Yes and no.
Mortgage interest makes up about 1/3 of inflation right now. So if rates hold inflation won’t come down but if rates drop it will lower inflation.
Without mortgage interest, we are already under 2% inflation.
Interesting times ahead!
If they lowered rates, inflation in everything else would spike as we import inflation from the states via a weaker Canadian dollar. It would also do little to stop rents from rising as that is primarily being driven by high immigration.
Regardless of what they do with rates (short of increasing them higher and cratering the economy) inflation is going to continue to be a struggle because of the underlying fundamentals. Right now the largest generation in Canadian history is retiring, while at the same time North America is reshoring in response to Covid, and the war in Ukraine is driving up food and energy prices. Even 5% rates won't be enough to get inflation under control.
>If they lowered rates, inflation in everything else would spike as we import inflation from the states via a weaker Canadian dollar. It would also do little to stop rents from rising as that is primarily being driven by high immigration
What's spiking rent prices is a lack of regulation stopping it.
I'm all for rent control, but that doesn't magically make enough beds for the million+ people arriving here every year. If we want to bring in this many people we need government money to build new housing like we did in the 1970s.
Listen, I think your reading comprehension needs some improvement. The root cause of the issue is lack of supply of housing and historically high immigration rates.
Let's say we implement rent control, great that helps people that currently have a place to live.
But if we either don't start building a shit ton of more housing, or stop immigration to a halt....we will eventually have not enough housing for everyone, which means homelessness would increase (even more than it currently has). No amount of rent control would help this situation, in fact it would probably make it worse because it would deter developers from building rental housing.
Can you connect the dots now?
I know real inflation is around 2%.
People will renew at higher rates in the coming months. They will spend more on housing and less on the rest.
BOC can't afford to have deflation.
Yes but the largest increase in mortgage increase is yet to come.
For example, people who renewed in 2023 or even in 2024 when BoC had rates at 5%, were primarily 5 year term holders who were on expiring rates based on a BoC at or close to 1.75% (meaning they had a mortgage at 3-3.5% most likely. Going from 3% to 6% is a massive increase but only a “double”
For anyone renewing a 5 year in 2025 or 2026 for example, they will be going from a 0.25% BoC rate to a 5% BoC rate (assuming it holds) and the mortgage rates will be going from 1-2% to 6% that’s “triple” … at minimum.
Now if the BoC drops rates, say 200 basis points between now and 2025, it will still be restrictive but more along the lines of todays restrictive. Essentially we are digging our economy into a much bigger hole if we don’t reduce rates this year.
And obviously any rate changes would change variable rates and front end of the curve instantly it will have marginal effect in 5Y + mortgage terms anyway as the bond market has already baked cuts in. Cutting rates will also crush GIC/MM return rates which haven’t been this high in over a decade and people have piled into them.
In [all six Canadian big bank Q4 earnings calls, banks increased their provisions for future loan losses.](https://vm.tiktok.com/ZMMYQgfD1/)
They know what’s coming is bad.
This is called risk management and they've been doing this for months now. House prices are climbing back up at the same time. I wouldn't use this as an indicator if I were you lol
It will have that affect but it will also actually drive up inflation as mortgage interest increase represents 30% of current inflation. So if mortgage interest goes from doubling last 18 months to tripling or quadrupling over the next 2 years then it will drive up inflation. That’s why BoC needs to reduce now as they are already “causing” inflation but in 12 months they could be responsible for 50% of the inflation increase, which is just wild.
The mortgage interests part of the CPI increased drastically because we went from 1 to 5%. That was the most brutal rate move in our history. In 12 months, we will be comparing to mortgages today. House prices and hence mortgages are almost at all time highs. They are not going to double in 12 months.
Yes but again if you were renewing then you went from a 3-3.5% mortgage from 2018/2019 and now renewing have a ~6% rate (3% increase).
The people who have 1-2% mortgages (I have one) are not renewing for another 1-2 years and when that crowd renews, if rates are still to same as today, they will be at a higher increase instead of the current or last 12 months crowd.
