Separating the Signal from the Noise
Former U.S. President James Buchanan had a fun saying about elections: “I like the noise of democracy.”
Understanding that the respective outcomes of both our recent provincial election and the U.S. federal election may not have suited everyone, what we can all agree on is that things indeed got very noisy over the last few months – seconded only by Anais watching her favorite NFL team under-perform (we won’t tell you which one - *ahem* - New England) or Tom’s squeals of delight when he discovers a new shade of black to compliment his highly diverse wardrobe.
Now for a bit more of a serious discussion.
So the real question is this: coming out of all of that noise, what’s the big signal we can take away when it comes to the impact election results have on finance and mortgages?
Whenever there is a political event like an election, there are two things to watch. The first, is the impact that these events have on the market at large. The second is the influence that policy commitments or declarations might have on the operating environment.
When it comes to the markets, the equation at first appears simple. Elections create uncertainty. Markets are unhappy with uncertainty. A decisive electoral outcome restores some of that certainty – although not all of it. Coming on the heels of four consecutive rate reductions this year and continued slackening of inflation in Canada, irrespective of what election outcome you may have preferred, early indication from our crystal ball is that we see no reason why those trends won't continue.
Not only does this drive speculation of further rate reductions at the next Bank of Canada announcement on December 11 (expected in the 0.25-0.50% range), but coming into the new year there is also speculation of “mortgage wars” between lenders as heightened market activity and lending-related policy changes create a more competitive landscape for lenders to attract new business.
With more than half of current mortgage holders in Canada renewing their mortgage in the next two years, this competition should be a good thing for borrowers as well as those looking to enter the mortgage market. This said, it also opens up an environment where competing mortgage products may indeed be “to good to be true” as advertised lower rates and easier entry points mask new requirements and conditions that may not benefit all borrowers.
On the other side is the policy context. Here in B.C., the re-elected NDP government has identified significant new investments in both the construction and subsidization of non-market housing, with strong emphasis on creating new rental stock and incentives for new homeowners. However, this is all in the context of a government that is already managing a large deficit without much new money to throw at very big and very expensive problems.
The policy impacts of the U.S. election on the B.C. market are less obvious at this stage, as monetary policy and domestic policy changes are still in the making. The wildcard of changes to US-Canadian trade policy will undoubtedly impact B.C.’s small, trading jurisdiction. And as is often observed after political change in the U.S., Canada is already seeing increases in U.S. residents speculating on Canadian real estate as a more desirable place to put their cash/investments (without realizing we have a foreign buyers ban).
All to say, when it comes to the policy context -- the crystal ball is less clear. This complex policy context here in B.C. and in the U.S. may benefit some buyers but it may also lead to increased pressure and competition for market housing stock should we see shifts in our provincial economics. Time will only tell on this front.
So what is the signal to take away from this noise? If anything, it is to recognize that despite the certainty that come with election outcomes, new mandates inevitably create new uncertainties as the market and policy mix and mingle. And to dispel the view that we are casting any shade on the value of democratic elections when it comes to creating stability, let us paraphrase Winston Churchill: democracy is the worst form of government except when you compare it to all the others.
Making the right plan with the right moves at the right time will be different for everyone – and that’s where Tom + Anais can help. Our job is to help you separate the signal from the noise, so never hesitate to reach out to talk to us about your needs, your concerns and your ambitions for your home or business.
In the meantime, please put out your best vibes for Anais’ New England Patriots as we roll into American Thanksgiving (they need it!). And when you see Tom dressed up out on the town – tell him he looks sharp!
