129: Destination Unknown: The Ongoing Uncertainty of Interest Rates, Inflation, & Tariffs with RMG Mortgages' Bruno Valko

00:00:00 Matt Glen
Welcome back to the Kelowna Real Estate Podcast. I'm your mortgage broker host, Taylor Atkinson. And I'm your commercial broker, Matt Glen. What's happening today, Taylor?


00:00:08 Taylor Atkinson
You know, first day of kindergarten for one of my kids. So get back into the school season. Matt,


00:00:13 Matt Glen
I'm loving all the posts. First day of school, first day of school. I love those days, man. It's pretty cool. Julian starts preschool, but it's not for another week or so. But I love those posts.


00:00:23 Taylor Atkinson
Man, September is the best month in Kelowna. It's my favorite time.


00:00:27 Matt Glen
I agree. It is definitely a magical time. Hey, Taylor, I told you the story before, but Becca and I went out, we had a cleaner at our house. And when we got home, there was a non -alcoholic beer on our table while the cleaner was cleaning our house. What are your thoughts on that?


00:00:40 Taylor Atkinson
Man, I don't know. Maybe I'm the wrong guy to ask. I'm like, you know, when I'm business, I'm business. When I'm party, I'm party. But yeah, I guess it's like, you know, the European style of you should be able to have a beer or wine with lunch kind of thing. But where are you going? Non -alcoholic.


00:00:54 Matt Glen
you going? Non -alcoholic. What about in the office? As you can tell behind me where I'm at. What about in the office?


00:01:03 Taylor Atkinson
Well, I see you have a can in your hand there. Yeah. I mean, I'm just going to say yes.


00:01:09 Matt Glen
going to say yes. Lunchbox lager. Harman's. Starting to trend.


00:01:15 Taylor Atkinson
to trend.


00:01:16 Matt Glen
Is it local? I just helped Craig and Shannon open a new sober market in Vernon. They have another one in Kelowna on Pandozzi. I was just there.


00:01:17 Taylor Atkinson
I just helped Craig


00:01:25 Matt Glen
Man, I don't know what I was expecting when I went into the store, but wow, it was like, it was awesome, dude. There's so many different flavors. Just had this beer. It was absolutely delicious. This is the future. I think the young people, too, are picking up. Non -alcoholic drinks are coming back and like, man, they are not making it boring. It is a trendy spot in there. So is it all drinks or what's the silver market? Like is it food, everything? Yeah. Well, I guess you can try and get non -alcoholic celery or something in there. Yeah. It's all drinks, dude. I'm going to butcher what they have, but like they have got beers, wines, spirits, like all the stuff, non -alcoholic. It is worth checking out. That is a cool spot. Like I said, we just leased a spot in Vernon, which is opened on September 1st. So it's up and running now. And the one in Kelowna has been running for a while. So definitely get out and check it out if you want to have a non -alcoholic beer at the office or on a Friday night.


00:02:16 Taylor Atkinson
So that's a lager. That's pretty good. That's your choice right now. Yeah,


00:02:19 Matt Glen
this is a lager. Nice. Non -alcoholic lager. I think this one is brewed in Toronto or Canada anyway. You should be asking the venture commercial team who's in the office.


00:02:26 Taylor Atkinson
should be asking the venture commercial team who's in the office.


00:02:30 Matt Glen
If I'm allowed to be drinking non -alcoholic beers or not. Yeah. I think it'll be one of those ask for forgiveness if I get caught. Or maybe it's just a trend, dude. Next week, everybody will be having one. So that's what we're going for.


