SPECIAL FEATURE October 23, 2024 -Bank of Canada UPDATE

[00:00:04] Okay, so today is October 23, 2024 and also known as Bank of Canada Announcement Day. Mindy, what happened?

[00:00:14] And also known as Jumbo Rate Cut. So the media is saying Jumbo Cut, which is, I mean, I don't know if it's super jumbo, but it's better than 0.25.

[00:00:28] You've landed on the Mortgage Life Podcast, where we strive to bring you mortgage-related info that's easy to understand.

[00:00:37] We have conversations with market experts to bring you timely updates, because there's one certainty in this industry, things change.

[00:00:46] I'm Mindy Baudwin.

[00:00:48] And I'm Pete Salamose. Welcome to the Mortgage Life Podcast.

[00:00:56] So yeah, this morning we got a 50 basis point, which is basically 0.5 of a half a percent rate cut this morning from the Bank of Canada. Amazing.

[00:01:07] I hear lots of cheering because that's pretty awesome. The last time we actually saw a rate cut of half a percent was during COVID.

[00:01:16] Right at the beginning of COVID, we had three half percent rate cuts. So half percent doesn't happen very often. So this is pretty cool.

[00:01:23] Yeah. And we are down below the variable or sorry, the variable, the prime. You have to excuse me. So I was up at 5am this morning driving my son to hockey.

[00:01:33] So it's already been like a full day.

[00:01:35] No, no, no. You were waiting for the Bank of Canada.

[00:01:37] You're waiting for the Bank of Canada.

[00:01:38] I've heard all the news stories, so I'm well informed.

[00:01:41] But it's been a couple years since the prime rate has been this low. It's amazing, really.

[00:01:50] Right. So if we're talking about Bank of Canada, their rate is not the rate that any one of us gets. Their rate is actually, it's called the policy rate.

[00:01:58] And that policy rate today dropped from 4.25 to 3.75.

[00:02:02] And like Mindy said, this is the thing that affects your prime rate at your bank or your credit union.

[00:02:09] So the prime rate would have come from 6.45 down to Mindy, half percent is?

[00:02:17] 5.95.

[00:02:18] 5.95.

[00:02:20] 5.95%.

[00:02:20] So anything starting with a 5 to me seems like a much more comfortable place to be.

[00:02:26] Right. So that's pretty cool. And actually, I went back and I looked at the historical charts.

[00:02:33] The last time that the Bank of Canada was actually down at that 3.75 number was October 25th, 2022.

[00:02:42] So actually just almost right on two years ago.

[00:02:45] Yeah.

[00:02:46] Yeah.

[00:02:47] Two years.

[00:02:48] Mm hmm.

[00:02:48] And I don't think any of us would have seen that.

[00:02:51] No, that it's set up there for so long.

[00:02:54] Yeah.

[00:02:54] So Mindy, tell us a little bit about why the Bank of Canada chose to make a half percent rate cut rather than no rate cut or even a quarter percent.

[00:03:03] Yeah.

[00:03:04] So the Bank of Canada, now that they've got their inflation at or below 2%, they're walking a fine line.

[00:03:12] So they're no longer trying to bring inflation down, obviously.

[00:03:17] But they have to balance keeping inflation in check whilst also ensuring the economy continues to grow.

[00:03:25] So it's this fine balancing act that they're doing.

[00:03:29] This particular rate cut, it seems like there was two economic factors that really played into this jumbo size.

[00:03:37] The first one was that in September, inflation actually hit 1.6%.

[00:03:44] It's the first time it's been below 2% in over three years.

[00:03:52] So what they did is kind of taken effect finally.

[00:03:56] All those rate increases have now been borne out in that inflation number.

[00:04:00] Exactly.

[00:04:00] And if you recall, when we first started recording this podcast and we were looking at these rate hikes, we would get specialists on and they would say, expect these effects not to be seen in the economy for one to two years.

[00:04:15] So it has taken this long for us to actually see this inflation come down.

[00:04:21] Right.

[00:04:22] The second factor that's playing is, is employment growth.

[00:04:27] So in September, employment growth was up one and a half percent, which sounds good when you just read it on its own.

[00:04:36] Sure.

[00:04:36] But in fact, population growth was greater at 3.6%.

[00:04:41] So ideally, employment growth would at least match, um, population growth.

[00:04:47] So that actually means that employment growth wasn't as strong as population growth.

[00:04:52] So those two factors actually point to a slowing economy.

[00:04:56] Oh, okay.

[00:04:58] So slowing economy means things are not as good.

[00:05:02] Maybe people aren't spending as much.

[00:05:04] So the bank can take their foot off the gas or, or as we kind of say, like they are reducing the rate to help ease the burden on consumers.

[00:05:13] That's exactly it.

[00:05:14] Yeah.

[00:05:14] So this is the monetary policy, um, that tries to stimulate the economy, um, by lowering the cost of borrowing money, essentially.

[00:05:23] Got it.

[00:05:24] Okay.

[00:05:25] So we've seen this today.

[00:05:26] Uh, the next rate announcement is December 11th and that is going to be another big question mark.

[00:05:35] I think for most people, we kind of thought we're going to see some rate movement down this year.

[00:05:40] We have, this is four in a row for a total of 1.25%.

[00:05:46] Um, we are going to have to stay tuned.

[00:05:48] I don't know that a lot of people really know what, what the bank of Canada is going to do.

[00:05:53] They may actually pause and just kind of leave rates where they are.

[00:05:56] If any of those numbers go up or down, like Mindy said, they could actually bump the rate back up.

[00:06:03] Or if the things, if the, those factors continue to decrease or show negative signs, then they could again, decrease the overnight rate.

[00:06:14] Yeah.

[00:06:14] And we have to remember that the governor of the bank of Canada, Tiff Macklin and all of his staff, everybody that is working.

[00:06:22] I believe they're called minions.

[00:06:24] They're all getting real time data.

[00:06:27] I mean, this is, I just imagine them just sitting at computers, just going through so much information.

[00:06:32] And so this is all again, just a very fine balancing act.

[00:06:37] So it's nearly impossible to make an exact prediction as to what's going to happen.

[00:06:42] We just have to listen and watch and wait and hope.

[00:06:46] All right.

[00:06:47] And stay tuned to our podcast as we will continue to update you on any rate movements, but know this, as of today, we've have a half percent rate decrease, which you will probably see in the next day or two or week or potentially month, depending on your lender.

[00:07:04] But that half percent should be reflected on any variable rate mortgages, adjustable rate mortgages, home equity lines of credit, or even just unsecured lines of credit.

[00:07:14] Yes.

[00:07:15] And then if your mortgage is up for renewal, this is great news.

[00:07:19] Absolutely.

[00:07:20] So give us a call, send us an email, shoot us a text.

[00:07:24] You can find us on, actually, we're on a whole bunch of platforms now.

[00:07:28] Obviously you're hearing us on podcast, so you can connect to us through there.

[00:07:32] We've got a YouTube channel, so you can chat with us on there, send us a message, but reach out to your broker, reach out to us and we'll absolutely help you steer through and navigate these waters.

[00:07:43] Yes.

[00:07:43] Okay.

[00:07:43] Stay tuned.

[00:07:45] This is The Mortgage Life.

[00:07:46] We look forward to continuing the conversation.

[00:07:48] So come back and listen.

[00:07:51] We'll see you next time.