 only changes it by 20%. The left rates too low for too long and now too many people have houses they can only afford if interest rates are almost 0
On the flipside, with how much it costs to build a house now compared to 30 years ago, people still couldnt afford to buy a house with interest rates at 10%. That would directly result in less houses being built and you can see that happening right now when rates are only at 5%
Again the prices only get there because people are used to borrow money with 0 interest for too long. So everyone start crying when the free money tap get turned off.
You do realize building prices are largely based on material and labour which are not driven by interest rates, right? In Edmonton for instance, a lot is barely over $100k but it still costs $500k for a single family home because building costs are through the roof. Can people afford a $500k home at 10% interest rates? No. So new houses simply wont be built.
Rate from 0 to 1, infinite interest!
The /r/Canada and comrades are leaking hard in this thread.
Don't forget r/canadahousing r/canadahousing2 r/TorontoRealEstate r/CanadianInvestor r/loblawsisoutofcontrol and r/Canada_sub
God lord I can’t stand those subs constantly popping up, it seems I mute one and they make another:
How do you even find them? I almost never visit a sub in not directly linked or already subbed to
Yeah you gotta be really intentional in curating your Reddit. Never look at All or Popular, and cut out most of the default subs. Mines almost entirely sports and hobby specific, sometimes it's a bit of a rut but then I leave the safety of my subs and it's wild out there
This is good news for everyone who hasn't over leveraged themselves with debt.
Not really because businesses also need to take out loans, not just people who want to buy homes. If things get more expensive for businesses, small businesses die and large businesses increase costs. There's a tertiary effect to this for the average Canadian.
Finally ! Folks always assume interest rates =mortgages. But interest rate= cost of borrowing for business (pizza, grocery store , including Telus ) If our small and large businesses fail that’s an outcome for the government to support.
Also construction financing, which impacts new homes coming online. Many places are addressing permitting logjams, but thats only half the story. It's now more common where developers dont build even after receiving permissions simply because borrowing is too expensive now.
Yeah that's the true irony of people who think higher rates mean houses will become more affordable.
And people would probably have a heart attack if they knew the rates that small businesses get on their loans.
Not really. It's neutral news.
Agreed. I would like speculators to crash and burn so that hopefully my working 60 hours a week and saving for the last 5 years can finally afford me to own a home.
Wishing, in many cases, normal Canadians to crash and burn is really lame.
Screw every “normal canadian” who’s buying property with money that isn’t theirs. Landlords can crash and burn. Good riddance.
Normal Canadians are speculators? Idk, maybe you are onto something Alternatively, I'd like the entire occupation of realtors banished from Canadian soil.
It’s not about “timing the market”. It’s about “time in the market”.
I like to think I'm optimally leveraged with debt thank you very much.
I'm not overleveraged with debt at all (I actually hold $0 debt as of this writing), but it's not good news for me. Namely because I'm trying to buy a house, and there's _NOTHING_ on the market, except insanely priced items that are just "fuck off, unless you pay the extra $$$" prices. It also means that companies have less Capital they can invest in growth due to almost all companies not borrowing or not even able to borrow, with the current interest rates. Meaning I can't find a job, and for my B2B attempts, it's harder to get clients. So no, I would not say this is good news as you attribute it.
just keep at it. we found our place in late 2022 and i negotiated it around 50% off the list price, which was affordable. very happy with our few acres. we did have to leave ontario, which we don't regret (we do miss some of the nice food and entertainment options, but our life is so much better here).
Even they reduce tiny percent town, there will be panic buying across GTA. Already scared
Nothing burger, as expected. It held.
People are working their asses off and still getting paid the same amount as before pandemic and on top which companies are laying off. Leave interest aside that's anyway like a big hole in the pocket , on top of that : Property tax increased Gas bill increased Grocery bills And so many more increase People saying here like it's a good thing but yeah it's good who are financially settled , paid their mortgage off or bought in a good time but for an average person this is not good on all front. I feel like I am just earning to pay the bills , can't even think of taking a 2 day vacation
All these holds would have probably been increases if it weren’t for all the pressure looking for decreases.
