Weekly Digest

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October 26th, 2023

Bank of Canada Holds

The B.O.C held the overnight rate at 5.00% Wednesday morning. But what happens now? Wednesday’s decision was expected (85% odds of a hold). However, in their announcement, the B.O.C is now projecting that inflation will not return to the 2% target until the end of 2025!? Original projections were for inflation to land at 3.50% in the middle of 2024 which is well up from its original 3%. This means the Bank is implying they have a worse grip on inflation than its leading us to believe…

But who do we believe? The market, or the B.O.C? The market has now moved cuts back into 2024 which was pulled forward from 2025. Albeit, these projected cuts are not until the fall / year end next year, but it certainly helps rate forecasts. The year over year comparable inflation sets drastically improve once we are through January of 2024. It appears that the next B.O.C decision will be a c, we just have to remain patient to get to that date. With the B.O.C’s recent track record, we have a better feeling on the “markets” forecasting.

With no immediate relief in sight, expect this winter to be very slow for real estate transactions. The most likely outcome is Canada’s economy continues to weaken over the next 6 months. A weakening economy is the only hope for lower interest rates.

Read the banks full statement here

OSFI’s Changes (Or Lack There Of)

OSFI spoke on potential changes to the stress test and mortgage qualifications. The long and short of it; do not expect any changes coming to the stress test and we will continue to qualify at +2% over the client’s given rate.

(1)    Lending based on loan to income.

These suggestions were for restricting the amount of borrowings as a multiplier of income with no exceptions. These measures were turned down.

(2)    Debt serving changes based on income(TDS and GDS changes).

These measures were not changed.

(3)    New qualifying interest rate / new stress test rate.

These measures were also unchanged and the qualification remains at 2% over the borrowers end rate. The only exception to the rule is on an “insured switch”. This would mean the client has originally received mortgage insurance and would like to change lenders. Assuming they take no new funds, they will not be subject to the stress test. This represents a small portion of clients in the GTA as less than 15% of new files are insured.

(4)    CRA verification of income.

These measures gained traction, which would all but wipe out fraud. This would be a massive win for the industry as notice of assessment verification would remove any fraud using letter’s of employment and T4 slips. Nothing has been tabled, but it is in the pipeline for a review.

Housing Deficit – Quarter 3

In the third quarter, Canada’s housing supply deficit worsened to its worst level ever recorded. Three consecutive quarters of record immigration will not help the supply issue moving forward.

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 6.44%

• 3 year fixed, 30 yr amortization – 6.81%

• 5 year variable, 30 yr amortization – Prime – 0.20% = 7.00%

• 5 year fixed, 25 yr amortization – 6.34%

• 3 year fixed, 25 yr amortization – 6.71%

• 5 year variable, 25 yr amortization – Prime – 0.30% = 6.90%

INSURED

• 5 year fixed, 25 yr amortization – 5.94%

• 4 year fixed, 25 yr amortization – 6.04%

• 3 year fixed, 25 yr amortization – 6.49%

• 5 year variable, 25 yr amortization – Prime – .90% = 6.30%

Fast Facts

• $243,300 USD. Top of the salary range for a new machine learning engineer position at Apple. The tech giant announced it will invest US$1 billion annually as part of its AI push.

• $1.6 billion. Debt taken on by Toronto luxury condo development The One. The project, slated to be an 85-storey residential skyscraper, has been placed in receivership.

• 1,200 km. Range that Toyota’s new electric cars are expected to have — more than twice the range of its current EVs — following a solid-state battery breakthrough.