Weekly Digest

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June 6th, 2024

Bank of Canada Announcement

Since the first hike occurred 27 months ago, the day is finally here. Bank of Canada cuts rates by 0.25%. The decision was made to hopefully dodge an even bigger economic iceberg that is on the horizon. 

From Capital Economics – This week’s interest rate cut from the Bank of Canada will be the first of many, and the dovish tone of the accompanying communications suggests that another rate cut in July is priced in. Capital Economics is forecasting three more 25 bp cuts this year, implying that the Bank will pause at one of its meetings. 

In its statement, the Bank said, “With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive.” 

Weak GDP data last week was one of the main reasons why the Bank decided to cut now, as opposed to waiting until July.  

The US Fed announcement is slated for June 12th, 2024.  

How Does This Effect Borrowers

For adjustable-rate borrowers, monthly payments drop roughly $14 per $100,000 of mortgage. 

For fixed-payment variable borrowers, payments remain the same, but the amortization will now be lower. 

For HELOC borrowers, interest-only payments would drop almost $21/month per $100,000. 

For fixed rates, nothing…yet. They’ll likely dip further, with the BoC expected to get more favourable CPI data on June 25. Fixed rates are determined by the 5yr Canada Bond Yield and lenders add a risk premium to that (usually around 1.5% – 2%) to get the mortgage contract rate. The bond yield needs to parallel the rate decrease from the BoC before lenders will make a decision on fixed rates. 

What Happens Now

76% of borrowers are facing renewals in the next 30 months. The odds are that rates will be meaningfully lower heading into 2025.  

A great chart posted by one of our lenders, RMG, shows the historical drops after the first cut occurs. The average drop in a 12 month window was close to 2.50%. 

The below poor readings were a big reason why the Bank decided to cut this week. After the reading, rate cut chances jumped to 82% (which we now know is 100%).

• 0.4% q/q (Q4 growth was revised down to 0%) 

• 1.7% annualized which was well below the 2.2% estimate. 

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Mortgage Growth

Canada Mortgage and Housing Corp. says the country’s total residential mortgage debt totalled $2.16 trillion as of February this year, up 3.4% year-over-year and representing the slowest growth in 23 years. 

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 5.24%

• 3 year fixed, 30 yr amortization – 5.44%

• 2 year fixed, 30 yr amortization – 6.20%

• 5 year variable, 30 yr amortization – Prime – 0.90% = 6.05%

• 5 year fixed, 25 yr amortization – 5.19%

• 3 year fixed, 25 yr amortization – 5.34%

• 2 year fixed, 25 yr amortization – 6.10%

• 5 year variable, 25 yr amortization – Prime – 1.00% = 5.95%

INSURED

• 5 year fixed, 25 yr amortization – 4.79%

• 4 year fixed, 25 yr amortization – 4.84%

• 3 year fixed, 25 yr amortization – 4.89%

• 5 year variable, 25 yr amortization – Prime – .90% = 6.05%

Fast Facts

• 29 – The number of words spelled in 90 seconds by the 12-year-old winner of the U.S. Scripps National Spelling Bee. Bruhat Soma correctly spelled words like “caixinha” and “sciniph” to win the contest and take home the US$50,000 prize.

• 37% – The amount of extra insurance owners of Honda Accord, CR-V, Civic, Ford F-150, Toyota Highlander and RAV4 pay for their vehicles compared to the Canadian national average because they are prized by auto thieves.