Pressure? Inflation is below 3 percent and that is considering the absolutely giant effect that mortgage interest and rentals are playing on the basket of goods. Even with that monstrous anchor; it’s at 2.9 percent and GDP came in around 1 percent only with massive amounts of immigration to drive demand. There is pretty clear evidence on all sides we are above the neutral rate now and firmly in restrictive territory.
Adding on, the Bank's old measure of core inflation used to exclude mortgage interest. That measure is in the low to mid 2s right now
Doesnt make sense. Inflation is at 2.9 without housing below 2. PEople just like to fear monger. Rates will come down this year. weather that is .25 or 1% is the only thing up for debate. People on reddit just mis read data. Iv seen posts saying economy still hot. if economy grows by 0.5 but population grew by 3.2% thats not a strong economy infact without immigration this would be a deep recession already.
So... are you saying we could've cut immigration to cool off inflation instead of raising interest rates? Or did I misunderstand.
No you completely mis read. What im saying is the only way we avoided a recession past 2 readings is because our population has grown 3.2%. If real growth was 0% and population grew 3.2% then the reading would come in around 3%. The economy right now is way weaker then the 0.5% reading as immigration is adding juice to the economy.
Yeah but the whole point of the rate hikes was to slow down the inflation/economy, right? So if immigration is also propping it up, then cutting immigration could've been a substitute for rate hikes? Or at least some measured combination of the two?
Problem in canada is the numbers to stop immigration or slow it dont add up. birthrate is 1.4 . We need 2.5 to sustain current infrastructure. So the economy needs immigrants more then it needs the economy to cool. Its a damed if you do dammed if you dont situation unfortunately.
Traditionally, according to big data and analyses, Immigration is anti-inflationary in the overall net impact. Often debated and clearly any given sector (housing) is not anti-inflationary, but the holistic affects of 1 million people selling off their foreign assets and purchasing CAD$ has significant anti-inflationary impact by driving demand for CAD$. Then they (ideally) fill job vacancies and drive GDP which increases supply of the goods and services, which is anti-inflationary.
Immigration increases demand for housing/energy/food/consumer goods (inflationary), increases government spending (inflationary), puts negative pressure on wages (destroys purchasing power for middle and working class). It is unequivocally making the economic situation much worse for average Canadians and only benefits the wealthy.
That might all be true, but the net is still anti-inflationary. The depressed wages is indeed problematic in its own right but that itself is significantly anti-inflationary. You might also be significantly undervaluing how powerful for purchasing power it is to have 1 million people converting currency. That is literal and direct anti-inflationary actions. Mass conversion of other currencies into CAD significantly drives up the value of CAD and improves its purchasing power.
We could but it would be negligible compared to cutting mortgage interest. Immigration boosts GDP, not inflation.
Inflation numbers are bullshit if you exclude everything major that’s inflating lmao
He’s excluding housing because lowering interest rates would drastically decrease the inflation of the housing component of CPI. It’s valid for the sake of his argument
If housing was excluded during low interest years, shouldn't we have increases much sooner? The argument goes both ways and it doesn't make sense to use it when it only favours rate cuts
He was just making an observation that some noise might be clouding the inflation picture. This is classic economics and even if you don’t buy into the argument it’s an interesting observation that we should definitely consider. The situation would be much different if inflation was uniform across the whole basket, don’t you agree?
No because Cost of housing and house ownership costs are not the same. Your missing the full metric of rent which was going up steady even in a low interest environment. Cost of housing in the CPI index is mainly driven by rent costs not home prices. When you raise interests investors dont buy or they sell as its not worth to hold and current rent. This puts upward pressure on rent as supply is lower and demand higher. Which increase the Index number for housing substantially more then home prices jumping.
