Inflation and interest rates have been making waves in the housing market, and the entire economy, for quite some time. The longer inflation stays high, the more rate hikes the Bank of Canada is throwing at it. This has, of course, had quite the impact on homeowners across Canada. As we approach the end of another year, what’s going on with inflation and interest rates? Will last week’s rate hike announcement be the last, or should we prepare for more? Finally, are today’s trends going to lead us into a recession? Let’s try to break down some of the answers to these questions.

Today’s interest rates

As was widely expected, the Bank of Canada introduced another rate hike at last week’s meeting on October 26th. The overnight rate is now 3.75 per cent, which is a +0.50 rise from the 3.25 per cent figure the bank announced back in September. This means borrowers with an adjustable-rate mortgage are once again preparing for increases to their monthly mortgage payments, since these mortgage products are influenced by the prime rate. It’s costing more to borrow money, so homeowners and new buyers are facing higher costs to support homeownership. 

It’s also important to point out that although fixed rates don’t depend on the Bank of Canada’s overnight rate, they are increasing right now as well. Fixed rates depend on the bond yield market, and currently they are higher than variable rates. This is something to keep in mind if you’re wondering whether a fixed rate is a better choice for you right now. If you’re concerned about rising variable rates, it’s important to contact a mortgage broker to discuss your options.

You can also watch this quick video for a brief outline on the increasing costs of living and your mortgage.

How is inflation doing?

Given the number of rate increases we are seeing, we know inflation is not at its target levels. The Bank of Canada has stated inflation must reach its target level of two to three per cent before it will halt rate hikes, but right now it is closer to seven per cent. The good news is inflation is on the decline after its June peak of 8.1 per cent, but it’s not slowing down enough to allow the bank to take its foot off the gas. High inflation has led to high prices for goods, which we have all seen at the gas station and grocery store. It has also been the root cause of these rate increases, with the hope being that each rate hike will curb inflation a bit more. This is becoming true, but the bank believes more needs to be done, so we can likely expect more rate hikes as we leave 2022 and enter 2023.

The future for the economy

At this point, most economists are telling us to prepare for a recession in 2023 or early 2024. Why might you want to have a variable rate heading into a recession? When we have a recession, we get lower interest rates to help keep the economy moving. This typically means variable rates will drop. Variable rates are likely to become the cheaper product, which is why it’s important to think hard before converting to a fixed rate now. While variable rates are bumpy today, it may be worth it to hang on. Of course, a lot depends on individual circumstances and a borrower’s ability to handle higher payments and unpredictability. If you’re feeling stuck, reach out to us to chat about your options. 

Meanwhile, how can you prepare for a recession? Economic downturns can be challenging no matter what. However, when we see it coming from a ways off, we can take some measures ahead of time. Start thinking about your essential expenses and what you can save money on. Try to budget carefully, and make sure you’re contributing to an emergency or rainy day fund. Basically, it’s time to be mindful of what you’re spending, and be very dedicated to saving money for potential challenges in the future.

Is there a point entering the market?

With the current state of the market, is it worth it for new buyers to enter it right now? Buying a home at the best of times can be stressful. Making a purchase amid rate hikes and economic uncertainty can certainly be scary. For those who are in an unstable financial position, or are uncomfortable with the unpredictability of interest rates, now may not be the time to try to buy a home. However, the general drop in demand has caused housing prices to decrease as sellers don’t have the same control over the market as they used to.

In Barrie, we are seeing homes selling for less than they were one year ago, and even one month ago, indicating a steady decline. For buyers who can handle higher interest rates, they are more likely to find a home in their price range. There will also be more supply, as sellers are still listing their homes, meaning you will have more options for properties that suit you, as opposed to buying any home just to break into the market. You should get in touch with a mortgage professional to discuss your options if you’re considering buying. We can help you decide if it’s a good move for you based on today’s economic situation and market conditions.

Inflation and interest rates are making many Canadians uneasy, and that’s understandable. No one enjoys this kind of change or uncertainty. If you have concerns about your mortgage as we go through this rollercoaster ride, don’t hesitate to contact a mortgage broker. We can help you navigate the market and find the right path for you. 

If you have any questions about your mortgage, get in touch with me!