Post-fast: Homeowners rush to renew their mortgages to stay ahead of the BoC

Guaranteed borrowing rates in June at fastest pace since January 2021

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Good morning!

More and more Canadians rushed to get ahead of the game by renewing their mortgages ahead of the Bank of Canada’s surprise interest rate hike on Wednesday.

Homeowners moved to secure their borrowing rates in June at the fastest pace since January 2021, according to a report from online mortgage lender Nesto Inc., which found Canadians were boosted by the bank’s increase power station on June 1 and its well-telegraphed intention to continue hiking to tame galloping inflation.

And they were right to take the Bank of Canada at its word.

Governor Tiff Macklem announced a 100 basis point hike that saw the benchmark lending rate rise to 2.5% from 1.5%. The central bank also signaled that it was not done climbing and would continue to do so until inflation was brought under control.

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Given the Bank of Canada’s program, mortgage renewals in June were 36.1%, up from 29.8% in May and 6% higher than Nesto’s previous peak of 30.03% in april.

The report based its findings on renewal application activity.

“It shows that people realize now is the time to renew or lock in their low rate before another hike takes hold,” the Nesto report said.

Nesto also broke out the share of purchases and refinances of total business with its customers.

The company found that purchases accounted for 52.1% of activity in June, down from 58.5% in May, reflecting the deceleration in home sales reported in major cities across Canada. For example, in the Greater Toronto Area, home sales were down 41% year over year in June.

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The share of refinancing in transactions amounted to 11.8% of activity, showing little variation from May to June.

On the home buying front, Nesto pointed to a continued downward trend in down payments, with the average down payment dropping to $65,000 in June from $70,000, and the median down payment dropping to $50,000. against $65,000. Down payments on home purchases also fell as a percentage, Nesto said, accounting for 11% of the purchase price in June, compared with 18% in May and 20% in April.

“In Ontario, where a 20% down payment is the norm, it has dropped for the first time since 2021,” the Nesto report found.

The report attributes lower down payments to cooling home prices, adding that it tracked the median Ontario home price at $650,000 among its customers, down from $701,300 in May.

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A report released Tuesday by the Canada Mortgage and Housing Corporation projects that rising interest rates could reduce the national house price by 5% by the middle of 2023.

Between rising borrowing costs, slowing sales and more reluctant buyers who are “just watching,” Nesto said he believes a shift in market dynamics is afoot and these numbers “ gave power back to the buyer after a few years where the sellers held it.

Pie in the sky thinking of potential buyers? We will see.

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FAILURE FALLS Rogers Communications said Wednesday it will credit customers for five days of service following a nationwide outage that left millions of Canadians without internet or cell phone service last Friday. The company did not disclose the cost of the compensation program, but one analyst estimated that just two days of credited service would cost the phone company about $70 million. Photo by Peter J. Thompson/National Post

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The Bank of Canada decided to take the inflation bull by the horns on Wednesday by announcing a 100 basis point hike in its key rate. That means the overnight rate rose from 1.5% to 2.5%, the first such increase since August 1998, writes FP editor Kevin Carmichael. While the increase came as a bit of a shock, it shows, writes Carmichael, that the Bank of Canada is more than a little worried that inflation expectations are becoming entrenched. Better to hopefully break your back on rising prices than to wait and pray that this phenomenon – the stuff of central bankers’ nightmares – does not happen.

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Today’s Posthaste was written by Gigi Suhanic (@GSuhanic), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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