- Economic Data Points Signal Challenges Ahead In May, Canada received mixed news on key economic indicators, painting a complex picture of the nation’s financial landscape. However, in today’s economic climate, what might be perceived as bad news often translates into potential benefits for interest rates.
- GDP Growth Falls Below Expectations The latest Gross Domestic Product (GDP) figures, released on May 31st, revealed a concerning trend: Canada’s economy continues to grapple with obstacles. GDP growth for the first quarter of 2024 stood at a mere 1.7%, significantly lower than the Bank of Canada’s forecast of 2.8%. Additionally, figures for the final quarter of 2023 underwent a downward revision, plunging from 1% to a mere 0.1%. This narrow margin prevented the economy from slipping into a technical recession, narrowly avoiding a consecutive two-quarter decline in GDP growth.
- Inflation Remains Below Expectations April’s inflation rate also failed to meet expectations, coming in at 2.7%. However, stripping away shelter costs from the Consumer Price Index (CPI) measure, which largely consists of mortgage interest carrying costs, revealed a more modest inflation rate of 1.2%. These figures have bolstered speculation about an impending rate cut at the Bank of Canada’s upcoming meeting on June 5th.
- Market Expectations and Predictions Market sentiments align with the possibility of a rate cut, with an 80% chance priced in for the next week’s meeting. A recent Reuters poll further underscores this sentiment, with 75% of top economists predicting a 0.25% rate cut at the forthcoming meeting. If not immediate, the late July meeting appears increasingly likely to initiate the anticipated rate cuts.
- Fixed Rate Mortgages Show Stability Amidst Uncertainty Despite the economic turbulence, fixed-rate mortgages have remained relatively unchanged over the past month. However, the disappointing GDP data released at the end of May exerted downward pressure on bond yields, hinting at a potential easing of fixed rates throughout June. Furthermore, a rate cut from the Bank of Canada could further drive down fixed-rate loans.
- Policy Change Sparks Excitement in Mortgage Sector In notable mortgage news, a significant policy shift was announced by Broker Channel A lender, Strive Capital. The lender will now consider projected rental income from basement suites in mortgage applications, even in homes with the potential for future suite additions. This groundbreaking change allows for higher approval amounts and enables borrowers to finance suite renovations alongside their mortgage under the purchase plus improvements program.
- Implications and Opportunities This policy alteration marks a significant departure from previous norms, where rental income from fully established suites was a prerequisite for leveraging in mortgage applications. Now, prospective homeowners can purchase properties with unfinished basements, utilize projected rental income to qualify for larger mortgages, and finance renovation costs for suite additions within their mortgage package.
- Seeking Mortgage Guidance? Connect with Us For those navigating the complexities of the mortgage market or seeking a second opinion, our experts are here to assist. Feel free to reach out for guidance or clarification on any mortgage-related inquiries.
