It is quickly becoming old news – that the Bank of Canada (BOC) is maintaining its overnight rate at 1%. In its last announcement, October 23rd, there was one slight difference from the previous rate announcements dating back to early 2012. Namely, the new BOC Governor, Stephen Poloz, has abandoned the previous administrations’ continued warnings of impending tightening (or increase of the overnight rate).  Instead, citing warnings of continued low inflation and lack of any significant economic recovery, the BOC is planning on holding interest rates at these low levels for some time to come.

In the late Spring we started to think that the end of these ultra low rates was near. The US FED had signaled it was going to slow down its Quantitative Easing (QE) of reducing its massive $85 billion dollars/month injection into the markets. Bond yields spiked approximately 80 bps shortly thereafter. This spike in yields led to an increase in fixed interest rates and a collective exhale at the BOC. After all, increasing rates would help to slow down the perceived overheating of the housing market.

At the same time, many consumers sitting on the sidelines saw the wave of increased rates coming and they ‘bought forward’. This means that they were potential buyers but who acted more quickly than they otherwise might have to take advantage of the ultra low interest rates.  Just as we, as an industry started to get comfortable with the recent round of increased mortgage rates, bond yields started to taper off – 40 basis points in fact over the past few weeks. If yields continue to fall, or even if they stay stable for a period of time, we may see some reductions in fixed rates yet again. And while this is welcome news for many, it is concerning for officials in Ottawa.

In a meeting Monday with private sector economists, Finance Minister Flaherty said he was not intending on interfering with the housing market “at this time.” That would imply that he is not going to make any changes just yet.  What we have learned over the past five years is that “just yet” certainly means “it may be coming sooner than you think.” The reason he, or OSFI, must be considering additional changes to mortgage guidelines is because they have no control over interest rates. From the Bank of Canada’s announcement last week, to the US FED decision on tapering QE it would seem the only control they have over the housing market is through policy and guideline changes. If, and that’s a BIG IF, they believe that home prices are continuing to escalate out of control, and the housing market is overheating, they may act. What is holding them in check right now seems to be the notion that the market has ‘bought forward’, which may have caused a positive blip in housing activity in recent months.

Over the next few weeks we will have to pay close attention to housing market activity in Canada to see if it is indeed tapering and also have to watch the impact if fixed interest rates do drop. In this respect, lower rates may not be such a great thing as we could be facing a fifth round of changes.  We have heard some people talk about those potential changes — the most popular idea is capping amortization on conventional loans to 25 years, similar to high ratio loans.

What I have learned is to expect more changes. In fact we are living in a time of constant change. It is not that we can just see change coming on the horizon, plan for it and then adapt.

As a broker I can then help clients navigate the mortgage landscape to find them the absolute best available options for their unique mortgage financing situations.

Contact me if you have any questions.