July 15, 2022

WHAT CAN YOU CONTROL?

Rarely does the Bank of Canada truly surprise the market.

This week was one of those instances. The rate announcements are calendared well in advance, and while the Bank doesn’t come out and exactly say what they are going to announce ahead of time, they leave enough clues. The financial market (banks and mortgage companies) had already “baked” in a rate increase anywhere from 50-75 basis points, in anticipation of this week’s announcement. What this means is that the rate increase had mostly been priced into the current mortgage market, and at 75 basis points, wouldn’t have had much of an impact other than confirmation of what the market expected.

What this week’s 1% increase means is that The Bank of Canada is very serious now about getting inflation back under control.

But will it be too late?

The challenge is that most economic models are based upon past events and points of high inflation, and can’t anticipate or predict how the economy will react after all the stimulus of Pandemic spending. Nobody anticipated the ramped up demand these past 2 years for cars, houses and other consumer goods. Or the perfect storm of logistical issues from computer chip shortages, unexpected accidents like the factory fire in Taiwan that took one a major manufacturer offline, along with the container shortage and shipping blockages like the Suez Canal incident or the impacts of flooding we saw last Fall in Vancouver. Taken in singularity, these factors wouldn’t have a major impact on prices. All those random events, along with the extra savings that resulted from working from home and not being able to go out, have helped create the highest level of inflation in 30 years.

It won’t be easy to get out of this situation – and nobody can predict with certainty if the result of all of this is a recession.

The question each of us should be asking is what will the potential impact be on each of us individually.

If I’m risk averse, I might lock my mortgage in for the next 5 years to know exactly what my obligations are. If I have more budget room, perhaps I continue along the variable mortgage route and up my payments to ensure I’m still paying down principal. Especially applicable with rental properties, where you can deduct the mortgage payments.

My point on this is: Don’t Panic. Control what you can control in your budget and mortgage so that you can sleep at night knowing your bills are paid. Assess your lifestyle and see what you can do without in order to cushion whatever economic storm hits. We’ve proven through the pandemic that we are capable of pivoting and adapting. This will be no different.

You do what’s best for you.

See you next week.

P.S. Thank you to all of you that reached out to me on the passing of my Mom. I’m grateful and appreciate all of you – Paul

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