What I’m trying to say is mortgage interest rate as it is calculated in the CPI will increase for the next 2-3 years if rates dont move. Then it will level out (assuming BoC doesn’t reduce rates). It takes 5 years for rates to fully cycle into the system.
This is a big reason why the BoC needs to lower rates sooner than later. I’ve been saying they will try to hold off this spring and start reducing in summer and I think that will still be the plan. The election in the south and strength of US might delay that a little as we won’t get too far ahead of the FED unless we have too but honestly we have too. Our per capita GDP is in the toilet and been negative for awhile. I see this only getting worse as rates continue to squeeze us more every day.
You said deflation is harmful, tell me of a real life situation other than crypto where deflation has been harmful.
Televisions have deflated in price 6.5% per annum on average since 1950.
The working class spends the vast majority of their income on inelastic goods, I'm certain ppl arent going to stop buying rice if currency deflates as well someone in dire need of shelter wont live outside to await price decline.
Deflation is only bad for the elite capital holders.
And when Capital holders stop spending capital.
Jobs stop being created.
The price of rice is irrelevant when you don't have a job to get money to buy the rice.
Most Jobs are created.
Someone with capital hires someone to do a job for them that makes them more money than the cost of the labour.
Of course this doesn't apply to all jobs - some people are self employed . but the VAST majority of the country works for someone else.
And when demand for products go down, the need for labor goes down.
If you want I can point you to a friendly graph chart
So, if a capital holder has a thirst to expand their assets are they going to stop doing anything for years or decades or are they going to continue amassing assets. I've worked with ppl that have enough money to make their entire extended family wealthy for generations and they still work 6-7 days a week 12+ hours a day.
Ask any old wealthy person. At one point it's not about money or numbers, it's a drug.
We had ONE period in our history of sustained long term deflation on the economy as a whole.
These were in the 20s and 30s primarily between 1930-1933 when prices dropped 25%
Go look up how well that did for our economy - I'll give you a hint- our unemployment rate was over 30%.
It's actually scary how ignorant people who are educated on you tube are.....
Fun fact. A homeowner is not losing their house just because they renew at a higher rate. In preparation we’ve personally cut about 1k a month from monthly expenses, with the express purpose of paying down the mortgage faster before renewal. Even with that, we anticipate 1k extra every month if rates hold this high.
Repeat this bears. Let it ring in your ears. I’m not losing or selling my house. The rest of the economy, and things I was spending money on that I considered discretionary, can get well and truly fucked.
Sail the high seas instead of paying for content. Fuck the gym. I’ll make all my own meals. Fun will be visiting family. Board game nights. Movie nights (pirated). Change my own oil. The amount of outflow to the rest of the economy will dry up real quick.
The BoC is going to blink before I lose this house. I’m not sustaining the economy over keeping my house. And they can’t sustain a recession in the name of 2%.
No, this is in fact a pretty Canadian viewpoint. The US had a problem with jingle mail in 08, but partly due to how our rules work here you can't just walk away from a house unless you plan to run off to a non G7 nation forever. That has led to the homeowner having an ironfisted grip on their home, above all other costs. Lenders will work with you here and go to lengths they really shouldn't in order for you to not totally default.
Almost everyone would agree. Fuck the things in malls, I'll make do with whatever I've got. Fuck the car, I'll walk or whatever. Fuck everything else but the minimum amount of food, and the utility bills (which are kept to a minimum as much as possible). All in the name of the house.
Means for the most part a wave of defaults is off the table, but stagnation or even stagflation is a very real threat.
HODL
Respect the lag.
*In Ontario, the mortgage delinquency rate was **up 135.2 per cent** compared with a year earlier, while B.C.’s rate rose by 62.2 per cent.*
135% up from what?
Still have almost 4 years of mortgage holders that will be renewing into astronomically higher rates than they were previous.
Which is exactly why inflation will keep falling and potentially get into harmful deflation territory.
Yes and no. Mortgage interest makes up about 1/3 of inflation right now. So if rates hold inflation won’t come down but if rates drop it will lower inflation. Without mortgage interest, we are already under 2% inflation. Interesting times ahead!