00:02:43 Taylor Atkinson
I love it. Well, speaking about like the European kind of. you know, having a beer with lunch type of thing. We brought on Bruno from RMG, who's one of our monoline lenders that I use. He's deep in the data of, you know, where our economy is and kind of We were discussing variable and fixed rates, Bank of Canada rates. Great show to listen to. And I loved his answer at the end, where basically I just said, you know, like, which direction would you go, fixed or variable? I'll kind of dangle the carrot there. Fast forward to the end or don't fast forward at all. Just listen to the whole thing. But yeah, some awesome info on this show. And with that, some other exciting news. We are bringing on some sponsors. who we're very excited about. Adam from ARG Contracting. And if you guys remember show 81, a while back, we had Adam on the show. And so he's going to be coming back on the show. But yeah, love to collaborate with somebody local to the industry that's doing the good work.


00:03:37 Matt Glen
doing the good work. Yeah, ARG does new builds, renovations. Recently, they've been doing a bunch of tenant build -out places for commercial properties. So they're doing the Obsidian Gym and the old Toys R Us. Massive job, which is looking great. Adam does a great job on social media, so it's constantly posting. He's a good follow for sure. I'm super excited about the Toys R Us one because he's doing a time lapse,


00:03:55 Taylor Atkinson
about the Toys R Us one because he's doing a time lapse, right? He said like, yeah, I would love to see like the full spectrum of that, how it goes start to finish.


00:04:04 Matt Glen
Like the time lapse, but also just the daily updates, man. He's got his social media tuned in. Perfect sponsorship for us. He's a great guest to have. He's personable. He's fun to talk to. He knows his stuff. The first time he was on, he talked a lot about the rebuild after the West Kelowna fires, which is kind of precedent again right now, considering what happened in Vernon and Summerland. So that's kind of what he hit on last time, but I think he's going to bring a ton of value to the show and we're going to help each other out. Yeah, we're excited about it.


00:04:28 Taylor Atkinson
excited about it. Okay, well, we'll jump straight into the show with Bruno from RMG. We're going to chat all about interest rates, Bank of Canada, where things are going, where we're at. economy. And Matt is going to stay sober with his logger. That's right, my friend.


00:04:43 Matt Glen
Cheers. Enjoy the show.


00:04:47 Taylor Atkinson
Okay, welcome to the show, Bruno. I would love if you could introduce yourself. Obviously, I know you from RMG, which is a great monoline lender that we use in the broker channel. And you send out some amazing reports, especially when it comes to Bank of Canada announcements. So that's kind of what we're going to focus on today. But yeah, I'll give you the stage just to give you a quick intro.


00:05:07 Bruno Valko
Hey, my name is Bruno Valco. I've been in the industry for a very long time. We were talking earlier before we started and talking about how the real estate market in some areas hasn't really seen what we're going through in price depreciation. This is some markets, not all markets, since the early 90s. And I started in 1990. At that time. So I've been around a very long time. Worked for the bank for a while. I enjoy doing those updates for mortgage brokers to follow along, find out what's impacting the bond market, what's impacting five -year fixed rates, what's impacting potentially the Bank of Canada. I do my live Bank of Canada announcement presentation just to see what are we looking out for? What's the Bank of Canada potentially looking out for? And then. You know, we find out what the Bank of Canada did and we know that it's held steady, which is good news until October 28th. And then we'll go through this all over again. But yeah, I'm working with RMG Mortgages. I run a national sales team of 11 salespeople across Canada. So that's basically, in a nutshell, my intro.


00:06:12 Taylor Atkinson
Yeah, we'll maybe just preface the conversation. So we're recording this on the 3rd. Bank of Canada announcement came out yesterday. September 3rd. Yeah, sorry, September 3rd. We're releasing this next week. What's your take? Obviously, we kind of in the industry, we all expected there to be a rate hold, seventh one so far. Where do we go from here? How are things looking? Maybe we'll focus on like variable overnight rate to start with, and then we can kind of lead into the bond market and fixed rates.


