Bank Of Canada October Rate Hike: Is An Interest Rate Peak In Sight?

Bank Of Canada October Rate Hike: Is An Interest Rate Peak In Sight?


We have another rate hike scheduled for this Wednesday, and right now, economists are still expecting somewhere between 50 and 75 basis points. 

There are arguments that it might be lower because Australia raised rates lower than expected, but given the stronger than expected CPI numbers last week, the market as a whole is leaning towards a 75 basis point rate hike, which would take our overnight rates from 3.25 percent to 4 percent this week. 

Talking to a lot of clients, it’s not the high interest rates that scare investors, but the uncertainty of how much more rates will go up. But honestly, this uncertainty is certainly declining compared to half a year ago, and it’s actually looking that way if you start digging into the numbers. Banks were expecting us to peak around 4 percent, which doesn’t make a lot of sense anymore, but we think peak rates are approaching closer to 4.5 percent, which is in line with what the OECD is expecting.

So in this video, let’s talk more about this!

September CPI Data & Impact On Interest Rates

The September numbers are definitely stronger than expected and the September numbers edged just slightly lower than the August numbers, coming in at 6.9 percent. We’ve actually come down 3 months in a row now, which is positive, but once people dive in, you can see that the drop mainly comes from energy and everything else is still creeping up. 

The central bank’s target is 2 percent inflation. We’re right now at 7 percent, and because there’s no visible proof that inflation is close to 2 percent yet, the central bank would have no choice but to pump rate hikes again. But there are a few things to keep in mind. 

Remember, inflation is a lagging indicator. We actually just started aggressive rate hikes in mid July, and we just got the numbers for the end of September. It takes time to work things into the system, so it’s pretty realistic that we’re not seeing big drops yet. 

The second thing is that the pace of increase is actually slow. Inflation went from a steep pace up at the beginning of this year to decelerating and peaking in June, and now it’s actually coming down month over month, which is positive and really a sign that things are slowing down.

Bond Yields Rising & Impact On Real Estate Investment Prices

It seems like many people are readjusting their expectations for where the peak is going to be and it looks like the market as a whole has as well, which may affect real estate prices. 

A lot of times, new investors aren’t sure what they should be using to crunch numbers: fixed or variable. If you ask me, you should go with fixed rates to price real estate in a rising interest rate market because that shows what the market is expecting rates to be at in the next 5 years. 

And if you go to the 5 year bond yields, which is what fixed rates are based off of, you can see that we peaked in June and then came back down. Because interest rate expectations haven’t changed since June, this is why you see real estate prices stabilize as well over the past 3 months, hovering around the same levels. 

But what you do see at the end of last week is that 5 year bond yields did come up above the June levels for the first time. It went to the highest at 25 basis points higher than the June peak before coming back down, and it’s hovering around 15 basis points above the June peak right now. There are two effects of this: 

  • Fixed rates are based on bond yields, so you should see fixed rates come up slightly, around 15 basis points, in the coming days. 
  • Because interest rate expectations have finally come up, we actually might see prices come down a bit more. 

But in reality, a 15 basis point creep up isn’t that insignificant and amounts to around a 1.5 percent price drop. Basically, if you bought before this price adjustment but you managed to get a 5–10 percent discount off of average prices, which is very likely these days, you probably ended up getting a better price compared to if you were to buy at average prices after this adjustment.

How We Can Help

I think the biggest thing that will bring confidence back to the real estate investment market in Toronto is when the interest rate uncertainty goes away. And it’s definitely diminishing! 

Compared to half a year ago, when we had no idea how high interest rates would go, we’re seeing more signs that we’re getting close to the peak, and so this is the best time to start looking into entering the real estate market. As long as you get a great price, you can be cash flow positive even at our current much higher interest rates. 

We believe this is the most important point because holding power is critical as a real estate investor and the best way to make sure you can benefit from Toronto’s long-term appreciation. The icing on the cake is that you’re getting an amazing price on it and cash flows will look better when rates come down. 

So if you want to learn more about what today’s deals look like, just reach out to our team because we’d be happy to help. We’re a real estate sales brokerage that focuses on investing in real estate in Toronto. When you work with us, we take the time to understand your needs, teach you the ropes, show you these deals, and eventually help you buy the best one for you. But that’s not all. Our team also provides renovation guidance, leasing and property management if you need it. So, just connect with us if you want to learn more about our services!

Want To Get Started With Real Estate Investing In Toronto?

We’d be happy to learn more about your situation and help you find the best investment opportunities for you.