A little update from our friend Jake!
Interest rates are going up again. The last time the bond yield was this high, rats were 2.44%. This doesn’t mean rates will go to 2.44% this time but that would be a 1% increase in 2 weeks. I believe higher rates + higher supply will definitely mean a more calm spring.
If you are out there making offers and don’t have rate holds, you are making a mistake. Get locked in asap.
Variable rates could easily go up sooner than 2023 due to inflationary pressures AND the Fed (in the US) potentially increasing rates sooner. This week our Bank of Canada Governor did finally mention our housing market is out of control (it is) and unhealthy (it is not healthy), and I think he may be forced to increase PRIME rate sooner than 2023 but… others disagree.
This market is nuts because interest rates are exceptionally low. Interest rates create confidence (or erode it), and create a buzz and mania. Everyone wants to show how low a rate they got, until their friend gets a lower rate, and then they feel bad and want that rate too!
Interest rates also create a lot of confidence because most borrowers care about monthly payments, and not debt amounts. It’s kind of scary when you think about it but a lot of borrowers talk about numbers on a per-month basis only. When people realize that going over asking by $100,000 is only $400/month (or so), they don’t scoff at dropping another hundred large. We’ve had some incredibly low rates for quite a while now. Take a look at this chart and it shows you how sideways rates have been since the pandemic. (this is a 1 year chart of the 5 year bond yield which dictates 5 year fixed rates)
That party is (maybe) going to end.
How do I know that?
Take a look at the end of that chart above… see that little uptick?
Now here it is – last 5 days of the bond yields:
We have not seen the bond yield action like this since April 2020. Already I am seeing one lender (TD Bank) increase rates. Which is kind of surprising they would do it so quickly, especially heading into what we usually call “the Spring Market”. So now what’s going to happen? Naturally – people are going to start calling and worrying that rates will be going up so they either 1. will hurry up and buy or 2. will take a pause from the market. Will these rate increases have any meaningful impact on our housing market? I don’t believe so. They are, however, a sign of things to come. Good things like super duper low rates will not last forever.
Did you know over 80% of people getting pre-approved do not buy within the 120-day rate hold cycle? It’s one reason why I don’t typically hold rates for clients these days. Until now! Now that we’re seeing rates go up hold rates anywhere you can at least for the short-term.
What about VARIABLE rates? As you know (or not?), variable rates are completely independent of fixed rates. The Bank of Canada has said that they will NOT increase prime rate until 2023. I would be surprised if they wait that long but if they do, it’s another reason to stick with variable (not to mention it has a better rate history, penalty is lower, and you can break very easily). What I tell borrowers is this: If you invest your money in very safe and boring investments like GICs, broad mutual funds or money market funds – go fixed. If you invest in high-growth stocks like FAANGs, consider variable. And if you buy bitcoin: Good luck.
Jake Abramowicz
E: Jake@mortgagejake.comC: 416 910 4448
A Mortgage Agent with Premiere Mortgage Centre.MBL 10317FSCO M08003274