00:06:38 Bruno Valko
Well, they're kind of tied. So yes, the market was expecting no change. And that's exactly what happened. There wasn't a change. But if you didn't. Notice bond yields spiked and bond yields spiked. Why? Because I'm not sure the bond market likes the way the central bank is looking at inflation. Inflation is our number one issue and things that impact inflation. Low interest rates are deemed inflationary and the bond market hates inflation. And when the bond market hates something, the price goes down and the yield goes. up. By not moving rates, the bond market felt that, well, is the Canadian central bank really taking inflation seriously? And we can talk more about inflation, but the headline number is 3%, 2 % is the target. And that's why we saw the yields go up. So the two are kind of intertwined. I was happy, don't get me wrong, the US Fed. is meeting on September the 16th, and they have that same conundrum. I think Kevin Warsh, who's the new chair of the Fed, I think he's stuck between a rock and a hard place. If he doesn't increase rates, you're going to get the same result with the bond market potentially, where long -term yields will deem that as inflationary and yields may go up. And remember, in the US, they price their mortgages off the 10 -year treasury, where in Canada, we price off the five -year. bond yield. So our bond yield went up, but in the US, their 10 -year treasury actually went down a little bit. So the bond market, I don't think, really liked that they held rates. And then again, if he increases, he's going to get the wrath of the President of the United States who doesn't want to see those rates go up. But if he increases, you might actually see long -term treasury yields come down a little bit, because then the bond market will see The Fed is taking inflation seriously. If they don't move rates, it could cause long -term yields to go up, which means increases in fixed -rate mortgages potentially down the road.


00:08:43 Taylor Atkinson
Yeah, so I guess say everything stays consistent where it is right now. Obviously, that's not going to happen with power in the south is pretty volatile. But let's say we like... This is our trend right now. We're consistent. Should we expect then Bank of Canada just to continuously hold these rates? Inflation stays in that higher end of the 3%, like the higher end of 2 % threshold that we're allowing. Do we just keep ticking along? Or would we then look for a price increase on the overnight rate just to like... keep the trend going downwards? I mean,


