Economic Insights Ahead of the Bank of Canada’s December 11th Announcement
With the next Bank of Canada (BoC) interest rate announcement just around the corner on December 11th, anticipation is growing among economists, real estate professionals, and homeowners. Recent economic data suggests that the BoC may not cut interest rates as aggressively as initially anticipated. Let's dive into why that might be the case and what it could mean for the real estate market and your financial strategy.
Interest Rate Forecasts and Inflation
In October, the Consumer Price Index (CPI) report indicated inflation jumped back to 2.0% year-over-year, aligning with the Bank of Canada’s inflation target. This increase from September’s 1.6% surpassed predictions of a 1.9% rise. Given that this report is the final piece of inflation data before the December rate decision, it has led to more cautious predictions from economists.
Despite the initial expectations for a larger rate cut, the consensus among many experts is now beginning to shift. Analysts are dialing back predictions from a 50-basis-point cut to a potentially smaller 25-basis-point reduction. The core driver of this adjustment is the recent inflation uptick, which brings the CPI back into neutral territory. A cut is still anticipated, but the scale might be smaller than previously forecasted, with analysts awaiting the GDP data (expected on November 29) and the November jobs report to finalize their projections.
Rising Bond Yields and the Mortgage Market
Another key factor influencing mortgage rates and the BoC’s decision is the rise in Canadian bond yields. Over the past two months, the 5-year bond yield—a critical determinant for fixed mortgage rates—has surged by over 61 basis points (0.61%), including a notable 17 bps increase just in the past week. Given this trend, some experts are predicting that fixed mortgage rates could rise next week. This spike in bond yields, especially in a short time frame, signals increased borrowing costs, which could directly impact the mortgage market.
What’s Driving Inflation?
The latest CPI report highlights several factors contributing to the inflation rise.
Source: Statistics Canada, RBC Economics
- Gasoline Prices: A slower decline in gas prices in October, compared to September, added upward pressure to the CPI.
- Shelter Costs: Shelter continues to be a significant factor. Though growth in shelter costs slowed slightly—easing from 5.0% in September to 4.8% in October—this sector remains a major inflationary pressure point. Rising property taxes, which saw their biggest annual jump (6.0%) since 1992 due to higher home assessments and municipal tax rates, played a significant role for October.
- Food Prices: Grocery costs are still climbing faster than overall inflation, with notable increases in categories like fresh vegetables and preserved fruits. Food price inflation rose from 2.4% in September to 2.7% in October.
When shelter costs are excluded, the inflation rate for October was just 0.9%, indicating that the broader economy isn’t performing as robustly as it could be, highlighting the unique role of real estate in the Canadian economic landscape.
Labour Market: The Wildcard
The job market remains a potential risk factor. RBC has pointed out that job stability might be more crucial to the economy than mortgage renewals. They emphasize that job losses, rather than interest rate hikes, are the primary risk to mortgage payments. Rising unemployment and declining hiring demand suggest that the economy could face broader challenges. If a recession looms, the current concerns over mortgage renewals might diminish since falling rates could ease pressure for many homeowners.
Implications for the Real Estate Market
What does all this mean for the real estate market? The recent rise in inflation, particularly in the shelter sector, underscores the long-term value of owning real estate. Despite high property prices, real estate continues to be a reliable hedge against inflation, making it a cornerstone for building wealth. Property ownership not only secures financial stability but also acts as a critical buffer in times of economic uncertainty.
The upcoming December 11th announcement will be pivotal, and while a rate cut is still anticipated, the increase in bond yields and unexpected inflation numbers suggest a more measured approach from the Bank of Canada. With a mix of inflationary pressure and rising borrowing costs, the market might see stabilization in demand, presenting potential opportunities for buyers and investors.
Take Action: Build Wealth Through Real Estate
For real estate investors, this is a moment to reassess strategies and seize opportunities. We, as real estate professionals, are committed to guiding you through these economic shifts. Whether it's investing in your first property or expanding your portfolio, now is the time to build wealth through real estate.
Don’t let these dynamic economic conditions deter you—let’s work together to create a legacy of financial stability and growth. Consider investing in properties that can generate income, appreciate in value, and provide a solid hedge against inflation. Together, we can capitalize on opportunities that align with your financial goals.
Conclusion: Eyes on December 11th
The upcoming GDP data and jobs report will be critical in shaping the Bank of Canada’s decision. While inflation is rising and bond yields are climbing, the BoC’s caution reflects a careful balancing act. Whatever the outcome, staying informed and proactive is key to navigating the market effectively.
Reach out today to discuss how these shifts may impact your real estate goals. Investing in real estate isn't just about buying property—it's about securing a future. Let's build that future together.
This information presented in this post are accurate to the best of our knowledge as of the publication date and is shared for general educational purposes only.
Sources:
Real Estate Investment Specialist™ - REI Institute™
‘Surprise Jump’ in Home Sales for October
Inflation rate in Canada rises but jumbo interest rate cut possible | Financial Post
