Insights from Recent Employment Trends

In the fast-paced world of mortgages and real estate, staying informed is key to making the right financial decisions. I'm, the owner of Flow Mortgage Co, and today, I'm breaking down the recent twists and turns in the Canadian mortgage market, shedding light on the unexpected impact of US employment trends.

The Ripple Effect of US Job Gains:

The last quarter of 2023 saw a significant drop in the four-year swap rate, a key indicator for fixed mortgage rates in Canada. This drop, a whopping 125 basis points, brought potential interest savings of nearly $99,000 for the average Canadian mortgage holder. The surprising part? It's all linked to the impressive job gains in the United States.

Unveiling the Employment Numbers:

In the first week of January, the US employment data surpassed expectations with 216,000 jobs created, exceeding the estimated 170,000. Notably, wage growth hit 4.1% year-over-year, up from the original 4%. Meanwhile, the Canadian employment scenario showed a contrasting picture, with 23,000 full-time jobs lost and only 23,500 part-time jobs gained.

The US Treasury and Canadian Mortgage Rates:

Here's the connection – the US Treasury and the Canadian 5-year bond yield, a crucial indicator for 5-year fixed-rate mortgages, are closely linked. The robust US employment numbers caused a 20 basis points increase in bond yields, impacting Canadian mortgage rates.

Current Status of Mortgage Rates:

While fixed interest rates are down from the peak in October 2023, banks are cautious, holding onto rate specials seen over the holidays. However, interest rates are still down approximately 60 basis points, offering a significant 5% increase in borrowing power.

Future Projections and Considerations:

Economists are divided on predictions, but a common thread suggests rate cuts in 2024. Despite volatility, projections indicate a potential drop of 1.3% in fixed rates over the next 18 months, with further decreases expected.

Real Estate Implications:

Looking ahead, the real estate market is poised for growth, with projections suggesting a 10% increase in 2024. Current mortgage balances indicate manageable numbers, keeping loans to value in check, providing a positive outlook for the real estate market.

Choosing Your Mortgage:

For those approaching renewal or considering a new property, variable rate mortgages and one-year fixed terms emerge as potential winners, offering cost savings and flexibility. However, a cautious approach is advised for 5-year plus fixed interest rates due to potential higher costs and associated fees.