00:09:18 Bruno Valko
mean, it's very difficult to make predictions. We've got trade agreements out there. We've got a war going on between the US and Iran. We've got elevated oil prices and so on. So predictions are very challenging to make. Now, having said that, the good news in Canada is that the Bank of Canada looks at three measures of inflation. They look at the headline number, which is 3%. Market doesn't like that number, 2 % is the target. But they also look at two core measures. So when you're looking at core inflation, you're stripping out energy and food. So that increase in energy and gas prices gets excluded from the equation, as does volatile food prices. So when we look at the trimmed mean, which is basically. Looking at the core measures, stripping out food and energy, take away the top 20%, bottom 20%, most volatile numbers and looking at that middle 60. So it's like the real estate market. You get 100 sales in your market, take away the top 20, their luxury homes, take away the bottom 20, could be land and so on. You look at that middle beefy 60 and that's where you get that core number. And then they look at the core median number, which is the middle number. And those numbers in Canada are two. and 1 .9%. So the Bank of Canada likes the fact that that headline 3 % hasn't filtered through to the broader economy. That was their main concern. They don't want high energy prices to filter through to the broader economy. And it hasn't been the case based on those numbers. Coincidentally, the Fed in the United States, Kevin Warsh, the new chair of the Fed, he's actually looking at that trimmed mean number in the US, and it's at 2 .3%. The good news in the US with that 2 .3 trimmed mean number, and it comes from the Dallas Fed, is it was 2 .3 prior to the war between Iran and US. So now it being still 2 .3, again, it's not filtering through to that segment. of the broader economy so that's something that's good news when it comes to inflation because prior to this iran and u .s war when i look at inflation around the world and remember the market is basically a global market when it comes to the bond market The United States inflation rate before the war, this is the headline number, keep in mind, was 2 .4. It's now 3 .4. The 2 .4 was pretty good. It's getting close to that 2 % target. Japan was 1 .3. It's now 1 .9. Canada was 1 .8 on the headline number prior to those elevated energy prices. It's now at 3%. Germany, 1 .9, 2 .9. And France has gone from 0 .9 to 2 .4. So we've seen this big influence on inflation from the war between the US and Iran. So the argument could be, well, if you increase rates to satisfy the bond market, potentially, if that's the case, are you doing anything about inflation? Will higher interest rates bring down the price of oil if the war between Iran and US continues on for the next six months or maybe even escalates and gets worse? I think most people would say, well, probably not. I mean, will higher interest rates bring down the price of gas at the pumps? I mean, a lot of people would argue, no, probably not. The influence of that is the more and the closure of the Strait of Hormuz, which 20 % of all oil and gas worldwide used to transit that straight. You shut that straight down, you take away 20 % of the supply, the price goes up. So how will higher interest rates solve? that influence of higher oil prices. Inflation, when the Bank of Canada is concerned about inflation, it's because the economy is overheating and prices are skyrocketing. I don't think a lot of people would argue that the economy in Canada is overheating to the point where higher interest rates are required to cool the economy. We had a decent Q2 reading in GDP numbers, but remember, it came off two very weak numbers. in the quarters previous. What could they do to control inflation? Generally, their lever is... I know the answer to that question, I think. Government deficit spending. We don't talk enough about that. Debt is a huge inflationary pressure. When governments are running these massive deficits ever since COVID, we've had this exponential growth. in debt. I mean, the US just hit $40 trillion in debt, trillion with a T. In July, $104 billion was spent on interest on their debt alone, one single month. In Canada, we're running $1 .3 trillion. How do you pay for all this stuff? You issue bonds and treasuries. And bonds not only hate inflation, they also hate more bonds. Because when you throw that massive supply of bonds out there and treasuries to pay for your deficit spending, what happens is there's only a certain demand. The demand for bonds is not finite. There's a demand for bonds. So the bond market says, you know what, we'll buy your treasuries. But we're going to buy them at a lower price because you're issuing this astronomical amount of them. The price goes down and the yield goes up. And the only way to pay the interest, well, one of the ways to pay the interest, you can increase your revenue too. But one way to pay that interest is to issue even more bonds to cover the interest, which increases your debt, which increases your deficits. And it's like a cyclical effect. So we got to somehow find a way, in my opinion, to get some control over our deficits because they are inflationary. They're bad for the bond market. And you got to remember, too, the bond market is key here because the bond market has to buy that debt. And a lot of that debt is purchased by the private sector, which demands profitability and higher return. Right. So they're also competing with we hear a lot about data centers. So Goldman Sachs said that there was going to be 400 billion dollars required in investment from the hyperscalers. to build data centers. Well, how are they going to pay for those? They're going to issue corporate bonds. So now the market is competing with these corporate bonds and yield is the key. And that's going to drive up our overall borrowing costs. But the bottom line is across all Western economies, those ones I rhymed off earlier, each and every one of those countries is running massive deficit spending, which is paid for. buy bonds, which is also very inflationary.


00:16:28 Matt Glen
Like Canada's at, you said $1 .3 trillion in debt? Give or take, I believe. And the US is at 40. Like, I think the US is roughly, what, 10 times the size of us?


00:16:38 Bruno Valko
Yeah, but you know what? They have the currency. They have the global currency. They can print lots of money. It's not a good comparison because we're not apples to apples on that. I mean, but you know what? If I'm... in debt a million dollars, and I'm struggling, is an argument to say, hey, I'm a million in debt, but my neighbor's two million in debt. And you know what? I make more money than my neighbor. It's still debt is debt. Remember, whether it's Canada or the US, the numbers are huge, 1 .3 trillion, 40 trillion, but each one of those countries has to issue bonds to pay for that debt. And again, there's only a certain demand for those bonds. So maybe Canada is a little bit better off from a debt to income ratio. We often hear about real GDP to income and how the United States is doing great. But I believe the number and anyone on this listening to this can Google it. What is the average person owe in the United States? I think it's like $115 ,000. When you divide 40 trillion by the population, divide 1 .3 trillion by the population of Canada, it might be half that. Still problematic. Yeah,


