Weekly Digest

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December 7th, 2023

B.O.C Holds Overnight Rate

For the fifth straight month, the overnight lending rate (and prime rate) remain unchanged. It is evident the next move in the rate cycle will be a cut but when that will happen remains to be seen. Some expect early as April, others are predicting later in the summer (June/July).

TD is now pricing in 4 rate cuts in 2024. This would drop the prime lending rate a full percentage point, and bring variable rate holders back into the 4%’s and 5%’s.

Fixed Rates

The 5 year bond is now at a 6 month low. This is great news for fixed mortgage rates, as lender’s begin to soften pricing. The last time the bond was this low, 3 year fixed rates were sitting at 5.14%. That is a full 1% lower than rates being received just one month ago.

Most fixed rates will begin with a “5” imminently.

War on Short Term Rentals

Starting in 2024, the Liberal government will begin to deny income tax deductions for expenses incurred (including mortgage interest) on short term rentals that are not “compliant” with provincial or municipal rules.

The move is expected to free up just 1% of the units needed to catch up to demand, based on CMHC data. Governments are now picking winners and losers between landlords and tenants, and long-term vs short-term renters. This is a slippery slope to dictate what Canadians do with their own properties…

Rental Inflation

As inflation improves, rent inflation worsens. Rent inflation is at a 4 decade high, and rent prices are up 10% year over year.

The scarcity of inventory is the major driver. Vacancy rates are at an all-time low at just 1.40%.

“Housing Hell”

Conservative MP, Pierre Poilievre released a video on “X” titled, “Housing hell: How we got here and how we get out.” The video has been viewed over 4 million times and outlines some of the problems we are current facing with supply, demand, government spending and interest rates.

The video can also be viewed on youtube.

Cash Flow Challenges

Cash flow challenges continue to run high for those looking to purchase a rental property. With todays rental rates, lets use a condo down town Toronto as an example.

Purchase Price; $800,000 (800 sq feet 2 bedroom condo)
Down Payment; $160,000 (20% required)
Mortgage; $640,000 (80% loan to value)
Rate; 7.00% (Variable rental rate)
Payment; $4,215/month
Condo Fees; $750/month
Property Taxes; $300/month
TOTAL; $5,265/month

The property would run between a $1,000 -$1,500 cash flow loss each month based on approx. $3,700 – $4,000 in rental income

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 5.79%
• 3 year fixed, 30 yr amortization – 5.89%
• 2 year fixed, 30 yr amortization – 6.29%
• 5 year variable, 30 yr amortization – Prime – 0.50% = 6.70%
• 5 year fixed, 25 yr amortization – 5.69%
• 3 year fixed, 25 yr amortization – 5.79%
• 2 year fixed, 25 yr amortization – 6.19%
• 5 year variable, 25 yr amortization – Prime – 0.60% = 6.60%

INSURED

• 5 year fixed, 25 yr amortization – 5.44%
• 4 year fixed, 25 yr amortization – 5.64%
• 3 year fixed, 25 yr amortization – 5.89%
• 5 year variable, 25 yr amortization – Prime – .90% = 6.30%

Fast Facts

• 45,000 – Times that Air Canada has to de-ice its planes’ wings every year. The airline just announced it’s testing new de-icing strips that could eliminate takeoff delays for flights.
• 26.1 billion – The number of times Taylor Swift songs were streamed on Spotify. The pop powerhouse ended rapper Bad Bunny’s three-year run as the most streamed artist of the year.