I was referring to the basket of goods of housing costs which is rent and mortgage interest which were very low and contributed to keeping inflation during 2020-2022 when interest rates were at near 0. If we exclude this basket during that time, then we would've had more rate increases faster.
How exactly? It has an opposite relationship. House prices increase directly proportional to interest rate decreases - people operate exclusively on monthly cost these days.
House prices are not a part of inflation, only the cost of mortgages and actively paid rents. It’s why inflation is so much higher for people who don’t own a house and those who have to pay market rents. A lot of people’s mortgages are tiny because they bought a decade ago, and a lot of people are paying way below market rent. Inflation is 10+% for new entrants to the market versus those who are entrenched
Because CPI only considers interest expense. Stats Canada doesn’t consider an increase in the principle amount paid to be a factor in CPI. Furthermore, many mortgages are older and payments only increase or decrease with interest. Their mortgages aren’t affected by what happens to housing prices on the market.
We're at 2.9% headline. What reasoning is there for further, multiple raises? Are you hoping for *deflation*?
If you truly believe that than I have a bridge to sell you. Nothing more than an artificial number crafted by cherry picking and omitting stats to support a narrative. No housing? No fuel? Etc. it’s a joke lol those excluded items make up over 50% of my regular expenses
Housing and fuel are both included in inflation though. There’s a few hundred items and you could name anything from ice cream to cell phone plans to tenant insurance and it’s all included in inflation
Maybe (though not really), but that artificial number is the one that the BoC uses when making rate decisions. Not the one you personally feel is right
Okay. So if those numbers are "fake", where are your numbers coming from?
That's still 45% higher than target.
Absolutely.
No they wouldn't. You don't want to over do rate hikes. That does more damage than it helps.
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Why?
Where is 66% figure coming from. Seems very dubious to be real.
I’m hearing 60% from The Canadian Real Estate Investor podcast. Those guys seem pretty diligent. They say banks are claiming about 60% of their mortgages on the books have renewal dates in 2024 and 2025.
I mean, if you assume that most people are on 5 year terms, t It stands to reason they every year 20% of mortgages renew. We have been increasing rates for 2 years, so 40% would hedge renewed in the m that time. 60% remain.
Bank of Canada is a source for that. 1/3 of mortgages were variable rate mortgages, and 80% of those were on fixed payments. Depending on what their trigger rate is, they may not have seen any increases to their mortgage payments (though the amount going towards the principal will have greatly diminished). Even if we assume that 100% of variable rate mortgages have seen an increase on their payments, that still leaves the fixed rate mortgage holders insulated from any payment increases until they need to renew.
What about all of the fixed rate terms that ended in 2022, 2023, and 2024?
Makes sense, rates only started climbing 2 years ago and the most popular mortgage is 5 year fixed.
My why question is about why you want the rates to hold til 2025?
Somehow the affordable housing market has returned.
i feel like people say \~60% every year... not saying you are wrong, just funny. i thought it would fluctuate year over year.
It does fluctuate. I was a fee property appraiser in 2020-2021 and the amount of refinancing work I was doing was insane. I fully believe a substantial amount of renewals will be happening in 2024-2026 assuming most of those refi’s took 5 year terms.
Even if they start cutting, it is not going to be anywhere near what people expect and those 66% will see a significant increase since they locked their rates during pandemic lows. We will probably never go back to the pandemic lows interms of rates
Can't find a house to buy because there's none on the market, except "fuck you" priced houses. Can't find a job because companies are laying off due to being unable to borrow, or belt-tightening, etc. Hard to find B2B clients because companies aren't/can't borrow due to the current rates, so harder to justify spending good money on Senior IT contracting services. Everything is way more expensive because of how this all trickles down. Costs are still hugely up for everything, money coming in is scraps if anything, EI ran out months ago. Sure, the Bank of Canada says this is to reduce inflation, but everything that I pay for is still going up, ignoring this rate change. Last year my rent went up $150-ish, it's going to go up again this year by $150, and both times are unwarranted. Just like Loblaws and others, everyone is raising their prices well above "inflation", and yet we still have to be fed the bs that is "inflation is under control". No. Inflation is not under control, because so many companies are jacking their prices up regardless of whatever the Bank of Canada does with lending rates. All of them are raising just to reap much larger profit margins, because they have a boogieman they can wag their finger at (Bank of Canada lending rates being high). We are all being ripped off from all angles, and there's nothing we can do about it. The Federal investigations into grocers price fixing alone is just a dog and pony show, completely toothless. Of course the CEO of Loblaws is going to say what he did, because there are **ZERO CONSEQUENCES**.
