At the beginning of 2024, the Bank of Canada set out to reduce inflation to 2.5% by year-end and reach their 2.0% target by mid-2025. However, June's data showed inflation had already dropped to 2.5%, and by the time the August data hit the newswire, we were down to 2.0% - far ahead of their timeline.

Now, with September’s inflationary data showing headline inflation down to 1.6% and below the Bank of Canada's desired target, we’re seeing signs of a larger economic challenge. This data coincides with what we’ve been warning about since 2022: the Bank of Canada was too slow to act, then raised rates too quickly and too aggressively. This response has led to the scenario we've been cautious about - a possible recession looming on the horizon.

Inflation could bounce back slightly, as such steep drops tend to correct somewhat. However, the broader downward trend is expected to persist for a while. The Bank of Canada’s first rate cut, which occurred earlier this year in June, along with subsequent cuts, won’t fully impact inflation data until next year. These developments set the stage for a pivotal moment next week when Governor, Tiff Macklem, addresses the press and faces tough questions about the bank’s strategy to combat the growing deflationary pressures.

Next Wednesday’s Bank of Canada interest rate meeting is shaping up to be one of the most significant this year. It’s not just about whether rates will be cut, but by how much. Back in mid-September, traders on Bay Street and Wall Street were speculating a potential 0.50% “jumbo” cut, with over a 50% chance predicted. This was due to concerns over rising unemployment, flat GDP growth, and the need for a substantial economic stimulus.

However, things shifted quickly. Last week, Canada’s unemployment rate saw a slight improvement, and U.S. inflation didn’t decrease as much as expected. These factors caused market expectations to move towards a more conservative 0.25% rate cut, which seemed almost certain going into today’s inflation report. Yet, with today’s numbers showing headline inflation cooling further to 1.6%, there’s now renewed speculation about a larger, 0.50% cut next week.

So, with so much uncertainty, what should you do? At Better Mortgage Select, we recommend taking a step back and looking at the bigger picture. If you had told us in January that before the final Bank of Canada meeting in December, that variable rates would have dropped 1.00%-1.25%, fixed rates would have fallen over 2.00% from their 2023 peak, and inflation would be at 1.6% - we’d have called it wishful thinking. Yet, here we are, and this means good news for mortgage holders and future buyers alike as it pertains to interest rates.

Lower rates mean more affordable mortgage payments and higher purchasing power for new buyers, allowing them to qualify for homes in their desired neighborhoods. The bottom line is that we’re moving in the right direction with interest rates, and it’s happening sooner than anyone expected.

Making Strides with Pineglen Homes

Better Mortgage Select’s very own, Lorenzo Podda, has been working closely with our trusted partners at Pine Glen Homes, going over mortgage figures for their clients on their new development project in Welland, Ontario. Pine Glen Homes are leading the way in providing real estate investors and new homeowners the ability to purchase new properties with the option to add a secondary suite as well as a garden suite, to help maximize affordability for buyers.  Lorenzo will be sure to share more information as it becomes available in the coming months.