Interest rates

Omicron will likely ensure that low interest rates continue

The first mistake is to assume that interest rate hikes are imminent, says Dustan Woodhouse, chairman of Mortgage Architects.

“I don’t think interest rate hikes are ever scheduled, but there is a general feeling that interest rate hikes are scheduled for a future date. The feeling that they are scheduled for a future date is fundamentally true and false at the same time. There is no schedule or date other than the future part. But there has been this pervasive feeling, for years and years and years, that rates are going to go up “next year.”

This has yet to happen, but with record inflation and the Bank of Canada even wrapped up its quantitative easing program, until recently an interest rate hike seemed to be coming around 2022.

READ: What the Bank of Canada’s unchanged key interest rates mean for mortgages

This was before the Omicron variant of COVID-19 succeeded in devastating much of the world in a matter of weeks, triggering another round of lockdown measures and government grants. In fact, the latter virtually guarantees that there will be no hike in interest rates anytime soon.

“All the talk about raising interest rates next year was very premature in my opinion,” Woodhouse said. “The sad thing is that the news prompted people to take their 1.2% adjustable rate mortgages and turn to 2.7% fixed rate mortgages. They reacted to this news and self-inflicted a 1.5% interest rate hike out of fear. It’s terrible. And now, what are all the reports going to be about? The likelihood that further government stimulus is needed, and is already being rolled out, and interest rate hikes will be pushed back to a future date. The real question is how far into the future.

Most reports pegged the Bank of Canada’s interest rate hike in mid-2022, but Laura Martin, COO at Matrix Mortgage Global, thinks this is unlikely to happen now.

“The new Omicron COVID-19 variant has resulted in renewed trade capacity and travel restrictions in Canada, lower oil prices and perhaps more importantly, increased economic uncertainty,” Martin said. “Rising interest rates are associated with a strong economic outlook. With a new wave of COVID restrictions, we are still in a position that requires accommodating financial conditions and support for Canadian borrowers. “

Noting that his gym has just closed and his town’s restaurants and bars are back at half capacity, although he assumes they will be closed in a few days, Woodhouse, who is based in Vancouver, may see restrictions persist for six to twelve weeks.

Although Omicron’s symptoms are much milder than its predecessors, and it is also believed to be much less fatal, it is almost impossible at this early stage to determine what its impact will be on intensive care beds. and that seems to be the crux of the matter. – it is too early to say how long the lockdown measures will last.

“As we have learned, the situation is constantly fluid, dynamic and no government will say ‘We are going to lock you up for six months’ because no government can see this far into the future – no one can – and they don’t want to lock everything down for six months because it’s not good for anyone. They’re going to start with four weeks, “Woodhouse said.

“Now, is it possible that in two or three weeks they will re-evaluate this and extend it?” Yes, it is possible that it will go on for a long time, so how long do we really stay locked up? No one really knows, but they can’t tell six months in advance. They have to go three or four weeks at a time. If it is extended several times, the increase in interest rates is most likely also prolonged. The extension of lockdowns will almost certainly result in the extension of low interest rates. “

Written by
Neil sharma

Neil covered real estate for several years as a Toronto-based reporter. Prior to joining STOREYS, he was a regular contributor to the Toronto Star, Toronto Sun, National Post, Vice, Canadian Real Estate Wealth and several other publications. Do you have a real estate history? Email him at [email protected]

More from the author