Healthy Cleansing

Steve Saretsky -

Happy Monday Morning!

There are growing concerns about the state of variable rate mortgage holders across the country. At this point nearly everyone who’s on a variable rate mortgage has essentially hit their trigger rate. It’s become front page news, and rightfully so.


Unfortunately this story isn’t going away anytime soon, as Tiff Macklem and his econs at the BoC look poised to jack rates another 25bps this week. The market is placing nearly 60% odds of a rate hike, while 20 of 24 economists polled by Reuters expect a hike on July 12th. That would push prime rate to a dizzying 7.2%.

It isn’t getting much better on the fixed rate side either. A slew of lagging job data pushed yields higher across the curve. The Canada 5 year bond yield touched 4% for the first time since 2007, which means fixed rates are moving higher once again. Several of the big banks will increase mortgage rates again this week.


Suffice to say this is all escalating into one giant shit sandwich and we’re all going to have to take a bite.

The feds knew this was going to be a problem . Remember the March 2023 budget? Here’s a snippet.


Right on cue. Here’s the official message from The Financial Consumer Agency of Canada (FCAC) this past week.


Basically, The FCAC wants banks to work on amortization extensions, waive lump sum pre payment fees, waive prepayment fees on distressed sales, and waive interest on capitalized interest.

Remember, 56% of all new mortgage originations in January 2022 were variable rate. Ouch.

Basically Tiff Macklem needs to tank the economy, and quickly, in order to bring interest rates back down to more manageable levels.

Unfortunately, we’re waiting for those signals to show up in lagging data.

Speaking of lagging data, the housing market is slowing once again, but it’s not showing up in the data just yet. Open houses are slower, and multiple offers are fading. Pretty much what you’d expect with mortgage rates at 6% across the curve.

However, resale prices are still holding strong on some of the lowest inventory levels we’ve seen in two decades.

If you’re looking for stress look to the new luxury condo market in Downtown Vancouver. Some projects that were pre-sold in 2016 are taking losses seven years later. This was all avoidable though, people lost their logic in the last bull market paying egregious sums ($2000-$3000/sqft) for marketing hype. More to come.

Maybe a healthy cleansing is what we deserved.

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The Saretsky Report. December 2022