Weekly Digest

———

December 15th, 2023

US Rate Announcement

This week has made headlines for all of the right reasons. 2023 has felt like Andy Dufresne leaving the pipes of the Shawshank prison, and we may finally be seeing the light at the end of the tunnel.  

After Wednesday’s announcement south of the border, Canada’s 5 year bond dropped another 27 basis points. We are now sitting at a 7 month low for Bond yields. 

This rapid shift in funding costs will allow lenders to reprice mortgages in ways we have not seen since the spring. Christmas should see 5 year fixed (insured) mortgage’s back into the 4% range.  

Powell announced Wednesday that the US is making “real progress in core inflation”. As a result of this meeting, 0.75% of cuts are now priced into the US market for 2024.

From CapitalEconomics.com; “The Fed’s reluctance to acknowledge that it will need to begin cutting its policy rate soon (to prevent a run-up in real rates) was predictable enough based on its intransigence ahead of previous turning points in the policy cycle. We continue to expect that with core inflation normalizing much more quickly than Fed officials are willing to admit, the first rate cut will probably come at the March meeting next year.”

In Canada, some experts are expecting 1.25% in cuts in 2024, with the first to come as soon as April.

What’s Next?

What can news like this do for Canadians and the market?

1. The first will be a change in market sentiment. With consumer confidence, comes increased demand. Now that consumers know / expect rates to fall in 2024, we will see an increase in buyers. Thursday, Royal Lepage predicted 5.50% home price gains for 2024.

2. Expect continued drops to fixed rates over the next 2 weeks as the Canada Bond yield has fallen to May lows. 5 year variable will remain a popular strategy to wait for continued drops and “lock in” at a more appropriate time.

3. On the other hand, changing attitude too quickly, can lead to re-inflation. Harvard economist professor Jason Furman thinks there is a 25% chance that regression could occur.

US Inflation Data

The annual inflation rate in the US slowed to 3.10% in November, the lowest reading in five months. This is down from 3.20% in October and in line with market forecasts.

Declines were shown in;

• Energy costs -5.4% (vs -4.5% in October)

• Gasoline -8.9%

• Utility (piped) gas service -10.4%

• Fuel oil -24.8%

• Used cars and trucks (-3.8% vs -7.1%).

Prices increased at softer pace for;

• Food (2.9% vs. 3.3%)

• Shelter (6.5% vs. 6.7%)

• New vehicles (1.3% vs. 1.9%)

• Apparel (1.1% vs. 2.6%)

Stress Test – Here to Stay

On Tuesday, OSFI announced no changes are coming to the Stress Test. Borrowers will continue to qualify at 5.25% OR +2.00% points above the client rate. The only exception was announced in the new “Mortgage Charter” to a small consumer pool. If you have an original insured mortgage (CMHC, Sagen or Canada Guaranty) and you are renewing, you can switch to a new lender and qualify at the end rate. Eg, 5 yr fixed rate of 5.44% qualifies at 5.44%, not 7.44%. In the GTA, this is a small amount of borrowers.

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 – 0.55% = 6.65%

INSURED

• 5 year fixed, 25 yr amortization – 5.44%

• 4 year fixed, 25 yr amortization – 5.64%

• 3 year fixed, 25 yr amortization – 5.69%

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

Fast Facts

• 540,000 – tonnes of wrapping paper that Canadians throw out each year at Christmas, about the weight of 100,000 elephants. And that’s not including the 6 million rolls of tape.

• 812,100,000 – The number of hours Netflix users spent watching FBI series The Night Agent. It was the most watched series in the streaming services’ first-ever ranking.

• €750,000 – the value of a ring found in the bag of a vacuum cleaner at the Ritz hotel in Paris. The piece of jewelry belongs to a Malaysian businesswoman who filed a police report after suspecting it was stolen by hotel staff.