What Penticton Home Buyers Need to Know About the Spring 2021 Bank of Canada Announcement Regarding Borrowing Rates
The Bank of Canada provided an update regarding the overnight rate and bond yields last week. As you may or may not know, their announcements on such matters are often reflected in variable and fixed mortgage rates, respectively. As a new buyer in Penticton, how will this impact your decision to get a mortgage? Let’s find out.
Bank of Canada Overnight Rate Holds Steady at .25%
There was little surprise last week when the Bank of Canada announced that they intended on holding their policy rate at .25 percent.
For the uninitiated, the Bank of Canada policy rate has a direct relationship with variable mortgage rates. Therefore, this April 2021 announcement is good news for Okanagan area buyers who prefer variable rate mortgages. Traditionally deemed to be the riskier between the two options (variable and fixed) variable rates over the last year have been consistently favorable.
But what if you’re not ready to get a mortgage this spring? Can you afford to wait a little longer? We do encourage you to act fast before Penticton home prices rise (average $520,000 for a single detached home) with a tighter inventory. That said, the Bank of Canada has given every indicator that they will hold the policy rate steady until their inflation objective is sustainably achieved. That means you will have access to low variable rates through the summer, autumn, and even into the winter. The Bank of Canada does not anticipate a rate hike until mid-2022. Take the latter with a small grain of salt however, as in January of 2021 they stated it would maintain until at least 2023. Positive economic indicators moved the date of expected policy rate adjustment forward. As the vaccine rolls out across Canada the economy will rebound even further.
Bank of Canada Adjusts Quantitative Easing Program
In mid-to-late 2020, and at the onset of 2021, 5-year fixed mortgage rates dropped to all-time lows. Some Canadian lenders were giving up the goods for well under 2-percent! But to coincide with expectations of an economic recovery, the Bank of Canada begins buying up Government of Canada bonds. We’ll spare you the Econ 101 lecture, but you should know that when this bond movement occurs fixed mortgage rates, which have a positive relationship with the bond yield, begin to rise. While still extremely low when compared to what they were pre-pandemic, some big banks (RBC, etc.) have upped their 5-year fixed rates over the last couple of months. In an effort to help home buyers (and keep spending active) the Bank of Canada employs the quantitative easing program (QE) to keep fixed mortgage rates lower than they otherwise would be during a period of economic recovery.
The Bank of Canada has announced that as of April 26 (this week of publishing) weekly net purchases of Government of Canada bonds will be adjusted to a target of $3 billion. Now before your balk at the prospect of another Econ lesson (get that here) let us just say that the Bank of Canada’s commitment to maintain the QE program will keep fixed rates low across the yield curve.
But like with the policy rate and variable mortgage rates, you’re wondering – will fixed rates remain low as the economy comes back to life?
As vaccines make their way through the population the economy will bounce back at what experts expect to be at even greater rate. Consumers are chomping at the bit to get back to normal. This upward trend is expected for the second half of 2021. As mentioned, we’re already seeing bond yields (which again, are related to fixed mortgage rates) push higher and the Canadian dollar (CAD) is gaining on the USD and other global currencies. While the Bank of Canada won’t outright say it, their words include indicators about how long they will maintain the QE program:
“Decisions regarding further adjustments to the pace of net purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.” (Bank of Canada, April 21 2021)
Translate the above quote to mean that while fixed rates will remain low over the summer, expect them to rise as the economy rebounds. For instance, if the vaccine rolls-out population-wide by July and the curve flattens like a pancake lenders will look to recoup losses by upping their fixed rate offerings.
To reiterate, 5-year fixed rates remain VERY low, but Okanagan buyers should not wait much longer to act.
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Get pre-approved for a Penticton mortgage, and lock into better unadvertised borrowing rates today by contacting Carloni Mortgage Brokers. Call 250.493.9111 to make it happen!
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