- Hey, it's Nolan Matthias from Mortgage 360,
and today we have some updated news
with respect to the Bank of Canada.
Well, not necessarily interest rate news,
but what's expected to happen in the economy news,
but before we get into it,
and you're probably getting tired of me saying this,
but before we get into it,
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Okay, so let's get into it.
The Bank of Canada did what was widely expected,
they did not increase interest rates today,
they did not lower interest rates today,
they left interest rates exactly where they are.
It was the obvious move, and what that does
is it leaves your interest rates
at pretty much the same rate today as they were yesterday,
especially for those of you who are on a variable rate,
but that being said the forward guidance was interesting,
that's the story from today
and that's what we're gonna talk about
and how it's going to affect interest rates
over the next two to three years.
So what exactly was the guidance today?
Well, it was specifically that they expect interest rates
to remain the same till 2023.
Now this is new because back in July,
when they talked about interest rates remaining low
for two to three years, and we were able to assume
that that meant two to three years and specifically 2023,
because of what their research looked like.
Well, today they came out and said, full on 2023,
that's when you can expect interest rates
to maybe start going up,
and that's based on a few things.
So the first thing that they're basing that on
is the fact that they're gonna expect GDP
to grow at an increased rate in 2021 in 2022.
In fact, they expect it to increase at a higher rate
than any other time since 2007, that's a big deal.
And what do they expect it to increase at a higher rate
than any time since 2007?
Well it's because we're going to have all of this slack
in the economy, all of this available resources,
people resources, resources, resources
that are gonna be able to come online
and hopefully increase consumption at a really high rate.
And what that's hopefully going to do
is push inflation up to around that 2% target.
And then once they're at 2% for a sustained period of time,
so they don't just wanna hit 2% inflation
and then pull back all the resources
that they've applied to getting it to 2% inflation,
what they're gonna wanna do is they're gonna wanna make sure
that they can stay at 2% inflation
for an extended period of time.
I'm guessing that's probably in the six months
to a year period
before they actually start increasing rates,
which puts us into mid 2023 before increasing rates
are even a possibility.
The second thing that's based on
is that we probably aren't gonna see a vaccine
until mid 2021,
which means that it's gonna take into 2022 and 2023
to get everybody vaccinated
and get things rolling at the same rates
that they were pre-pandemic.
Now there's some other interesting points
the Bank of Canada's forecast today.
The Bank of Canada has slowed down
its Canada mortgage bond purchases
which is a good sign because back in April and May,
they were buying large amounts of Canada mortgage bonds
in order to maintain liquidity in the market.
So in other words,
to make sure that there was still enough money there
to be able to lend to mortgage consumers in Canada.
And what it means that they're no longer needing to do this
is that the mortgage market has improved,
so this isn't going to lower rates
or increase interest rates,
it's really a non-issue for people who are borrowing,
but what it means is that the mortgage market
has stabilized, which is good news for the longterm.
It means that something like the liquidity crisis
of 2008, 2009 is not something
that we really have to worry about at this time,
because there's enough liquidity in the market
to support all the new mortgages
that are being approved across Canada,
that's a good thing.
They've also reiterated that they're committed
to quantitative easing,
which means as the economy needs more money
injected into it, they're going to be there
to make sure that the money is injected
and that people are going to be able to manage
their way through and what that's really important for
is for government spending and the incentive programs
that are out there,
and the fact that they're going to be able
to fully fund those via the Bank of Canada.
And this isn't something that we really need to worry about
as Canadians because all the banks worldwide
are running similar programs,
so it's not like Canada's out there spending all this money,
printing all this money and everybody else isn't,
and we have to worry about our dollar fluctuating
and crashing and all of that stuff,
no, the whole world's in the same sort of situation,
so what the Bank of Canada is doing
is very much relative to what is happening
in the rest of the world.
Now they are expecting the recovery phase
to take a little bit longer than expected
and that's to be expected like nobody really knew
how long this was gonna take at the beginning,
everybody was making their best guess when it came to
trying to predict how long the pandemic
would affect the economy,
and what they realized is it's probably gonna take
a little bit longer to recover than what they expected.
The industries that are most effected seem to be food,
travel, recreation, arts,
things that aren't necessarily necessities,
although I know myself, I think travel is a necessity,
I think food and restaurants are a necessity,
but not things that ultimately
will grind the economy to a halt.
Now, unfortunately most of the jobs that have been lost,
most of the people that are suffering
are in the lower income bracket,
but what's interesting is the resiliency
in the middle-class income bracket
and how that has managed to stay fairly steady
throughout the course of the pandemic.
And that's why you're seeing increases
in the housing prices, and you're seeing
low rates, increased borrowing
and people moving to bigger houses with bigger yards
and where they aren't as crammed in
with their family members as they once were.
If I was an investor right now,
I'd definitely be looking to the lumber industry,
I'd be looking to housing and roofing
and anything to do with housing people in the suburbs,
any stocks related to that
are probably gonna perform well over the next year or two,
I definitely would steer clear of anything commercial
real estate related
because there's been this shift obviously
from people working downtown and working in offices
to working out of their homes,
and that's why you're seeing corporate vacancies increase,
but you're seeing people still wanna move to bigger houses
than what they already own.
What's really interesting about the housing market
is the housing market continues to thrive
regardless of what's happening.
And when the whole pandemic started back in March and April,
we saw housing sales go basically to the floor,
almost zero,
there was very, very, very little activity.
And throughout July, August, and September,
September being a huge month,
basically everything is rebounded back to normal levels,
in fact, that July, August, September activity
has pretty much made up for all the lost activity
prior to that in those months
where everybody was on lockdown.
So, the housing market is continuing to be
a shining light in the economy
because as long as people are buying houses and moving,
there's gonna be construction jobs
they're gonna to be jobs and finance,
there's going to be jobs surrounding those industries,
real estate, that type of thing,
and that's a good thing for the economy.
Combined with low interest rates
that makes it a really good time to get into the market,
and it's gonna be two or three years
before we started to see those rates increase
because the economy has picked back up
and at least right now, we know that if we're buying,
we can take advantage of low rates,
we can extend our runway of low rates
by taking a variable for the next two or three years,
and then locking in as interest rates start to go up,
giving us eight, nine years at a low rate
instead of only five years at a low rate,
and by having that low rate for a longer period of time
at the beginning of the mortgage,
we're actually gonna be lowering our overall cost
because most of the costs when it comes to buying a house,
at least half of it has to do more with interest
than the actual price you pay for the property
at the beginning.
So we'll keep keeping you updated
on what goes on with the Bank of Canada
and what goes on with interest rates.
Next video will likely be Bank of Canada
and interest rates explained video,
so you can understand exactly what we're talking about
when we talk about what the Bank of Canada is doing,
and for the meantime,
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