Remember 2008? It was almost 6 and half years ago that the U.S. sub-prime mortgage scandal erupted and real estate market values in Abbotsford, Mission and Chilliwack started showing signs of weakness. House prices dropped initially and have not increased with what we have come accustomed to as “normal inflation”.
It was exactly October 2008 when the U.S. debacles started and the rest of the world needed to react with massive rate drops. So I thought this would be a great time to see what mortgage rates have done since then as well as what the pundits predicted VS what really happened.
It seems every year for the last 4 years the BOC or some Canadian economist somewhere predict rates should finally go up and that has not been true so far. See the Chart below. Still every January we are told this is the year, rates are going up this year!
|DATE||MORTGAGE RATE MILESTONES||PRIME RATE|
|2008-01||From 2005 till 2008 rates held at roughly 6.00%.||5.75%|
|2008-03||(-1/2%) BOC decides to drop rates. Signs are not good.||5.25%|
|2008-04||(-1/2%) Reacting to economic data from the U.S.||4.75%|
|2008-10||(-1/2%) U.S. Sub Prime Mortgage Scandal begins!||4.00%|
|2008-12||(-1/2%) point drops, very unusual to move this much.||3.50%|
|2009-01||(-1/2%) BOC continues to react to the Great Recession.||3.00%|
|2009-03||(-1/2%) point drop again.||2.50%|
|2009-04||(-1/2%) In 6 months, 5 rate drops! 7 drops in total over 1 year.||2.25%|
|2010-06||+1/4% BOC consciously raises rates up.||2.50%|
|2010-07||Up again +1/4%, recovery still suspect.||2.75%|
|2010-09||+1/4% Rates find the eventual floor point we enjoy today.||3.00%|
|2011-01||3 months of the new 3% Prime Rate.||3.00%|
|2012-01||Over 1 full year of our new normal Prime Rate.||3.00%|
|2013-01||Over 2 full years.||3.00%|
|2014-01||Over 3 Full years.||3.00%|
|2015-01||Over 4 full years – no rate increases! What is next? 4 years of rate increase threats, but still nothing.||3.00%|
But since Prime Rate fell drastically and then flattened out in September 2010 we have had no such Prime Rate increase in Canada despite all the economist, BOC and media guru warnings.
Canada Bank Rate did averaged 7.62 percent since 1960 and obviously rates are much lower than that now but does that mean it should go up?
Maybe it’s just good politics and a great headlines to heavily warn the public about eventual rate increase. Maybe the government wants to say “I told you so!” if rates do go up, almost like a Debbie Downer friend does who can see the negative side in all conversations and eventually gets to be right sometimes. Or maybe 3% Prime Rate is the new normal?
I don’t have the research ability nor proper masters degree in Macro and Micro Economics to actually give you the correct answer to what are rates going to do (in fact nobody does), but I think no matter what 3% has officially become the new norm in Canada.
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