rates
02. rates
Interest rates are on their way up—in fact, they’ve been moving up for more than a year now—but fears of ultra-high rates are overblown.
IT’S ALL RELATIVE
The most common refrain in conversations about interest rates these days is that they “are going to rise”. Excuse me? I don’t mean to be rude, but…everyone is aware that interest rates—at least some of them, i.e. the ones that matter in a housing market context—have been rising for more than a year, right? Sure, since the Bank of Canada slashed its trend-setting rate to almost zero at the beginning of the pandemic it has stood pat— until its early-March meeting, when it raised its rate from 0.25% to 0.50% (as everyone expected they would). Having said that, five-year Government of Canada bond yields, which most directly influence five-year fixed mortgage rates, the rate structure of choice for most Canadians, have been moving up since the beginning of 2021. Specifically, the yield on said bonds rose from 0.41%
in January 2021 to 1.67% most recently; at the same time, average discounted mortgage rates have risen from 1.79% to around 2.0%. Against this backdrop of rising rates, Metro Vancouver set all-time records for resale counts, pre-sale counts, and prices. This is important context for future rate increases. Speaking of which, we expect bond yields and fixed mortgage rates to continue to rise, albeit modestly, over the next year as the Bank of Canada fights to get high inflation under control. On this front, the Bank will likely increase its target rate back to its pre- pandemic level by early-2023 before pausing to assess its impacts. Should supply chains and consumer price changes normalize during this period, any further increases, if realized, are likely to be marginal.
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