Interest Rates

Those of you who know me well, know that I shy away from making predictions on interest rates.  There are simply too many factors at play (political, economic) to make a sound prediction unless you are an economist.  Everyone is free to make predictions, but I personally don’t like to base any of my mortgage advice on personal predictions.  There are some factors that I do follow, though.  

One is the bond yield. It is published daily by the Bank of Canada.  It the bond yield rises – this puts pressure on mortgage lender margins and you can expect lenders to increase rates.  This indicator is helpful if you are holding a rate and are ready to close on your mortgage but haven’t done so yet.  

The second indicator I follow is more a general indicator – the employment rate.  Every month (usually the first Friday of he month ) the Government of Canada issues a Labour Force Survey that outlines the unemployment rate changes and number of new jobs added or lost in the country.  You don’t have to follow this – and most newspapers will write a story about this each month.  Job rates are important because they are a sign of a strong economy, and if employment rates keep rising, you can expect in the long term that interest rates will rise too (as the government wants to control inflation).  

Finally, if mortgage rates and the housing economy interests you, I suggest following Benjamin Tal. He is a CIBC economist and he is quite interesting, knowledgable, and sometimes entertaining.

Now as I said, I do not make interest rate predictions. However, I do feel comfortable sharing my thoughts on long term trends.  Sometimes events happen, where we should pause and look at possible outcomes.  One such event – Canada signed the USMCA (formerly known as NAFTA).  I can’t comment on whether it is a good or bad deal – but the fact that a deal was signed – will drive confidence in our economy.  And this translates into rising interest rates.  

We have enjoyed years of low rates.  Some older Canadians I speak to remember the days of 18% interest rates(!).  If you already own a home with a mortgage – you could see your monthly payment go up.  For new buyers – the interest rate has a huge impact on affordablity.  

Two things go into affordability (how much you can afford to pay monthly) – the interest rate and the price of the house.  You could say that higher rates will mean that house prices will not rise as fast as they have in the past – but it still won’t make home ownership more affordable.

As always – if this kind of stuff interests you at all, please feel free to call me. I may not have all the answers to your economic questions, but I can point you in the right direction to look for more information.