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Is a 0.75% rate hike by the Bank of Canada inevitable?

We are just days away from learning more about the battle against inflation waged by the bank of Canada. Data turned out weeks ago that not only was there a need to turn up the heat on the central bank here, but also south of the border. South of the border, this has already happened. Happened in fact, with the Fed announcing a 0.75% rate hike. In fact, in just three months, they have done more policy tightening than the US.

Federal Reserve did in all of 2018. Back at home in Canada, the numbers showed the unemployment rate at a new low and revealed that the tight labor market was putting pressure on wages. If you want to learn more about the upcoming announcement from the bank of Canada, what it might mean to mortgages and how this might impact, well, everything. This is definitely the post for you.

What's good everybody? It's Darin Germyn from the Germyn Group, where we know you've only got one chance to either buy or sell your next home. So we're here to help you get it right. And while we're talking about buying or selling a home, you can find a link directly to my calendar where if you are buying or selling, you can schedule a call with me where we can let you know how we can help you better navigate the process and be successful.

Now let's get into the content. Economists now see the bank of Canada having to move faster and stronger to quell inflationary pressures. The bank faces a hard choice in light of new data, and many who expected a 50 basis point hike in July say the risk of a 75 point hike has increased significantly. Even CIBC changed its rate forecast, saying that solid momentum in the economy and signs that inflation is getting worse, not better, means that the bank may have to raise rates higher than what economists expected. They raised their call from a rate peak of 2.5% to 2.75%.

As central banks scramble to make up for keeping policy too loose for way too long, some worry that they will swing too far in the other direction, risking even more damage. An interesting example of this is in the US. Where 30 year mortgages have been on a steady increase for the fixed rate products, but they recently have come down from 5.7% to 5.3%, which is the biggest one week decline since 2008. So buyers are getting a slight reprieve from this year's massive rise in rates that has started to cool parts of the US housing market. The jump in cost has pushed more buyers out of the real estate hunt, causing inventory to increase, thus causing sellers to have to start cutting their prices in certain areas.

Now, back in Canada, the number of heavily indebted households has risen and a greater share of variable rate debt means that we may be especially vulnerable to rate hikes. As borrowing rates rise, housing investment may fall along with home prices. What this adds up to is the bank's risk assessment concludes that the probability of the economy contracting in the first quarter of 2024 is nearly two times greater than before the pandemic. Recent comments by the bank's deputy governor, Paul Beaudry also suggests that though the housing market is viewed as an important part of the economy, which it obviously is, the bank's focus right now is on getting inflation back on target. This is important because it suggests that the bank may not even blink until it sees meaningful home price declines.

So what might happen? Will the bank of Canada keep moving the needle on rates until it starts to see significant downward pressure on inflation? To what sacrifice to the overall economy and housing market? Might they do that? Are we worried and should we be worried?

Well, that's where I'm kind of interested in what you think. The announcement by the bank of Canada comes out next week on July 13 and we are guessing again that it is going to be a significant rate increase of about 0.75%. This is going to have an impact, a significant impact on people in variable rate mortgages. The amount of people that borrow money, not only rather for homes, but for other purposes like business and whatnot. And its whole goal is to stop you from going out and spending money on goods that are in over demand.

We will be releasing a post on July 13 about the announcement by the bank of Canada and go more into detail about how that announcement is going to affect things moving forward. Make sure you comment below, let me know what you think and we will look forward to seeing you on the next post.

I'm Darin Germyn, from the Germyn group. You've only got one chance to buy or sell your home. Let's help you get it right, okay? We'll see you on the next one very shortly. Bye you.

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The Germyn Group
Darin Germyn PREC* & Adam Howsam
Macdonald Realty LTD
homes@germyn.ca | 604-542-2444 | germyn.ca
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