The Bank of Canada’s Growth Forecast: What It Means For Homeowners

Last month, the Bank of Canada released their Monetary Policy Report – or in plain English, their economic forecast. It’s a document that lays out their predictions for the future of the Canadian economy including GDP growth and inflation rates. Of course, there’s a lot of interesting information here. But if you’re a homeowner that carries a variable rate mortgage, you might be concerned mostly with their inflation projections. Why? Inflation typically impacts interest rate movements. 

As we know, inflation has been an ongoing conversation. Supply chain disruptions and rising gas prices related to the pandemic have caused higher than average inflation, which would normally be a cause for concern for homeowners. If inflation goes up, the policy rate goes up. That means more money out of pocket every month. 

In this situation, however, there are reasons to be optimistic. The Bank of Canada seems committed to keeping the policy rate low stating that there likely won’t be a change this year and for most of next year. Even if it does go up at that point, it likely won’t be by very much. Changes will be fairly minimal for mortgage consumers.

My Recommendation

Turn off the TV. Close the Twitter tab. Take your friends’ hysteria with a grain of salt. A lot of talking heads parading as financial experts love scaring people into thinking there’s some sort of housing crisis. That mortgage rates will skyrocket. That there’s some sort of bubble that’s going to burst. Here’s the thing – these people have been saying those things for 20 years. It hasn’t happened. And it isn’t going to happen.

How do I know? The government has more control over interest rates than ever before. They’re well aware that rate hikes hurt everyone – including themselves. For the sake of Canadian citizens, the Canadian government, and the Canadian economy, it’s unlikely that the Bank of Canada will allow rates to skyrocket if they have the power to prevent it.

To Put It Into Perspective

If your mortgage rate doubles (which it won’t any time soon) your payments won’t double. In fact, they’ll only increase by about 34%. Of course, this is still a lot. But as a worse case scenario thought experiment, you can see how changing rates don’t impact payments as much as one might think.

The Bottom Line

Updates from the Bank of Canada are looking good for homeowners. If you hear about a housing crisis, try to tune it out. In fact I think we’ll see the opposite happening. As immigration flows back into the country and inventory becomes more scarce, we could even see another housing boom in the next 3 years.

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; steve@canadamortgagenews.ca