Latest BoC decision a positive one for mortgage industry, says exec

The central bank indicated that the endpoint in its current rate-hiking cycle could be coming into view

Latest BoC decision a positive one for mortgage industry, says exec

After embarking on one of its most aggressive rate-hiking cycles in recent memory, the Bank of Canada could be nearing an endpoint on increases to its benchmark rate – news that will come as a welcome development for the mortgage industry, according to a leading executive.

James Laird (pictured), co-CEO of and president of the CanWise mortgage lender, told Canadian Mortgage Professional that despite the central bank’s 50-basis-point hike to that trendsetting rate, the tone of its accompanying statement suggested plenty of room for optimism.

“It’s a statement that our industry and the broader market has been looking for,” he said. “Going with 50 instead of 75 [basis points], that’s a positive, but the main thing was their commentary suggesting that the end is near. I thought that was the key to the announcement, where they talked about wanting to evaluate the effect of what they’ve done so far.

“Instead of saying huge rate hikes are going to be necessary, they said [to] expect a couple more, but also at the same time said [they’re] getting close to at least pausing to see the effect.”

The move means the prime rate, variable rates and HELOCs (home equity lines of credit) all went up, although the market’s positive reaction to the decision saw bond yields decline over their peak, with fixed rates falling across the board as a result.

Read more: Bank of Canada makes another big rate hike

“It’s sort of odd talking about how a 50-basis-point hike is kind of good news for mortgage rates, but that’s the truth,” Laird said. “It’s 50 versus 75, and we have at least a glimpse or a chance that they’re getting close to… where they want to go before they pause to see the effect.”

The Bank introduced a flurry of interest rate hikes over the summer in a bid to curb rampant inflation, including a full-percentage-point jump in July that took markets by surprise. Its October announcement, by contrast, was viewed as a less hawkish move that indicates it now has more flexibility on rate increases.

The half-point move means that the Bank rate has now risen by 3.5% throughout 2022, a noted departure from the rock-bottom interest rates that prevailed throughout the first two years of the COVID-19 pandemic.

Laird said he still expects the policy rate to increase by a further 0.5% before the Bank hits pause, either through two consecutive quarter-point hikes or a single 50-basis-point jump in December. Still, the worst of the oversized rate increases appears to be over, he added.

“They did move fast to where they wanted to get to, which I think is correct,” he said. “Moving by 3-4%, depending on where they actually end up – that’s a huge move, especially when you’re starting out at 0.25%.

“I think we can all feel, certainly in our industry but also throughout the economy, it’s a lot different out there now than it was eight months ago, and in Q1 of 2022 or Q4 of last year. So I think it’s appropriate. We can sort of feel it out there, but our data is delayed. And so I think it’s appropriate for [the Bank] to look for the data in the coming months to see the effects of what they’ve done so far.”

Read more: BoC nearing end of rate hikes, but not done yet: CIBC's Tal

The more conciliatory language used by the Bank compared to previous statements surprised some observers, particularly after inflation inched downward in September at a slower rate than had been expected.

“If you look back in history, there have been other times when it looked like inflation was under control but then just rocketed right back up again,” Laird said. “So I thought they would be a little more aggressive to make that outcome less probable. I was surprised by 50 versus 75, and I wasn’t expecting the commentary that we’re close to an end.”

If the Bank is indeed nearing the end of its rate-hiking cycle for now, Laird pointed out, rates haven’t risen particularly high by historical standards.

“We’re not into sevens and eights. We’re still at fairly normal historical rates, not including the last 10 years,” he said. “Fixed rates in the fives – that’s not really unusual. So rates didn’t get that high. Even if [the Bank] thought they were getting close, I’m surprised they said it out loud.”