Why brighter days are ahead for mortgage shoppers
Despite an increasingly sketchy unemployment picture, the forecast is slowly getting brighter if you’re a borrower or home buyer.
Case in point: The Bank of Canada just gave mortgagors another housewarming present by way of its 25 basis point rate cut. Big banks then matched the move, lowering Canada’s benchmark prime rate to 6.70 per cent on Thursday.
This ‘gift’ will save Canada’s floating-rate borrowers roughly $15 to $21 a month per $100,000 borrowed, depending on their rate, amortization, whether it’s a new or existing loan and whether it’s a mortgage or interest-only home equity line of credit.
With inflation also taking a dip, millions of Canadians suddenly find more wiggle room in their budgets. But the good news doesn’t end there. Expect three more treats for mortgage borrowers before the holiday lights go up in December.
Officially, there’s just a 60 per cent chance of another Bank of Canada cut at the next meeting on September 4, according to the bond market. But I’m here to tell you the true odds are probably higher than that for six reasons:
South of the 49th parallel, markets are pricing in an 86 per cent chance that the Fed starts its own rate-cutting campaign on September 18. (Note: This will change after Friday’s U.S. PCE inflation numbers.) That matters because U.S. bond yields usually fall before initial rate cuts — given that yields largely reflect the central bank outlook.
If U.S. rates drop, Canadian yields should fall in sympathy — to some degree. That’s potentially good news for Canadian fixed mortgage rates, which dance mainly to the bond market’s beat.
So far, the Bank of Canada’s monetary easing hasn’t increased purchasing power in Canada’s real estate market by much. The reason is simple:
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