Rates Stay Put as BoC Keeps Rate Hike Bias

Bank-of-Canada-Benchmark-RateMortgage holders won’t find much to fret about in today’s statement from the Bank of Canada.

The Bank left its policy rate unchanged, which means that prime rate should exit 2012 at the same level it’s been for 25 months, 3.00%.

Carney & co. said that, “Over time, some modest withdrawal of monetary policy stimulus will likely be required.” That’s vaguer than prior projections but still a signal that the next rate move should be up.

Here’s more from the Bank’s statement this morning:

  • “Core inflation has been lower than expected in recent months…”
  • “Total CPI inflation has fallen noticeably below the 2 per cent target…and is projected to return to target by the end of 2013, somewhat later than previously anticipated.”
  • “Housing activity is expected to decline from historically high levels, while the household debt burden is expected to rise further before stabilizing by the end of the projection horizon.”
  • “The timing and degree of any such withdrawal (in rate stimulus) will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector.”

That last line is new. The Bank’s recent statements haven’t suggested such a close link between household debt and rate increases. But it’s an implied warning that does little to convince anyone that rate hikes are looming.

The next BoC rate meeting is December 4, 2012.

Rob McLister, CMT

  1. This is just further proof that keeping my very low variable rate is the way to go. If you want to slow down the housing market even further, just raise interest rates. The growth in household income has not kept pace with the rise in house prices. Higher interest rates will just price more people out of the market. As it is many are already mortgaged to the hilt.

  2. Chili con Carney can threaten about higher rates all he wants but with core inflation under 2%, rates aren’t going anywhere.

  3. To Kevin, that’s proof of the blind optimism that’s sinking households as we speak ..and they don’t even know it yet. B-20 guideline changes have already excluded many borrowers from the option of refinancing their dangerous VRMs. And slipping property values will add more & more to the same boat. Precluded by Service Ratios, LTVs and generally tighter guidelines for all mortgage products including the disappearing BFS (Business For Self).. No option to shop for rate, No option to consolidate debt ie. the massive amount of Credit Card debt and Lines of Credit out there (that are even more susceptible to rate increases), No dramatically increasing earnings that will accomodate Payment Shock, WHEN (not if) rates rise. Unless your Declared earnings are increasing (healthily)and Loan-To-Value (at the moment) is less than 60 to 65%, you’re Nuts (pardon the expression) to not bite the very small bullet today and lock in a fixed rate with the right lender ..and if you have it, consolidate any other high interest debt (before the option is cost preventative or simply disappears for one reason or another). For the vast majority of borrowers the variable party should’ve ended months ago ..but there’s a reason why Vegas is Vegas ..Gamblers. Know Your Limit Play Within It.

  4. do not see that rates will go higher from here till end of 2013, all other G7 central banks are going with low rates and more quantitative easing led by the Federal Reserve south down the border.
    I believe that 25 or 50 basis point cut will do good with our case here in Canada.

  5. us variable holders are shouting ‘hooorah’ today with his most recent comment at the press conference that the case for an interest rate hike is “less imminent”….it sounds like a year away

  6. I heard that a new change is coming to all 5 years or less mortgage (variable or fixed). All federal regulated financial institutions will use Bank of Canada 5 years consumer mortgage benchmark rate, which is 5.24% right now, as a qualifying rate, for both conventional mortgage and high LTV mortgage.
    Is that true? Any significant impact?

  7. That won’t happen. The bank won’t get any business with rates like that. BMO has the 2.99% deal going. The banks would resist any forced rate setting other than what the BoC sets.

  8. They arent going to raise rates anytime soon, keep your prime-minus mortgages, no need to expose yourself to an IRD.

  9. As of November 1, all variable terms and all fixed terms less than five years will be qualified at the Bank of Canada 5 year posted rate. That is true.

  10. @ All of the above. LOL As an American investor, I can tell you the ramblings here are quite familar and show an enormous lack of sophistication and experience. Adjustable Rates or “variables” are precisely what Sank our housing market. We have over 10,000 banks in the US you have about 6 or 7 major players here and they are apparently doing a Great job of selling. Lulling “the average joe” into a sense of security debating a little hike or no hike while they help change all the rules on you to make sure you’re not going anywhere. Then you’ll see some Hikes. Most will suffer, it’s a fact. And that’s when the cow patty hits the ground along with property values. “Hoorah” for us investors.

  11. Nope, your nuts (impaired cognitive functioning) to suggest imminent rate hikes when none of the major economic indicators suggest such at this time.

  12. I think it is a very smart move to cool RE market and a cure to this indebted nation without increasing interest rate.
    If this policy can be strictly enforced, which wasn’t for high LTV mortgages even it was supposed to, then I would say it is quite a big change.

  13. 5.24% is a qualifying rate. If a person can pass it, that person can still enjoy all the discount rates available, 2.99% 5 yr fixed, for example.

  14. hey dan, us average joes are watching closely what is going on in the market..we’re canadians..we’re a conservative bunch…and dont forget we suffered for years with rates as high as 16 per cent on mortgages while the yanks had rates around 4 per cent…and gee, i dont recall hearing any nauseous comments back then from the cdn experts about how our debt load was too high, too dangerous..

