Inflation Surprises to the Downside: A Closer Look at January 2024

In January 2024, Canada experienced an unexpected slowdown in its inflation rate, dropping to 2.9%. This marked a significant contrast from the 3.4% gain in December 2023 and the first time since June 2023 that the rate fell within the Bank of Canada's target range of 1–3%. The primary driver behind this deceleration was a year-over-year decline in gasoline prices.

However, the employment front tells a different story. Canada added a robust 37,000 jobs in January, signaling positive momentum in the job market. This was a considerable jump from the mere 100 jobs added in December 2023.

The Conundrum: Interpreting Economic Signals

This leads us to the burning questions: What does this mean for mortgages in Canada? Will there be an interest rate reduction in April, or are we looking at June? How does the significant rise in U.S. inflation impact the Bank of Canada's decision-making process? Reading the Bank of Canada's "tea leaves" has become a challenge, given its monitoring of six indexes to gauge price pressures.

Core inflation measures play a crucial role in guiding economists, aiming to provide a stable outlook amidst volatile goods' month-to-month changes, such as food and energy. Governor Tiff Macklem emphasizes the concept of core inflation, emphasizing the need for a comprehensive view.

Insights from Financial Experts: A Shift in Predictions

Economists who initially predicted a Bank of Canada rate cut in April are now reconsidering their forecasts, pushing the expected timeline to June. The employment data, while seemingly robust, raises concerns for the Bank of Canada. Factors such as the unemployment rate falling to 5.7% in January, coupled with strong hourly wage growth, make policymakers wary.

As a result, there's a shift in market dynamics. The likelihood of a April rate cut has fallen below 30%, emphasizing the absence of obvious signs of stress in the economy.

In last December, mortgage interest rates soared to almost 6%, marking the highest levels in over two decades. This surge has understandably raised concerns among homebuyers regarding the affordability of monthly payments.

To illustrate the contrast, let's glance back:

January 1, 2019: 3.19%

January 1, 2020: 2.49%

January 1, 2021: 1.39%

January 1, 2022: 2.34%

The comparison vividly highlights the nearly 50% increase in rates from January 2019 to the current period. This shift underscores the urgency for homebuyers to explore strategies for securing pre-pandemic low-interest rates.

Unlocking the Secrets: Assumable and Portable Mortgages

Assumable Mortgages:

• This unique mortgage type enables homebuyers to take over the existing mortgage terms from sellers.
• The prime advantage lies in preserving the current favorable terms and low-interest rates.

Portable Mortgages:

• Porting your mortgage empowers you to transfer your existing mortgage from one property to another.
• This option is viable when selling your current home and simultaneously purchasing a new one.

Advantages and Considerations

Advantages:

• The paramount benefit is the retention of favorable terms or low-interest rates.
• For homeowners with portable mortgages, this represents a strategic way to mitigate costs until the mortgage comes up for renewal.

Disadvantages:

• Assumable mortgages are relatively rare, entail a lengthy processing period, and are tailored for specific buyer scenarios.
• Only fixed-rate mortgages can be assumed or ported; variable rate terms or Home Equity Lines of Credit (HELOC) are not eligible.
• The loan amount might not be adjustable, leading to potential rate changes or additional fees/penalties.

Seizing Opportunities in the Mortgage Market

For existing homeowners contemplating a new property, leveraging the portability feature is a powerful strategy to control costs until mortgage renewal. On the other hand, aspiring homebuyers can explore the potential of assuming the current mortgage, a conversation that should be part of every discussion with home sellers.

Navigating these options requires careful consideration, and our team is here to guide you through every step. If you have any questions or need personalized advice, feel free to reach out.