Bank Of Canada – The Road To Softer Rates | December 6th, 2023

Clinton Wilkins joins Todd Veinotte on CityNews to talk about the last Bank Of Canada Update for 2023 and what it means for the rates next year. They talk about how the job market impacts the rate environment, the benefits of a maintained rate, predictions for softer rates in the new year and the importance of financial health going into 2024.

The Bank of Canada holds steady at 5%

Todd Veinotte 00:00
Some important things to talk about referenced, the Bank of Canada economists predicted this. It’s kept its key interest rates steady at 5%. The bank’s governors say they’re encouraged by evidence that higher rates are restraining spending, and helping bring inflation down. And joining us to talk about this is Clinton Wilkins, our mortgage guru here in studio. Clinton, no surprise here, you expected this right?

Clinton Wilkins 00:25
Oh yeah, we expected this. We’ve been talking about this even for weeks on end. I think what’s really interesting, Todd is what’s going on with inflation, what’s going on with the GDP. And really, the bond markets last week, it was a wild ride, we watch this stuff every single day, things are certainly starting to soften, which means that we’re starting to see some rates come down already in terms of the fixed rates. So I think that’s very, very interesting. We talked a lot about renewals during our last show for Financial Literacy Month, we had Brenna Charles on from First Canadian Title and there are so many Canadians with their mortgage coming up for renewal.

The rate environment vs the economy: a hard balance

Clinton Wilkins 01:02
And people are very stressed, I can tell you, we’re talking to people this this month, that have renewals here, even later in December and early in January. And nobody’s really having a great time. There’s something like 4.3 million mortgages coming up in the next period of time. And a lot of those people are renewing into rates that are 40% plus higher than what they had. So obviously, it is an impact. But I think some interesting news, one really is around the job losses, those are on the increase. And that really is indicating that we are going into a more recession type situation. GDP numbers we’re out in those have now been impacted. So good news, I think for the rate environment, maybe not so much good news for the job market or the economy. So you know, it’s a hard balance. And that’s what the Bank of Canada’s really trying to do. It’s their only lever is this key overnight rate. They’ve been keeping it high. They’ve been maintaining it. And maintaining is a better situation, Todd, because at least people can plan. And I do think the rates are going to start softening midway through next year. So I’m talking June, July. Depending on what happens with inflation, and the job numbers you know, in the next couple of months, we might even see rates soften before then. You know, there’s some economists, like the chief economist for Scotiabank, thinks the rates are 2% higher than they need to be right now. But it’s gonna be a slow burn on the way down, you know, rates increase a lot faster than they decrease.

Todd Veinotte 02:29
Okay, so you mentioned the bond markets, and there’s a direct correlation between what the bond markets do and what inflation is doing and what interest rates are doing, right? These are connected.

“By next year we’re going to be in a better climate in terms of the rate environment.”

Clinton Wilkins 02:39
Yeah, the bond markets certainly impact the interest rate. So that’s really what’s impacting the cost of funds for these lenders. We saw lenders already cutting rates as of, you know, end of last week. Through the weekend, the beginning of this week, we’re starting to see lower rates. I would venture to guess, and we’re going to start seeing rates, maybe start with a four, I think that’s great news, really, the rates over the last period have been 5, 6, 7%. So I think if we can get rates back into a 4% type range, or even starting with a 4, that is going to start stimulating some activity. I can tell you things are not into transacting as much. I think a lot of people are waiting on the fence. My fear is, once we start seeing some reductions here in the rate, we’re going to put a lot of gas in the fire. And there’s a lot of pent up demand in terms of mortgage borrowing. Canadians are at an all time high in terms of their, you know, indebtedness, and we’re talking about unsecured debt. You know, we’ve been spending. So I really implore people, you know, the next six months, I think, are still going to be tough, you know, inflation wise. Let’s pay down our debt. And let’s put some money in the bank. Because I think by summer, next year, you know, we’re going to be in a better climate in terms of the rate environment that’s going to be balanced out by what’s going to be going on with the job market. I think that’s a little bit of TBD.

Todd Veinotte 03:57
Okay so I think people who hit the real sweet spot would have been those in like, say, 2020, who had a five year fixed at that time, right? Because they’re kind of gonna be able to ride this out. Until that might come down and renewing with a 4 in front of it. Right?