  15. I don’t think that’s what he or she said. And I agree, whether its 3 months or a year doesn’t matter when other things are happening. I just googled ‘B20 guidelines’ its not good and I’ve definitley noticed a third of my block is for sale with no sold signs. Bottom line if visa called today and offered me 2.5% variable or 3% for the next 5 years I’d jump on it, before they changed their mind. So for our large mortgage on our home, where we like sleeping, it’s a no brainer. Unnecessary gambling.

  16. I don’t get your point joe. I don’t want to pay 16%. And apparently our debt loads have never been this high. I don’t think many people can afford any rate increase but I’m not naive enough to think it won’t happen. I also just googled the ‘B20 guidelines’ that I saw in another post here. Not good. Garth Turner explains them pretty well and it sounds exactly like what Dan_S said.

  17. Adjustable rates are not what sank your market. Putting people in adjustable rates they couldn’t afford sank your market. There’s a difference.
    As you Americans found out the hard way, there is a crazy little concept in mortgage lending. It’s called “responsible underwriting.”

  18. BNN quote “the oft-cited belief that Canadians are more conservative in their spending habits than their American counterparts just harder to maintain. The household debt-to-disposable income ratio in the second quarter rose to 163.4% — putting it at the same level experienced in both the U.S. and UK prior to the financial crisis.”
    Debt+Variables=Defaults=Lower Values=Higher Risk=Higher Rates.
    Regardless of when Carney catches up. People forget banks can do what ever they want with both their prime rates and fixed rates. Just look at Sep Oct Nov Dec 2008.
    I’ll take a 25 year fixed please lol

  19. Shane, your situation or experiences is not a true reflection of the Cdn. RE market any more than my neighbourhood of 3,500 homes that currently has only 2 MLS listed homes up for sale.
    As for the variable vs. fixed vs. HELOC’s debate, it’s been said many times, rate is not everything. One big difference is most variables do not carry IRD penalties and open HELOCS can be paid off anytime without penalty. Although you may have valid reason to go with a 5yr. fixed, others may have good reason to choose otherwise. Knowledge and a trusted professional advisor can usually help determine the best options.

  20. A rise of 1% in the prime rate over time might happen, but a return to the high prime rate days are over for the foreseeable future. unemployment is too high and people are not spending like they used to. Just look at the inflation rate. If more money has to go into mortgage payments, less will go to variable spending and then the unemployment rate will shoot up. The BoC doesn’t want that to happen. Keep the status quo going for 4 – 5 more years.

  21. Mr. banker, I’m not sure where ivory tower is but I live in Burnaby and work in Surrey BC and the growing number of signs in the past 2 months is pretty obvious. Actually the more I’ve read today the more I’m leaning toward a 10 year fixed instead. For about the same as our heloc with zero risk. I also just read about the bank’s ‘margins’ and they’re apparently making WAY more money from my variable and heloc right now than on a fixed rate. So think I know where the bankers are coming from. I don’t expect to win 649 in the next few years doubt early payment will be an issue but from what I gather a IRD interest rate differential (thanks google) apparently applies only if rates are Lower when I do win the lottery, otherwise its a 3 month interest penalty just like my variable. I doubt either will happen.

  22. It doesn’t matter where I reside. Your block, City of Burnaby or even B.C. is not and will never be a true microcosm of the national RE and mortgage market anymore than my own block, city or province.
    As for fixed term mortgage IRD penalties, they often still apply even when rates don’t change. The archives on this site are an excellent starting point for the average consumer to garner more information on the subject.

  23. That’s quite a crystal ball you have there. lol Like they say a little knowldege is a dangerous. The reality is Kevin your debt and ‘variables’ have your housing market squarely on the same path ours took and if you think coming out of this mess isn’t going to be as interesting as going in you’re kidding yourselves. Not a loan has been done here in the past 4 years that hasn’t undergone a Risk Premium Assessment. What’s that?? Thats when only the creme de la creme get best rate everyone else pays, an extra pt 2 3 etcetra. Banks are in business to make money. They are not socialist enterprises. Nor could they give a hoo hah what your central bank does. Word to the wise stop watching the act and peak behind the curtain. If an ‘average joe’ there can still get a break on a 15 or 30 take it!

  24. Mr. banker, ? I only care about my home, my block, my city and BC. Because thats what the bank’s going to appraise when I try to change my mortgage tomorrow. Common sense. But fyi most of Canada seems to suddenly be doing the same thing..
    I don’t know what’s going to happen to my home’s value or rates down the road. No one does and that’s the point. For the slight difference now I’m going fixed. I read the IRD archive info here and you’re right it sounds like ‘some’ banks do that. I’ll try to figure out which ones to avoid. It’s intersting to see that it can only apply in first 5 years anyway even on a 10 year mortgage.
    Honestly, no offence but I think mentioning an unlikely IRD is to keep guys like me in our variables because it’s more profitable for your banks.

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