{"id":11222,"date":"2023-09-11T06:16:37","date_gmt":"2023-09-11T13:16:37","guid":{"rendered":"https:\/\/www.stevesaretsky.com\/?p=11222"},"modified":"2023-09-11T06:16:51","modified_gmt":"2023-09-11T13:16:51","slug":"it-tastes-awful-and-it-works","status":"publish","type":"post","link":"https:\/\/www.stevesaretsky.com\/2023\/09\/news\/it-tastes-awful-and-it-works\/","title":{"rendered":"It Tastes Awful, and it Works"},"content":{"rendered":"\n

Happy Monday Morning!<\/p>\n\n\n\n

The Bank of Canada moved to the sidelines once again, appeasing premiers in BC & Ontario who publicly pleaded with the BoC last week. It\u2019s no secret these two provinces have the most to lose, their coffers largely built on a highly levered housing market, but we\u2019ll get to that in a second.<\/p>\n\n\n\n

Here\u2019s the coles notes from Tiff Macklem post pause.<\/p>\n\n\n\n

\u201cMonetary policy is working to bring inflation down\u2014and we are encouraged by the progress we\u2019ve made so far. Consumer price index (CPI) inflation was 3.3% in July, roughly in line with what we expected in our July Monetary Policy Report<\/em>. Our 2% target is now in sight. But we are not there yet and we are concerned progress has slowed. Monetary policy still has work to do to restore price stability for Canadians, and we are committed to staying the course.\u201d<\/p>\n\n\n\n

In other words likely no more hikes, but also no cuts. That\u2019s no bueno for Canadian households which are finally showing signs of buckling under mounting interest rates.<\/p>\n\n\n\n

https3a2f2fsubstack-post-media-s3-amazonaws-com2fpublic2fimages2fa806d3cc-1ad6-4d03-b9ae-ead9dcbafb1c_1198x1154-2419323<\/a><\/figure>\n\n\n\n

When Sarah Dueck and her husband bought a new house in Langley, B.C., two years ago, interest rates were low. They had little doubt they could pay off their variable-rate mortgage.<\/em><\/p>\n\n\n\n

“All the messaging from the Bank of Canada was that, you know, interest rates would be low for a while and that they’d increase slowly when they did,” she told The Current’s<\/a> Matt Galloway.<\/em><\/p>\n\n\n\n

“So we thought, you know, on a five-year term, we’re pretty confident that variable rate was a good way to go.”<\/em><\/p>\n\n\n\n

But as interest rates skyrocket, Dueck doesn’t know how much longer they can keep paying for the home.<\/em><\/p>\n\n\n\n

Dueck and her husband are now staring at mortgage payments of $6,300 per month \u2014 up by $2,700 a month in payments since they bought the house.<\/em><\/p>\n\n\n\n

They’ve cut various expenses to make ends meet, from cancelling investment contributions to cutting back on family visits to Ontario. <\/em><\/p>\n\n\n\n

“My husband’s a teacher, so potentially he could start working [another job] in the summer,” she said. “That’s the last way that we think that we could find any more money.”<\/em><\/p>\n\n\n\n

Me again.<\/p>\n\n\n\n

You can multiply this story across a good chunk of the country. It\u2019s happening at scale, I know because I talk to homeowners, Realtors, and mortgage brokers on a daily basis. Remember, 57% of all new mortgages originated at the top of the housing market were variable rate mortgages. However, this isn\u2019t just a variable rate mortgage story.<\/p>\n\n\n\n

Homeowners who are renewing their fixed rate mortgages are also being served a spoonful of Buckley\u2019s. A 6% mortgage rate will slow consumer spending fast and hard.<\/p>\n\n\n\n

Here\u2019s a real life scenario of a 5 year fixed rate mortgage renewing today.<\/p>\n\n\n\n

$750,000 Mortgage taken out in 2018, 3% mortgage rate, 30 year amoritization. Monthly payment $3155.<\/p>\n\n\n\n

Mortgage balance outstanding after 5 years, $666,797. New rate 6.2%, on remaining amoritization of 25 years. Monthly payment $4346.<\/p>\n\n\n\n

That\u2019s an extra $1200 out the door.<\/p>\n\n\n\n

Like I said, it tastes awful and it works.<\/p>\n\n\n\n

Yes wages are up, but so is the cost of living. You could push the amortization back to 30 years but that only lowers the payment by about $300. However you also have to QUALIFY. Pushing back the amortization would require the borrower to pass a stress test of 8.2%- good luck with that.<\/p>\n\n\n\n

This is the reality facing plenty of Canadian households if rates don\u2019t come down, and fast. Remember our mortgage renewal wall.<\/p>\n\n\n\n

https3a2f2fsubstack-post-media-s3-amazonaws-com2fpublic2fimages2ff97fef84-6928-4b68-a3e5-a59b1a9cbfef_1414x908-1628659<\/a><\/figure>\n\n\n\n

It should come as no surprise that second quarter GDP contracted, the only thing that\u2019s surprising is how long it took and how far off the BoC\u2019s estimate was for 1.5% growth.<\/p>\n\n\n\n

The housing market has been isolated from the pain of rate hikes thanks to multi-decade lows in new listings for most of this year. I get a sense that might change soon based on the anecdotal conversations i\u2019m having across the industry.<\/p>\n\n\n\n

Unfortunately, the BoC doesn\u2019t get to rely on anecdotes, and has to wait for the data to officially turn, sometimes requiring several revisions to boot. It\u2019s like watching a cruise ship pull a U-Turn. Bon voyage!<\/p>\n\n\n\n

<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Happy Monday Morning! The Bank of Canada moved to the sidelines once again, appeasing premiers in BC & Ontario who publicly pleaded with the BoC last week. It\u2019s no secret these two provinces have the most to lose, their coffers largely built on a highly levered housing market, but we\u2019ll get to that in a […]<\/p>\n","protected":false},"author":1,"featured_media":11223,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[70],"tags":[],"acf":[],"yoast_head":"\nIt Tastes Awful, and it Works - Steve Saretsky<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.stevesaretsky.com\/2023\/09\/news\/it-tastes-awful-and-it-works\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"It Tastes Awful, and it Works - Steve Saretsky\" \/>\n<meta property=\"og:description\" content=\"Happy Monday Morning! 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