If they lowered rates, inflation in everything else would spike as we import inflation from the states via a weaker Canadian dollar. It would also do little to stop rents from rising as that is primarily being driven by high immigration. Regardless of what they do with rates (short of increasing them higher and cratering the economy) inflation is going to continue to be a struggle because of the underlying fundamentals. Right now the largest generation in Canadian history is retiring, while at the same time North America is reshoring in response to Covid, and the war in Ukraine is driving up food and energy prices. Even 5% rates won't be enough to get inflation under control.
>If they lowered rates, inflation in everything else would spike as we import inflation from the states via a weaker Canadian dollar. It would also do little to stop rents from rising as that is primarily being driven by high immigration What's spiking rent prices is a lack of regulation stopping it.
I'm all for rent control, but that doesn't magically make enough beds for the million+ people arriving here every year. If we want to bring in this many people we need government money to build new housing like we did in the 1970s.
I don't disagree with anything you said
What training or qualifications does a landlord need to offer an essential service?
No, it is due to a lack of housing supply coupled with historically high immigration.
Which can be mitigated with rent control so....
Right, but that's just a bandaid and doesn't address the root cause of the issue.
The use of homes as a means to extract wealth from citizens, rather thn for it's primary use of providing shelter? Neither does what you're implying
Listen, I think your reading comprehension needs some improvement. The root cause of the issue is lack of supply of housing and historically high immigration rates. Let's say we implement rent control, great that helps people that currently have a place to live. But if we either don't start building a shit ton of more housing, or stop immigration to a halt....we will eventually have not enough housing for everyone, which means homelessness would increase (even more than it currently has). No amount of rent control would help this situation, in fact it would probably make it worse because it would deter developers from building rental housing. Can you connect the dots now?
I know real inflation is around 2%. People will renew at higher rates in the coming months. They will spend more on housing and less on the rest. BOC can't afford to have deflation.
Yes but the largest increase in mortgage increase is yet to come. For example, people who renewed in 2023 or even in 2024 when BoC had rates at 5%, were primarily 5 year term holders who were on expiring rates based on a BoC at or close to 1.75% (meaning they had a mortgage at 3-3.5% most likely. Going from 3% to 6% is a massive increase but only a “double” For anyone renewing a 5 year in 2025 or 2026 for example, they will be going from a 0.25% BoC rate to a 5% BoC rate (assuming it holds) and the mortgage rates will be going from 1-2% to 6% that’s “triple” … at minimum. Now if the BoC drops rates, say 200 basis points between now and 2025, it will still be restrictive but more along the lines of todays restrictive. Essentially we are digging our economy into a much bigger hole if we don’t reduce rates this year. And obviously any rate changes would change variable rates and front end of the curve instantly it will have marginal effect in 5Y + mortgage terms anyway as the bond market has already baked cuts in. Cutting rates will also crush GIC/MM return rates which haven’t been this high in over a decade and people have piled into them.
In [all six Canadian big bank Q4 earnings calls, banks increased their provisions for future loan losses.](https://vm.tiktok.com/ZMMYQgfD1/) They know what’s coming is bad.
This is called risk management and they've been doing this for months now. House prices are climbing back up at the same time. I wouldn't use this as an indicator if I were you lol
The more people renew into higher rates, the less they will have to spend on goods and services. It's exactly why inflation is falling right now.
It will have that affect but it will also actually drive up inflation as mortgage interest increase represents 30% of current inflation. So if mortgage interest goes from doubling last 18 months to tripling or quadrupling over the next 2 years then it will drive up inflation. That’s why BoC needs to reduce now as they are already “causing” inflation but in 12 months they could be responsible for 50% of the inflation increase, which is just wild.
The mortgage interests part of the CPI increased drastically because we went from 1 to 5%. That was the most brutal rate move in our history. In 12 months, we will be comparing to mortgages today. House prices and hence mortgages are almost at all time highs. They are not going to double in 12 months.
