Mortgage 101 – changing interest rates in Canada | May 2022 Part 2

In this episode of Mortgage 101 with Clinton Wilkins and Todd Veinotte, as heard on CityNews 95.7 and CityNews 101.1, the guys talk about the Bank of Canada and the changing interest rates that are impacting Canadians. Check out the transcript below, or watch this segment of our podcast to learn everything you need to know about your variable or fixed rate mortgages.

Mortgage 101 with Clinton Wilkins & Todd Veinotte: Changing interest rates in Canada

Don’t feel like watching the video? Check out the transcript below.

Transcript:

Canadians are concerned about the Bank of Canada rate changes

Todd Veinotte: [00:00:00:01] Very important thing to talk about, impacting a lot of Canadians, and that is the bank of interest, or rather the interest rate from the Bank of Canada. A lot of people concerned about this. Is that justifiable, do you think? These concerns?

Clinton Wilkins: [00:00:12:29] I think some people are feeling cheated, Todd. You know, just like what ABBA was going on about. Canadians are drunk on cheap money.

Todd Veinotte: [00:00:24:01] Yeah. Whose fault is that?

Clinton Wilkins: [00:00:27:01] You know, I think Bank of Canada is not at fault. They lowered the key overnight rate when the pandemic first struck. To put liquidity into the market. You know, Canadians needed a helping hand. And now inflation is like a runaway train. And some banks and probably some consumers think that the rates are going to the moon. I can tell you right now they’re not.

Historically, borrowers do better in a variable rate. And right now, if you’re very curious to know where things sit, a fixed rate today is somewhere around four, four and a half per cent. The same product in a variable is two and a half percent or so.

You can’t get a fixed rate for under four per cent

Todd Veinotte: [00:01:11:01] Right. You can’t get a fixed for less than four per cent?

Clinton Wilkins: [00:01:14:23] You cannot get a fix for less than four per cent.

Todd Veinotte: [00:01:17:15] Really? That’s surprising. Wow.

Clinton Wilkins: [00:01:20:12] And the Bank of Canada is going to continue to increase this key overnight rate. You know, I think that we’re going to see some increases over the next 12 to 18 months, Todd. So Canadians are going to weather some storms. If you’re currently in a variable rate product, don’t convert into a fixed. Bankers and mortgage lenders are salivating for you to come in and convert. They are just rubbing their hands together and every time they convert a variable rate customer into a fixed, they basically go to the back and they ring a big gong because they know that consumer is going to pay more interest, which is going to put more money on the bottom line of that financial institution.

Consumer, the Bank of Canada will bring the overnight rate back down when inflation is under control. Some economists think that we’re going to be in a recession and what happens during a recession? The government wants Canadians to start spending again. But they gave a very sharp message during the last Bank of Canada meeting that Canadians need to start saving their money and stop spending it on consumer goods because that’s what’s increased this inflation.

You know, I went to fill up my SUV the other day at the gas station. You know, everyone knows I drive a big SUV and it cost me $177 fill up in diesel. And I don’t even remember in my adult life spending more than $100 to fill it up, Todd. So obviously we know inflation is a thing. I get groceries twice a week. Normally it’s about $100 per order. Now it’s almost $200 an order. You know, the 0.25 and the 0.5 increase of the Bank of Canada is the least of our worries right now. Obviously, it makes a difference to your bottom line.

Todd Veinotte: [00:03:07:03] Yeah.

Clinton Wilkins: [00:03:08:07] You know, we’re in variable rate mortgages. You know, I believe about 60 per cent of our clients are. So it is having an impact. But it will get better. And I think that’s what people sometimes don’t really understand. They hear about these sharp increases. And this last increase that we had was the biggest increase that the Bank of Canada did in the last almost 20 years.

Todd Veinotte: [00:03:31:04] How much was it?

Clinton Wilkins: [00:03:32:14] Fifty basis points, 0.5.

How much do these rate increases affect me?

Todd Veinotte: [00:03:34:00] Let’s try and translate this into some real dollars for people. Let’s suggest somebody has a $1,500 or let’s simplify it. $1,000 mortgage.

Clinton Wilkins: [00:03:45:18] Yeah. So are we saying like $1,000 a month or $1,000 biweekly?

Todd Veinotte: [00:03:49:26] Well, okay, $1,000 biweekly, whatever it might be. Okay. Because that would be probably more…

Clinton Wilkins: [00:03:54:14] Average.

Todd Veinotte: [00:03:55:02] Right, average. So a $1,000 biweekly, the interest rate goes up by what again?

Clinton Wilkins: [00:03:59:22] Fifty basis points.

Todd Veinotte: [00:04:00:07] Fifty basis points. What does that translate into real dollars out of a household income.

Clinton Wilkins: [00:04:05:03] You know, probably on a monthly basis or a bi weekly basis like we’re looking at a month.

Todd Veinotte: [00:04:09:23] Yeah.

