There are a few things to share with you since my last update.
The Bank of Canada as expected did raise their overnight rate by 0.25%. Chartered Banks followed suit and are increasing their prime lending rate by 0.25%. We’ve been contacted by many variable rate clients asking if they should lock in? While each situation is unique we still recommend a variable rate plan for clients who aren’t at the limit of their qualification. When you consider a 0.25% increase in Prime, variable rate mortgages are still 0.50% to 0.75% lower than most 5 year fixed rate mortgages. The savings of a variable are still worthy of staying the course for most borrowers.
Fixed interest rates have also increased based on bond yields climbing higher on positive Canadian economic data. The 5 year benchmark qualifying rate is now 4.84%. This is an increase of 0.2% which reduces borrower buying power $11.25/month for every $100,000 based on a 25 year amortization. Stated another way, borrowers qualifying for an average $400,000 of mortgage need to earn an additional $1542 in income per year to compensate for the 0.2% increase in the qualifying rate.
The latest GDP numbers came in above forecast, bolstering the Bank of Canada’s rosy contention that our economy is back on track. May’s economic growth beat forecasts by 0.40%. Real GDP growth came in at an impressive 0.6%, compared to the 0.2% economists expected. All things considered Canada is on track for 3% growth this year led by quarrying, oil and gas extraction and manufacturing sectors.
Apart from household debt-loads and stalled wage growth keeping inflation muted, most of Canada’s economic concerns remain international. The main issues are US protectionism, Brexit, and recent comments by China’s senior economic officials advising for the balance of this year China will focus on de-leveraging debt. China’s debt levels are estimated to now exceed 300% of their GDP. With China’s economy at 6.9% GDP (Exceeding their target of 6.5%), they have room to start deleveraging. The global economy seems to be expanding again despite geo-political risks. As such the BoC can hardly be blamed for trying to give itself room for some future stimulus should the economic picture turn ugly. The BOC’s next rate setting is in September, but it is unlikely the central bank will make announce any additional increases before October when it will update its economic forecast and its monetary policy report.
Have a great rest of the week and thanks again for your amazing support!