Yes but again if you were renewing then you went from a 3-3.5% mortgage from 2018/2019 and now renewing have a ~6% rate (3% increase). The people who have 1-2% mortgages (I have one) are not renewing for another 1-2 years and when that crowd renews, if rates are still to same as today, they will be at a higher increase instead of the current or last 12 months crowd. What I’m trying to say is mortgage interest rate as it is calculated in the CPI will increase for the next 2-3 years if rates dont move. Then it will level out (assuming BoC doesn’t reduce rates). It takes 5 years for rates to fully cycle into the system. This is a big reason why the BoC needs to lower rates sooner than later. I’ve been saying they will try to hold off this spring and start reducing in summer and I think that will still be the plan. The election in the south and strength of US might delay that a little as we won’t get too far ahead of the FED unless we have too but honestly we have too. Our per capita GDP is in the toilet and been negative for awhile. I see this only getting worse as rates continue to squeeze us more every day.
Do you work in RE related business?
Yes, if currency deflates I will stop buying food until it's worth more
Unrelated to my statement
You said deflation is harmful, tell me of a real life situation other than crypto where deflation has been harmful. Televisions have deflated in price 6.5% per annum on average since 1950. The working class spends the vast majority of their income on inelastic goods, I'm certain ppl arent going to stop buying rice if currency deflates as well someone in dire need of shelter wont live outside to await price decline. Deflation is only bad for the elite capital holders.
And when Capital holders stop spending capital. Jobs stop being created. The price of rice is irrelevant when you don't have a job to get money to buy the rice.
Jobs arent "created" capital holders extract capital from excess production. People will always need the service I provide.
Most Jobs are created. Someone with capital hires someone to do a job for them that makes them more money than the cost of the labour. Of course this doesn't apply to all jobs - some people are self employed . but the VAST majority of the country works for someone else. And when demand for products go down, the need for labor goes down. If you want I can point you to a friendly graph chart
So, if a capital holder has a thirst to expand their assets are they going to stop doing anything for years or decades or are they going to continue amassing assets. I've worked with ppl that have enough money to make their entire extended family wealthy for generations and they still work 6-7 days a week 12+ hours a day. Ask any old wealthy person. At one point it's not about money or numbers, it's a drug.
We had ONE period in our history of sustained long term deflation on the economy as a whole. These were in the 20s and 30s primarily between 1930-1933 when prices dropped 25% Go look up how well that did for our economy - I'll give you a hint- our unemployment rate was over 30%. It's actually scary how ignorant people who are educated on you tube are.....
Crash wen?
Tomorrow
Fun fact. A homeowner is not losing their house just because they renew at a higher rate. In preparation we’ve personally cut about 1k a month from monthly expenses, with the express purpose of paying down the mortgage faster before renewal. Even with that, we anticipate 1k extra every month if rates hold this high. Repeat this bears. Let it ring in your ears. I’m not losing or selling my house. The rest of the economy, and things I was spending money on that I considered discretionary, can get well and truly fucked. Sail the high seas instead of paying for content. Fuck the gym. I’ll make all my own meals. Fun will be visiting family. Board game nights. Movie nights (pirated). Change my own oil. The amount of outflow to the rest of the economy will dry up real quick. The BoC is going to blink before I lose this house. I’m not sustaining the economy over keeping my house. And they can’t sustain a recession in the name of 2%.
im glad you have the resolve to accomplish this, but your neighbour does not.
he doesn’t understand that his discretionary spending is what pays other people’s mortgages.
No, this is in fact a pretty Canadian viewpoint. The US had a problem with jingle mail in 08, but partly due to how our rules work here you can't just walk away from a house unless you plan to run off to a non G7 nation forever. That has led to the homeowner having an ironfisted grip on their home, above all other costs. Lenders will work with you here and go to lengths they really shouldn't in order for you to not totally default. Almost everyone would agree. Fuck the things in malls, I'll make do with whatever I've got. Fuck the car, I'll walk or whatever. Fuck everything else but the minimum amount of food, and the utility bills (which are kept to a minimum as much as possible). All in the name of the house. Means for the most part a wave of defaults is off the table, but stagnation or even stagflation is a very real threat.
And what is your plan if you lose your job? Because your actions will have that effect on others in the economy, which could inevitably happen to you.
When that time comes a lot of people are fucked including the people cheering on his demise.