Bank of Canada Update: September 2nd

Dan and Clinton discuss the Bank of Canada’s decision to maintain interest rates amidst economic uncertainty and shifts in the real estate market.

Dan Ahlstrand
I’m Dan Ahlstrand. He, of course, is Clinton Wilkins. It’s that once a quarter day where we get together and we start talking about bank rates. Lots of people wondering what was going to happen with the Bank of Canada this time around.

Clinton Wilkins
I think they were on the edge of their seats, and they do meet eight times a year, and it’s kind of a sporadic schedule. But we’ve never had Dan on our live stream.

Dan Ahlstrand
This is groundbreaking.

Clinton Wilkins
This is groundbreaking, and we’re in our normal studio where we do our show. And you know, normally during these live streams, we talk and we give the announcement on you know what’s going on. Obviously with the Bank of Canada, and we’re going to make that announcement right now. So Dan, tell us what happened?

Dan Ahlstrand
Well, as was widely expected, if you’ve been following any of the media reporting on what the Bank of Canada was planning to do this time around, they stuck to their guns, and it was a hold. This is one of several holds that the Bank of Canada has had as of late, as the economy kind of doesn’t really know what to do.

Clinton Wilkins
Yeah, I think it’s it’s it’s all over the place. So it was a hold. The Bank of Canada is going to meet again here at the end of October. It is October 28. The next announcement. I think it was widely expected that it was going to be a hold. Right now, inflation is edging up a little bit. Job numbers actually have been pretty good. You know, the economy’s chugging along, but that might not be the case by the end of October. You know, obviously, with what’s going on in the U.S. with the trade situation, we could see a much different environment here in you know just under eight weeks.

Dan Ahlstrand
We don’t really know what impact the tariffs and the now announced counter tariffs are going to have on the economy. The Bank of Canada was also very concerned about the increase in the price for fuel. That gas price at the pump is still high.

Clinton Wilkins
I think that’s one of the biggest drivers of inflation right now. We’ve seen some things come down or re-normalize, you know, and right now inflation’s at around 3% and I think the biggest concern is the cost of fuel, and you know what’s going to happen with that. You know the good thing is in Canada we do produce a lot of fuel. We do produce a lot of natural resources, and you know I saw something online the other day that if Canada stopped doing trade at all with the U.S. they would basically collapse their you know economy. There’s so many things that they rely on us like 100% for some of it is you know power for the you know some of the eastern states they really rely on provinces like Ontario and Quebec to sell them power, but there’s natural resources like potash that they are literally reliant on Canada, and I think over a third of the potash in the world comes from Canada.

Dan Ahlstrand
Another chunk of it comes through the Strait of Hormuz, which has been a trouble zone for six months now.

Clinton Wilkins
Exactly. So you know we have a very you know mineral and natural resources rich country, and we’re almost quiet about it. You know what I mean? I think that’s what’s so interesting about Canada. We really work very hard, but we’re not out bolstering, you know, so loudly about all of our, you know, wins, which is probably for the best. Otherwise, then I think that the rhetoric of that 51st day may be even more, you know, serious.

Dan Ahlstrand
And as you mentioned, the Bank of Canada will next meet at the end of October for a rate announcement. So there’s a lot of time for things to get back on track with the trade negotiations between Canada, the United States, and who knows, maybe we have a deal before the next trade announcement.

Clinton Wilkins
I like these situations where it’s almost like a reality TV show. Like, are we watching Big Brother? I’m not sure. It’s unexpected. I think that that’s really what’s going on now. We’re going into Labor Day, the long weekend, and some of these tariffs and counter tariffs are starting literally next week. They are probably going to be at that table like on the 11th hour, trying to get some of these things resolved. I think that we need to be very cautious going into it, and you know, I’m even saying this with clients: cash is king. Some of my clients are like “I could do a bigger down payment,” or “I could do this,” or “I could do that.” I think having you know cash and that available right now is going to be important because we really don’t know what’s going to happen. And I think a normal Canadian, they’re just so confused on what’s going on because it’s been tariff, no tariff. You know, the tariffs are 10%, they’re 50%. We don’t really, really know what’s going on, and we don’t know that exact impact on what’s going to happen. I have the confidence that things are going to work out. Hopefully, do we need to ride out two years of potential hardship in the U.S. until maybe the administration changes? I think we really need to be cautious, and we need to, I think, have a bit of a war chest in terms of that cash, whether that’s cash and or credit. And I think we need to focus more on the needs versus the wants. Like we need to try to keep inflation as low as we can. If the cost of fuel is going to be high, let’s not spend on some other consumer goods and try to keep inflation overall down, which will help consumers overall at the end of the day, there’s been a lot of talk around what’s going on in real estate. We like to give a bit of an update on what’s happening in real estate here in our market and in Halifax, and really across our region in Atlantic Canada. And Dan, you saw a stat about what happened with the July numbers.

