Tik Tok Gonna Be Lit!!!

Well, there you have it – Tiff has dropped rates by 25 bps!!!. Should he have? No, but he caved to political pressure and did it anyways.

Oh well, this is going to be a fantastic soul crushing experience coming. The 1 year bond market had dropped 20 bps from the end of May leading up to this morning, so it was basically priced into the bond markets. A 20 bp rate cut coincides well with a 25 bp reduction in the overnight rate. This also tells us that perhaps this is the last cut for a little while. I think those that feel this is the beginning of a cycle will be disappointed. We are probably in a one cut, wait 90 days and re assess type of economy, so don’t expect much at the July meeting. The good thing about cutting now is that it should remove a lot of the hype leading up to the July meeting – since the July meeting won’t now result in a cut, unless of course the Canadian economy falls off into the abyss over the next 3 weeks.

I cannot wait for all the Tik Toks in the next 48 hours from all the realtors and brokers that will see this as a hail Mary at saving their careers. It is gonna be fun to watch.

Of course we all know that 25 bps will save the average mortgage holder – variable only of course, around $100 a month. Big Fucking Deal!!! We also know that variable rate mortgages are only around 15% of the entire landscape. Now, ironically the people who are in the worst position in terms of equity and amortization – static payment adjustable holders – won’t feel a thing. How many of them are gonna take to social media and complain that their payment didn’t go down? LOC and HELOC holders will see a bit of a decrease in payments, but really not enough to make a difference. Perhaps the difference is a tank of gas a month? Again, not really enough to worry about, but a decrease none the less.

The reason I think it is amazing that the cut came in June, is that a lot of people start getting their new property tax bills in June for the year. I would be willing to heavily bet on the fact that any savings from a variable rate debt product will be swallowed whole by property tax increases. Between rising mill rates, and ever increasing assessed values, what the BOC giveth, the municipality will taketh away. Of course, you won’t see any of these points on Tik Tok. Hell no, it will be a message of buy, buy, buy.

Of course, most brokers won’t even have a plan now that rates have gone down. All they are going to do is go and spew the good news that rates have dropped 25 bps. Of course the variable rate mortgage is still well over 100 bps higher than the fixed, so unless you sit with Tiff at family dinner and know for a fact that rates are going to continue to drop dramatically, it still probably doesn’t make a lot of sense for a variable. So, what is your plan? What is your strategy? How are you going to stand out in the crowd? Are you going to have anything to say when clients call you, and inquire about todays announcement, or are you going to repeat the same crap than everyone else is? This rate cut is the most advertised and reported rate cut in history – clients already know about it. What clients don’t know is what it means, how it affects them, and what the plan is going forward. Be that source for valuable, reliable planning for your client base.

Let’s also keep in mind that interest rates never get cut going into a bull market – they only get cut either preceding, or entering a recession. That means that while it may be all fun and games for a week, storm clouds are on the horizon, and the storm that is coming could well topple your plans and your career.

But of course, Tik Tok still gonna be lit for the next few days.