Bank of Canada – Interest Rates Cut – September 4th

Clinton Wilkins joins Rob Snow once again on City News to discuss the Bank of Canada’s announcement to cut its overnight interest rate to 4.25%!

Rob Snow
So big news in political Ottawa today and as well from the Bank of Canada, surprising, really, no one today, cuts its benchmark overnight lending rate by 25 basis points, putting the overnight lending rate at 4.25% and any relief from higher interest rates will be welcome news for those shopping around for that very first mortgage, or those renewing a mortgage. Let’s get some reaction from the other big story in Ottawa today, the Bank of Canada news courtesy of Clinton Wilkins, of the Clinton Wilkins mortgage team in Dartmouth Nova Scotia, thanks for joining us, Clinton,

Clinton Wilkins
Thanks for having me Rob.

Rob Snow
Yeah, great to hear from you. What’s your reaction to the news from the Bank of Canada today cutting interest rates?

Clinton Wilkins
I think it was highly expected that we’re going to have a rate cut. You know, many economists think that the Bank of Canada is going to be more aggressive in their cuts than they had initially kind of forecasted going into this rate cutting sequence. I think many economists think that the October meeting, we’re going to see a rate cut, and in December, we’re going to see the rates be cut yet again. You know, I think it’s overall really great news for homeowners. I think Canadians, by and large, really think that inflation is being driven by these high rates, but also just due to that cost of housing overall. And some economists have run some models saying that if the rates had been softened, maybe earlier, we would see inflation down in the 1% range. Now, of course, the inflation numbers have not come out for August, but I am cautiously optimistic that we will continue to see cuts, and I think they’re going to be more aggressive than we thought, maybe even just a couple of months ago.

Rob Snow
What’s happening with potential buyers right now? Clinton? Are they coming “off the sidelines,” or are they waiting for even lower mortgage rates?

Clinton Wilkins
I think there were a lot of buyers that were on the sidelines just due to the increased rates. One, because they couldn’t qualify. Having a higher interest rate with the stress test means that some of those buyers might have been just priced out of the market in terms of what they could actually afford. I think there were some other buyers that were, you know, the wait and see that, you know, we want to lower interest rates, so we’re going to pay less, but consequently, what will happen, and we’re going to, and haveseen these stories across the country that as soon as the rates start going down, the cost of the real estate actually increases. So sometimes, you know, when we’re seeing clients in our office, specifically, sometimes we tell them to, you know, date the rate, but marry the home. And, you know, you can’t really change the purchase price, but that rate is going to change, and that’s why we’re also seeing more borrowers enter into a variable rate mortgage, more than we have in the last two years, I would say,

Rob Snow
Okay, so on rates. What kind of rates are available out there right now for popular mortgage products?

Clinton Wilkins
So I think on a variable rate. You know, a lot of customers are seeing prime minus 90, prime minus 95 or prime minus 100 so you’re seeing a variable rate mortgage today, in that mid 5% range, the fixed rates are still less Rob. The fixed rates, you know good fixed rate could be as low as 4.39 or 4.69 depending on kind of what type of term and what type of transaction that you’re doing. But less borrowers are taking these five year rates. You know, they’re very historically common that borrowers would take a five year. But more and more borrowers are becoming savvy, knowing that the rates are going to come down, and venturing into either a shorter term fix or still into these variable rate products. With the variable the rate will be less. The challenge is, it’s just going to be more today. And can that borrower really stomach having a higher rate today with knowing it’s going to be less, you know, in 6,12, 18 months time.

Rob Snow
Okay, so are would you say that shorter term variable rate products are more popular for mortgage shoppers now than the fixed products, then Clinton?

Clinton Wilkins
In our office, specifically, 60% of the borrowers are taking a variable rate, and that is basically flipped from the normal. The normal would be 60% would be taking a five year. So borrowers are definitely becoming more educated around a variable. And I think also listening to what economists are saying that the rates are going to go down, you know, specifically for existing homeowners. You know, if they can weather the storm with hanging on to a variable rate, and it be more expensive today, it will be lower over the short term or even over the long term period.

Rob Snow
Okay with the stress test for new mortgage shoppers. What is that like these days, with rates at these levels in trying to qualify? What’s been your experience?

Clinton Wilkins
I think it’s the toughest for first time homebuyers. I will say. Even if we’re looking at a low fixed rate. Let’s say it was 4.69 and they were going to get a high ratio insured mortgage, in many markets across the country, first time homebuyers are still putting down less than 20% and buying homes that are under a million dollars. So those borrowers are qualifying at a rate of 6.6% and in many cases, you know, the average house price, even if we’re using an example of $500,000 and as we know, in many markets, you can’t buy much for $500,000 but let’s just say that that is the number they need household income in the range of $125,000 to be able to make that work. And if we’re just looking at average incomes across the country, it really takes two borrowers to, you know, be able to buy a buy a first home. And I think the ones that are facing the most amount of challenges are those first time homebuyers just being able to break into the market.

Rob Snow
Okay. Really appreciate your time today on a very busy news day, both from the Bank of Canada and in federal politics, Clinton, great to hear your voice again. Lots to talk.

Clinton Wilkins
Thanks for having me, Rob. You know, we’re always here for a busy news day, and we’ll chat with you very soon.

Rob Snow
Great stuff. Clinton Wilkins of the Clinton Wilkins mortgage team on Bank of Canada Day.