Dan Ahlstrand
In Halifax, I’ve been talking on Mortgage 101, our podcast. If you haven’t downloaded that, by all means, go anywhere you get your podcast, and you can listen to some of our back catalog. But we, for a long time now, have been talking about how Atlantic Canada and more particularly Nova Scotia and Halifax have been kind of insulated from some of the the the housing bad news that we’ve seen in other provinces in Ontario and in British Columbia and in Quebec and Montreal, but the numbers in July were a little soft this time around. In fact, we saw a little bit of a decline in the number of homes sold and as well as the value.

Clinton Wilkins
And for me, I was being very cautiously optimistic because the spring was soft. Like I’ll just tell you straight out: the spring was soft when it comes to purchases, overall for us, we’re actually doing pretty good in terms of transactions. But we’re seeing more customers that are refinancing, renewing, you know, restructuring in some way. But the purchases are definitely down. We have a lot of realtors that you know we’re friends with. We’ve had them on our show. We’ve had some realtors that are clients, obviously, and I think some of them are hurting, to be honest, because there’s not as many transactions happening in terms of the price, Dan. I think when we’re saying the average price is lower, I think that’s actually the market that’s maybe still moving. Do you know what I mean? We had Megan Landry here from The Agency, a local realtor here in Halifax, and she said the properties above a million dollars are taking on average like nine months to sell. So I think it’s the 700,000, 600,000, 500,000 homes that are actually moving more quickly, and I think that’s also bringing down the average. So is the price of real estate down, or is it maybe what’s still pretty hot here in our market, kind of that mid-range in terms of cost.

Dan Ahlstrand
All right, the Bank of Canada has the biggest impact on the variable rate mortgage. Clinton, you’re not going to be able to walk into your offices and get 2.25 percent.

Clinton Wilkins
That’s the key overnight rate. So what that translates into, so we can maybe give our listeners a little bit of a nuts and bolts. And obviously we’re doing a different format. Normally, I’m just yelling at the camera here for five or 10 minutes and giving her one update. But I think it’s good, Dan. 2.25 is the key overnight rate. The prime rate for most lenders is 4.45. Some lenders have an additional add-on depending on what the product is, but so 4.45 is that prime rate, and that’s going to be the same. So when the bankana doesn’t change the key overnight rate, anybody who has a variable rate mortgage payment and or amortization is not changing the same. If you have any other credit facilities that are tied to that prime rate, they’re not changing. A lot of clients today are choosing to do a variable rate. Dan, the variable rates are much lower than what the fixed rates are, and I think part of the reason is, and I’ll go out on a limb and I’ll say maybe it’s almost 90% of clients taking a variable rate. I might be a little bit, you know, exaggerating, but there’s been a huge uptick in clients taking the variable because there is such a spread between where the variable is and where the fixed is, and I think consumers in their head, and and they tell me this, they’re like, okay, I can take the variable, even if it does go up 25 basis points, 50 basis points, it’s still going to be lower than if I took the fixed. But we have that additional flexibility that if we have to break the mortgage early, it’s only three months interest, and we could potentially convert that variable rate into a fixed rate if we needed. You know, if the fixed rates were to go down, but there’s been some news about the bond market.

Dan Ahlstrand
The bond market has been kind of crazy over the last little while.

Clinton Wilkins
It’s been kind of wild, so I think we could be in a situation, you know, maybe by October. Who knows? Maybe even sooner on the fix that we’re going to see these fixed rates edge up a little bit, especially maybe the shorter terms. And then you know, depending on what happens with the economy, like if we really start going into a recession type situation, depending on what happens with inflation, we could potentially see that bank handle lower the key overnight rate to maybe spur on some spending.

Dan Ahlstrand
So to sum things up, folks, for you, a hold for the Bank of Canada-they leave their key overnight rate at 2.25%. Some concern about the economy. Some concern about energy prices. Concern about tariffs and counter tariffs. I guess we’ll have to wait and see what’s going to happen with the economy and what’s going to happen as we head deeper into fall.

Clinton Wilkins
That’s true. We’ll be back at the end of October. Thanks, Dan, and thanks everybody for tuning in. If you have any questions, put them in that chat below. And if you’re listening to us anywhere where you get your podcast, we encourage you to listen to our next episode of Mortgage 101, and we’ll be out next week. Little spoiler before we go, we are going to be back on the FM. So there’s going to be some announcements, so you’ll have to check back here on Facebook or on any other social platforms. Dan and I are going to be back on the FM here in a couple of weeks, so you’ll be able to hear our voices. And Mortgage 101 will be back on the air. Everyone, thanks so much for tuning in, and stay safe. And again, the Bank Canada is maintaining that key overnight rate. We’ll see at the end of October.

Dan Ahlstrand
He’s Clinton Wilkins. I’m Dan Ahlstrand. We’ll see you when we see you.