As expected, in fact telegraphed by the Bank of Canada itself, the target overnight rate remains unchanged at 0.25%. This is where it is likely to stay in the near term as the Bank has stated that negative interest rates are not a tool they will use and it expects the recuperation phase to be slow and choppy due to economic uncertainty and structural challenges – so rate is not rising either.

This means that variable rate mortgages will continue to stay low and possibly get lower as the discounts to prime continue to increase. Eventually those variable rates will start to creep up when the overnight rate increases as the economy fully recovers from it Covid-19 induced GDP crash. While seemingly temporary, the annualized real GDP declined by 39% in the second quarter as all components of aggregate demand weakened.

Fixed rates have dropped rapidly over the last year. During the early stage of the pandemic, even with a significant quantitative easing program, fixed rates held steady likely as a result of increased risk premiums from lenders usual funding sources. As Canadian banks are able to return to the debt markets that seek lower risk premiums, increased saving and the quantitative easing program are now lowering fixed rates to historic lows.

These low interest rates, variable and fixed, are supporting the almost hyperactive residential real estate markets. While borrowers are a bit constrained by the regulatory imposed stress test, the low rates give borrowers increased appetite for homes. Eventually, the other driver of the market, sellers and buyers will come back into balance and the market will plateau.

With the majority of job losses seemingly concentrated in lower income areas of the economy, most borrowers seem to be able to maintain their mortgages and for most people, the mortgage is the last payment to miss so frequently predicted housing crash seems a remote worst case scenario that is unlikely to occur.

Conclusion? With the rapid rise in home prices and subsequently valuations and extremely low fixed and variable rates it might be a very good time to use your home’s equity to finance renovations, payoff more expensive debt or other investment opportunities.