Mortgage Breaking News: Bank of Canada Rate Hike Expectations Rise

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The Big 6 banks raised their expectations for Bank of Canada rate hikes, with most expecting another 125 to 150 basis point tightening by the end of the year.

RBC was the latest to revise its expectations, matching Scotiabank’s call that the Bank of Canada’s key rate will hit 2.50% this year. However, RBC expects the Bank’s rate hikes to be fully anticipated through 2022, meaning it expects no further hikes in 2023. Scotiabank, meanwhile, has forecast another hike by 100 basis points next year, which would bring the target for the overnight rate to 3%.

An overnight rate of 2.50% would be right in the middle of the Bank of Canada’s updated neutral range of 2% to 3%. The last time the target for the overnight rate exceeded 2% was in 2008, during the global financial crisis.

“We find ourselves revising our central bank’s forecast upwards, both accelerating the previously expected pace of tightening and raising terminal rates for this cycle,” wrote Josh Nye, Senior Economist at RBC Economics. “That said, we maintain the view that in most jurisdictions market prices are too aggressive, particularly in 2023, as concerns about late-cycle growth and inflation starting to slow will eventually lead to policy makers to tone down their warmongering attitude.”

Nye said there was reason to believe the BoC and Fed would accelerate their rate hikes earlier in this cycle, as it can take up to six to eight quarters for monetary changes to have their full effect on the economy.

Latest rate predictions

Here are the latest interest rate and bond yield forecasts from the Big 6 banks, with any changes from their previous forecasts in parentheses.

Target rate:
End of year ’22
Target rate:
End of year ’23
Target rate:
End of year ’24
Yield on 5-year BoC bonds:
End of year ’22
Yield on 5-year BoC bonds:
End of year ’23
BMO 2.25% (+25 basis points) 2.75% (+25 basis points) N / A 2.90% (+30 basis points) 2.90% (+20 basis points)
CIBC 2.25% 2.50% N / A N / A N / A
NBC 2.00% 2.00% N / A 2.60% 2.60% (+25 basis points)
RBC 2.50% +50 bps) 2.50% (+50 basis points) N / A 2.60% (+40 basis points) 2.20% (+25bps)
Scotland 2.50% 3.00% N / A 3.00% 3.10%
TD 2.50% (+75 basis points) 2.50% (+50 basis points) N / A 2.90% (+70 basis points) 2.30% (+25 bps)

Reverse mortgage debt increased by 18% over last year

Reverse mortgage debt held by Canadian seniors reached $5.37 billion in February, according to data from the Office of the Superintendent of Financial Institutions (OSFI).

This represents an increase of 2% from January and more than 18% from the $4.5 billion in outstanding debt in February 2021.

Reverse mortgages allow people aged 55 and over to access the equity built up in their home in the form of a mortgage. They can withdraw the money tax-free in a lump sum or in monthly installments. The lender is then repaid once the home is sold or the owner dies.

Interest rates are higher than conventional mortgages, with 5-year fixed rates starting at around 6.74%.

With a growing number of seniors needing to supplement their retirement income, reverse mortgages have seen strong growth over the past decade, particularly in 2018 when year-over-year growth rates exceeded 50%.

HomeEquity Bank, one of Canada’s top two reverse mortgage providers, said it issued $1 billion worth of new mortgages in 2021, a 28% increase from the previous year.

Nova Scotia backtracks on non-resident property tax

Nova Scotia’s premier announced last week that the province would not proceed with a planned tax on non-resident homeowners.

The tax, which was introduced in the government’s spring budget, was intended to curb real estate speculation and would have tripled the tax rate for homeowners with a principal residence outside the province.

“My intentions from the beginning were to improve housing affordability, not to contradict our core value of being a welcoming province,” Premier Tim Houston said. “This policy was an effort to find a solution. It was always intended as a housing support tool. But when you realize that the tool you have in your hands might not do the job, you look for another tool.

Other provinces have taxes on foreign buyers, but most do not affect fellow Canadians. Nova Scotia’s proposed tax was to be 2% of the property’s assessed value for all out-of-province property owners. By comparison, the BC speculation and vacancy tax, which also affects out-of-province homeowners, is set at just 0.5%.

About 4% of properties in Nova Scotia, totaling about 27,000, are owned by non-residents, with about half owned by Ontarians. By comparison, non-residents own 2.2% of properties in Ontario and 3.2% in British Columbia, according to Statistics Canada.

The province said it would leave its 5% transfer tax plan on homes purchased by non-homeowners in place. This will impact new buyers who do not plan to move to the province within six months of the closing date.

Canadians expect inflation

Despite rising interest rates and rising inflation expectations, only four in 10 Canadians expect their mortgage payments or rent to rise in the next six months.

Of these, 15% expect their mortgage/rent payments to increase “a lot”, according to a new survey of 11 countries. survey from Ipsos. By contrast, nearly a third (30%) believe their housing costs will stay the same, while 4% expect it to fall.

When it comes to inflation, nearly 8 in 10 Canadians (79%) expect inflation to continue to rise over the next year. Of these, 44% expect it to increase “a lot”.

“While the public expects inflation and rising prices to rise in 2022, the idea of ​​a ‘new normal’ has not caught on,” said Ben Page, CEO of ‘Ipsos. “This means that further inflationary shocks are likely – so far relatively few people around the world are demanding pay rises or seeking better paying jobs at a new company.”

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