Canadians need to prioritize financial health

Clinton Wilkins 04:11
Yeah, I think like early, mid, sorry, mid late, even 2020 the rates were quite low, like we’re talking like sub 2%. You know, the challenge is that obviously, there is no crystal ball. I think those people you know, this was a finite period of time. And a lot of people did take a fixed rate, you know, 60% of Canadians do do like a five year fix, for example. The challenge is, historically, Canadians break their mortgage early Todd and that is where it is challenging. On average, Canadians break their mortgage like 42 months or something like that. So we’re talking like three and a half years people are breaking their mortgage or doing a transaction. So some of those mortgages are not going to last to maturity, but I think people will hold on now for as long as they can, and sometimes that will even put them in a worse financial position. We see so many Canadians right now and people in Halifax that, you know, have this unsecured debt, and a lot of people have benefited from their property values really increasing. You and I both were both in a situation where we bought properties, and we benefited from the market increasing. Sometimes people really need to look at their financial position. And, you know, we’re going to talk about that, obviously, more in January. But I think coming out in November, December is so challenging for people, you know, around the holidays, as you know. People overspend. And, you know, I think going into the new year, it’s always nice kind of having a fresh start and really, or at least owning your financial position. And I think we’re gonna see maybe more of that going into 2024 I think financial health is so so important. And it’s as important or more important than, you know, your physical health, you know, it’s always like people get back to the gym and stuff like that, I think a focus on you know, finances and obviously mortgage is a huge piece of your finances, I think that’s really important for 2024 as well.

Todd Veinotte 06:00
Alright so I guess not a cut, but holding it steady is a Christmas gift, at this time.

A steady rate means more time to plan

Clinton Wilkins 06:06
I really do think it’s a gift, you know, we were really in an increasing rate environment for so long, Todd that people are like, they’re dreading getting an email from here, they’re dreading me coming on CityNews, giving an update. Maintaining is a lot easier to, you know, palette. You know, I think people can plan and say, okay, it’s going to be high, we can now maintain, and we can make some plans over the next six months. And then hopefully, after that period, we’re gonna start seeing some things softening. So I think good news going into the new year, the Bank of Canada is going to be meeting again on January 24th. That’s the last Wednesday, basically, in January. And I think likely, we’re gonna see maintain as well, I think a lot is going to have to be determined by what happens with inflation and the job numbers. And we’re certainly going to be watching closely with that as well.

Todd Veinotte 06:54
Okay. And we’ll be certainly chatting in the new year.

Clinton Wilkins 06:57
We will be chatting in the New Year. And this might be our last time together here in 2023. And you know what, I thank you, Todd, for having obviously us on. Thanks for your help with Mortgage 101. I think we did so much education this year which is awesome.

Todd Veinotte 07:11
I think the show was hands down, the best year we’ve had.

Clinton Wilkins 07:15
Yeah, we had a really a lot of amazing guests as well. And we’re gonna have a great lineup for 2024. You know, Todd and I are going to be getting together and do some, you know, planning and figuring out what next year is going to look like. I’m excited. And you know, we have such great support from our listeners, I get so many people reaching out just even with a basic question. And I love that, you know, it’s really all about education, and I hope that we can provide as much value to the listeners here, going forward.

Todd Veinotte 07:40
Okay, and I’m sure we’ll be chatting before then off and on. But to your team, Merry Christmas to all you guys. Happy New Year and all that jazz.

Clinton Wilkins 07:47
To you too Todd you know, I think it’s we’re kind of in the down downturn here now in terms of getting things cleaned up. I’m excited to have a break and I’m sure everybody else is as well. You know, the last three, three and a half years have been a breakneck and you know, I think taking a little bit of time is great. And I’m excited to come back in January and really hit the ground running as we as we always do. So I think it should be certainly an interesting 2024. I think 2024 is going to be similar to 2023. But I think if we start seeing some softening in terms of the rates, it’s going to excite people I think is going to put people in a better financial position and that’s really what you know, I’m excited for.

Todd Veinotte 08:25
Okay, great stuff. Clinton Wilkins, we’ll see you in the new year.

Clinton Wilkins 08:28
Thanks for having me, Todd.

Todd Veinotte 08:29
Okay. Clinton Wilkins our mortgage guru.