Posthaste: Mortgage rates are already rising ahead of another hike by the Bank of Canada

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Good Morning!

While homeowners with variable-rate mortgages brace for another expected hike next week from the Bank of Canada, fixed-rates are rising too, according to rate insiders.

Rate comparison site Ratesdotca says commercial banks are continuing to raise fixed rates in response to surging bond yields.

Scotiabank announced last week that it was raising its five-year fixed-rate by 25 basis points to 5.69 per cent for 25-year amortization, and 5.79 per cent for a 30-year, according to Ratesdotca.

TD also announced a 20-basis point increase in fixed-rate mortgages, bringing the five-year fixed to 5.59 per cent.

Mortgage rate analyst Robert McLister says “borrowers are undergoing a rate shock, that of which we’ve never witnessed before.”

In 1981, Canada’s policy rate rose by 3.7 times, but McLister calculates the rise this time will be “17x by next year if implied rates in the bond market are right.”

“Rates have never mounted such a disproportionate comeback in such a limited time,” he wrote in his weekly newsletter.

McLister said default rates could potentially triple for non-institutional subprime borrowers, who will be hit the hardest. According Ratesdotca, non-bank lenders are also raising fixed rates, by 20 to 30 basis points on average.

Meanwhile, economists are going over the latest bit of data in efforts to predict how big a hike we can expect from the Bank of Canada next week.

TD senior economist James Orlando said the Bank should be encouraged by its business and consumer outlook surveys, released Monday, which suggest rate hikes earlier this year have had an impact.

“Given the decline in future sales, we can see that businesses are seeing a fairly quick drop in overall demand. This is passing through to expectations for future inflation, which have declined across all time horizons,” he wrote in a note.

TD and RBC economists expect a 50 basis-point hike on Oct. 26, which would bring the Bank’s policy rate to 3.75 per cent.

For every 50 basis-point hike, a homeowner with a variable rate mortgage can expect to pay about $28 more a month for every $100,000 of mortgage, said Victor Tran, a mortgage and real estate expect for Ratesdotca.

“If the BoC hikes the overnight rate by 50 basis points, which it’s expected to do, many investors and those renewing mortgages in 2022 and 2023 will be hit hard,” he said.

“Rate hikes are already cooling the housing market and another overnight rate hike has the potential to spark a sell-off of investment properties.”

But the Bank of Canada could potentially hike even higher, and economists say it hinges on an important piece of data still to come — tomorrow’s CPI report.

A strong reading on inflation, says BMO rates and macro strategist Benjamin Reitzes, “will lean to a 75 bp hike, while consensus or lower would point to a 50 bp hike.”

 

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CANADIAN TIRE NOT JUST FOR GUYS Canadian Tire Corp, the century-old purveyor of skates and hockey sticks, stood out from the recent stampede of sponsors away from Hockey Canada, by making a clean break, declaring that it was severing all ties with the organization. The move revealed how one of Canada’s biggest retailers has evolved beyond its stereotype as a store for guys, said Lisa Hutcheson, a retail consultant and strategist. Get the full story on an iconic Canadian brand here from the Financial Post’s Bianca Bharti. Photo by Peter J Thompson/National Post

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• The 2022 Toronto Global Forum continues

• Today’s Data: Canadian housing starts and international securities; U.S. industrial production and capacity utilization; China GDP, industrial production, retail sales, fixed-asset investments

• Earnings: Goldman Sachs, Johnson & Johnson, United Airlines, Netflix

 

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• Bank of Canada sees worst drop in business sentiment since 2020

• Canadian Tire’s break with Hockey Canada shows it’s no longer just a store for guys

• Loblaw freezes No Name prices to combat inflation in first for Canadian grocer

• U.S. says Chinese lithium-ion batteries are made with child labour as trade war spills into EVs

• Trial begins for former CannTrust trio accused over unlicensed cannabis growing

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Sentiment among Canadian businesses fell the most since the dark days at the beginning of the pandemic, the Bank of Canada’s business outlook survey revealed yesterday. The central bank’s indicator fell to 1.69 in the third quarter, from 4.87 previously. While still positive, that’s the largest deterioration in the confidence of Canadian firms since the second quarter of 2020, reports Bloomberg. Adding to the gloom, the surveys found that most businesses and consumers think a recession is likely within the next 12 months, triggered by higher interest rates and high prices.

 

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It’s a fact that environmental disasters such as flooding causes expensive damage to Canadian homes every year. But regular maintenance and some smaller expenses can prevent more expensive, permanent damage. Read on as our content partner MoneyWise explains five ways to protect your home from the costly effects of climate change.

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Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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