Clinton Wilkins: [00:04:10:05] You know, we’re talking maybe like 75 bucks a month.

Todd Veinotte: [00:04:13:09] A month?

Clinton Wilkins: [00:04:13:23] It depends, obviously, on how much you owe.

Todd Veinotte: [00:04:15:19] Right. Well, based on the $1,000 biweekly.

Clinton Wilkins: [00:04:19:23] You know it’s going to have an impact. You know, if you have an adjustable rate mortgage, it will have an impact.

The stress test is designed to keep Canadians safe

Todd Veinotte: [00:04:26:09] But the stress test was designed to deal with all of this. Was it not?

Clinton Wilkins: [00:04:29:23] Exactly! And if you were to convert that variable rate mortgage and you know, a lot of consumers have variable rates at prime, minus 50, prime mins 80, prime minus 100 or more. If you convert that into a fixed at four point something, you’re almost overnight doubling your interest carrying cost.

Todd Veinotte: [00:04:45:11] Why would anybody do that? Bad advice?

Clinton Wilkins: [00:04:47:24] I think sometimes people are really getting excited about what’s going on in the media. You know, I hear on the I hear on the radio station, you know, we talk about interest rates and what’s going on in real estate all the time. So I think that’s a concern. You know, I think that people are amped up on inflation and they don’t understand the mechanics. I think some people took a variable rate mortgage because it was cheaper. But they need to understand that it varies. It is going to go up and it is going to come back down.

But if you convert into a fixed, you will pay more money. You’ll pay more money today and you’ll pay more money for the term. You know, we don’t have a crystal ball on what’s going to happen, Todd. But I’m hearing rumblings and it’s in the news that things with Ukraine may be on the upswing, that maybe things are going to start getting a little bit better, and that’s going to come to more of a resolution. So that will have an impact. You know, in inflation is not necessarily a runaway train. You know, I think with the last increase that the Bank of Canada did, Canadians have started to start saving. They’ve stopped kind of some of the spending.

Todd Veinotte: [00:05:55:25] Why do you say that?

Clinton Wilkins: [00:05:57:21] In Ontario, they’ve actually seen some home prices soften a little bit and transactions soften because the cost of borrowing is higher.

Are government policies going to fix the Canadian housing situation?

Todd Veinotte: [00:06:06:05] Look, some of the moves, sorry to interrupt you, but some of the moves that have been made by the federal government and I can’t remember what some of them are off the top of my head. But one of these something with blind bidding and there’s foreign buying has been curtailed. Are any of these going to make any difference at all, in your opinion?

Clinton Wilkins: [00:06:23:13] I do not think it’s going to make a difference here in Halifax or in Nova Scotia or Atlantic Canada, but it may make a difference more in Ontario. So I think our listeners in Ottawa, that’s something you may see to be a little bit more of an impact. Korea put out their stats here for the month of April. And, you know, obviously, we’re keeping a close eye on what’s going on in Halifax. The average house price for April in Halifax Regional Municipality was over $600,000.

And if we even look back a year, our average house price was about five and a quarter and then five. And then we certainly have seen some significant increases. Our home prices are up about 30 per cent. Is that sustainable? Probably not. We’ve never had double digit growth here. Our growth in our prices here and in Halifax typically have been like one, two, three per cent per year.

Todd Veinotte: [00:07:18:29] Is there a housing bubble?

Clinton Wilkins: [00:07:21:25] I would say, I know that’s a hard question. I don’t think it’s a bubble as much in Halifax, maybe in some other areas, maybe so. Our real estate is still very reasonable compared to other areas of the country. So for example, in Halifax, with our average house price of $600,000, I’m sure some of our listeners in Ottawa would jump on an airplane, train or automobile to be able to buy a single family detached home for $600,000. The average house price of a detached home in Ottawa, I heard is now over $900,000. So we obviously are significantly less than obviously what’s going on in Ottawa and a lot of different areas from across the country.

Are we in a housing bubble?

Todd Veinotte: [00:08:06:28] So the bottom line is you don’t feel as if we are in a bubble here.

Clinton Wilkins: [00:08:10:13] It will take 20 years, I think, for this bubble to resolve itself.

Todd Veinotte: [00:08:14:22] Twenty years?

Clinton Wilkins: [00:08:15:26] We don’t have enough supply. Currently in April, real estate on average was on the market for 15 days in Halifax. Um, you know, I think a balanced market might be more like 60 days or 120 days average. You know, at 15 days, the market obviously is still overheated. Do I believe that it’s starting to be more balanced? Yes-ish. I know ish is not like a very scientific situation, but I think that we’re getting more into a balanced market and we’ll get into more of that when we come back.

Todd Veinotte: [00:08:53:12] Okay, Mortgage 101: Your Guide to Homeownership with Clinton Wilkins and myself, Todd Veinotte. We’ll be right back.

If you have any questions, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.