The Bank of Canada has held rates steady for a fourth consecutive announcement
While variable-rate mortgage holders may be eagerly anticipating the first sign of a rate cut by the Bank of Canada in 2024, an imminent move to lower rates is by no means a surefire thing.
Market chatter around a possible April cut has continued to grow – but with no indication from the central bank’s latest statement (January 24) of a timeline for rate drops, homeowners should stay prepared for the possibility that rates will remain at their current level for the foreseeable future, according to a prominent industry CEO.
James Laird (pictured top) of RateHub.ca and the CanWise mortgage lender told Canadian Mortgage Professional that he still viewed rate cuts in the first half of 2024 as a distant prospect.
“[Variable-rate holders] are probably a little disappointed because they likely immediately read [the Bank’s announcement] to see if there’s any reference to cuts – and rate cuts were not mentioned at all,” he said. “So they’re just dying for one of these cuts coming.
“I think they’re going to need to be patient. I don’t think they should count on or budget in an April cut. If it happens, great, but don’t count on it. And just keep budgeting with the higher payments and be pleasantly surprised if and when your interest rate drops.”
Manulife Investment Management warns of economic impact as higher interest rates affect mortgage renewals.
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 24, 2024
Read more: https://t.co/Ts8aNHCjaJ#mortgageindustry #mortgagerenewals #interestrates #economicoutlook
Bank of Canada keeps borrowers guessing with current approach
Wednesday’s announcement saw the Bank keep its benchmark rate, which leads variable mortgage rates in Canada, at its current level of 5.0%, the fourth time in a row it has remained unchanged.
The Bank struck a decidedly neutral tone in its accompanying statement, expressing concern over stubborn inflation but seeming comfortable with the idea that the consumer price index (CPI) will continue to hover around the 3% mark for the first half of the year.
That contributed to a relatively by-the-numbers announcement, Laird said, which probably achieved the central bank’s aim of giving little away while also not moving the needle too far in either direction.
“I felt as though the Bank of Canada wanted to neither heat things up nor be too committal on their concerns about the economy,” he said. “They noted they’re concerned about inflation – but not that concerned.
“I felt like they tried to be neutral, balanced. I don’t think they were trying to move sentiment one way or the other and I think they were successful in doing that. In a way, I feel like we don’t know much more today than we knew yesterday because they took a very gentle, balanced approach, a wait-and-see approach.”
2023 spring market uptick likely top of mind for central bank
The Bank’s reluctance to show its hand too early possibly reflected its desire to avoid a repeat of last spring’s unexpected housing market revival – a scenario Laird said it’s likely “terrified” of.
Then, the central bank’s announcement of consecutive rate holds in March and April, its first for over a year, contributed to an upswing in homebuying activity as Canadians moved off the sidelines in the belief that rates hikes were likely a thing of the past.
“They got burned last year by themselves saying, ‘We think the hikes are over,’ and that caused consumer spending, including on houses, to be much stronger than they wanted it to be, leading them to hike further last summer,” Laird said.
“So I think the Bank of Canada is terrified of that, which is why I’ll be curious to see if they talk about a cut before they actually cut. I think it’s a valid concern: it does feel like there’s a lot of pent-up demand from people who didn’t buy in the second half of last year who just need that last little nudge of confidence to go ahead and do it.”
The Bank’s current tone suggests that rate cuts are likely to arrive later than many expect, Laird said, and possibly by a lower magnitude than anticipated. That could mean rates falling by 75 to 100 basis points by the end of the year, he added, rather than 150.
“But I think maybe the market might [also] be shifting to a bit later, and fewer cuts,” he said. “So I think as the months tick by and [after] the next announcement, it’s going to become more likely that cuts are a bit later than people are expecting.”