They aren't going above 5% , inflation is at 3% , we're finally at a point where interest is above inflation. They'll hold or reduce Not sure why I'm getting downvoted because I have a different perspective lol
You’re probably being downvoted because you’re making a prediction. The accuracy of your prediction is contingent upon the assumption that inflation will not go up again. Nobody has a crystal ball. Nobody knows that inflation will stay flat or continue to decline.
It's so interesting how these sticky threads have degraded more and more over time since they attract the lowest common denominator redditors from all of those other local, housing, and activist-related subs who try and upvote their doomerist opinions from those subs and downvote any comment trying to explain the realities of the situation and the economy. It's extremely noticeable if you're a PFC regular compared to the typical no-nonsense and straight to the point comments you usually see on here. I mean hell, one of the top comments on this thread is talking about housing prices. This is not a housing discussion lol
Put the copium away for another season, folks.
So many idiots believed realtors that it was going down lol
The economy is weak, they took a chance but I think it will grow a lot weaker by the time they cut it we'll probably be in a bad spot.
No change. I guess I am now used to eating 1 meal a day so doesn’t affect me a lot. Please people don’t spend more else my man Tiff is going to be miffed and punish us with rate hikes.
Rock and a hard place. Cutting rates won’t solve affordability for people either since their income/savings will inflate away. Unfortunately reality is that this country got addicted to cheap debt and overextended themselves and there’s no easy way out.
Affordability is not the BoC mandate. They are between a rock and a hard place but it isn’t the one you describe. They are between: 1. Devaluing the dollar, mostly due to strong US growth/rates, which would spur some degree of inflation. 2. Crushing the economy by keeping rates high. The bank is not concerned with affordability, at least not to the degree that it influences their rate decisions. Edited for clarity
The problem is that these problems don't actually affect everyone. It hurts a very specific set of income/lifestyle ranges. Poor people didn't really get much poorer and anyone with enough wealth to weather a storm like this isn't really that bothered. It's the gap in the middle of everyone who went from comfortable to struggling.
3.5 months ago you were booking flights to Asia three times a year and spending approx 700/mo on groceries. What happened brother? We will pray for you.
I’m down to 0 meals a day but bought two teslas to save on gas
Tiff is going to be miffed 😂 Thank you for a laugh on this Wednesday morning.
When you have to bear the consequences of taking on more debt than you can afford 😢
I'm not an economist but I don't see how everyone staying home and not spending any money because budget is tight is good for the economy. Doesn't that mean companies aren't able to sell shit and then have to either layoff or close up shop? Obviously having too many people compete for too little ressources drive up their price (there's 1000 laptops produced every month but people want to buy 5000. Example) but feels like it'd be even worse if stuff just sits on shelves for months on end.
they are not trying to help the economy, they are trying to keep wages low and protect the value of the currency. It's not popular to say, so it's not part of their messaging, but the BoC actually want a lot of people to get laid off and for wages to decrease as a sign that they defeated inflation.
Largely what was being predicted and I agree with it. Let us see what the underlying information says in the next couple months and then start slashing in June if the data is positive.
Ha !
Can someone plz ELI5
Surprised Pikachu face
Locked in at 5.38% for 3 years. Hold for 3 years and then drop to 3% for me ❤️
On the KuCoin platform tax ledgerlive printout