00:17:49 Taylor Atkinson
I mean, those are two very big asks, right? Reducing our debt, our deficit, and asking the private sector to then invest in our economy. Do you think that's going to happen? I mean,


00:17:59 Bruno Valko
mean, it's not that long ago. Again, we can go back to 2019. Pre -pandemic. And we say, well, in 2019, our unemployment rate was lower. Our deficit spending, I believe, was, I forget what the actual number is. I have it. I believe it was like $9 billion for the whole year back then. The U .S. was less than a trillion. Now they're way beyond that. So in 2019, not a long time ago. We had a situation where we had very low bond yields. The Bank of Canada was actually half a percent lower in 2019. Yet our unemployment rate was lower in 2019. So go figure on that one because our debt and our deficit spending was less back then. So is there a way for us to blow the books off of 2019? Have a look at that and say. Is there a way for us to function like it's 2019 all over again? And same goes for the United States. I mean, you have the same president in power in 2019 as you do now. You have the same government in Canada that you had back then as you do now. We have to ask ourselves a question. Why can't we just go back to 2019 and spend like it's 2019 again?


00:19:22 Taylor Atkinson
Yeah, I do feel like from now to then, we also had a massive population growth, which,


00:19:28 Bruno Valko
you know, unfortunately. Yeah, but your population growth should grow your revenue. It should grow your tax base. We should have jobs for that. We should have all of that. I mean, we lost population during COVID. Of course, immigration was down. So yes, our population is bigger, but so is. the revenue growth, so is everything else. And in the United States, have they really grown their population much when their deficits are so high? Because remember too, the global bond market, it's global, the bond market is what I was trying to say. And we do compete with one another on these yields and the Japan yield where the population is shrinking and they got massive debt issues over there, their bond yields go up, it impacts the entire world. So I think it's just... Western economies and their spending habits. I mean, not necessarily population growth. I don't know what France's population growth looks like. I don't know what the UK's looks like. I'm pretty sure the United States hasn't really grown its population much from 2019. They might have. I mean, someone could correct me on that, but population growth should be. a benefit. I mean, I'm an immigrant. I was not born in Canada. My family came to Canada, immigrated here. And, you know, my dad immediately got jobs and paid his taxes and was never unemployed and was always a proud Eastern European. I'm working hard every day, doing what he had to do to get by. He started a business. My mother worked, you know, my sister and I worked. So, you know, we all generated. I pay enough taxes. I think I'm doing a pretty good job paying my taxes.


00:20:59 Taylor Atkinson
know, we all generated. I pay enough


00:21:04 Taylor Atkinson
Yeah, I'm not blaming the revenue side. What I'm stating here is that the fact of like unemployment's increasing economically, we're not that strong. And then we're adding people into a system where unemployment's increasing already. So does that unemployment rate also increase due to, you know, population growth at the same time? I'm not so sure because again,


00:21:24 Bruno Valko
not so sure because again, I mean, you have to look at, you know, the immigrants that are coming to Canada. in many cases, will take jobs that Canadians don't want to do. I mean, you can look at the United States and they're deporting a lot of the immigrants from the United States that are undocumented and so on. I mean, these people are doing the hard work. I mean, when my dad came to Canada, he delivered pizza and he worked as a janitor at Hiram Walker in Windsor, Ontario. I mean, two jobs that weren't exactly, you know, having lineups to get. So the immigrants will take those tougher jobs. And when you expel these immigrants from the United States, I mean, there's 27 million Americans that are content creators in the United States. Are those people going to stop creating content online and go work in a manufacturing plant or at a hotel at four o 'clock in the morning or go out into a farm field in Southern California in 110 degree heat? They're going to work in a restaurant. You know what I mean? Like the immigrants take those tough jobs. And the whole premise is, yes, my dad took those tough jobs. But then he put my sister and I through school. We got educated. And that's the whole immigrant cycle, right? The children get educated. They get different jobs. The parents did the slugging and the hard work jobs. So do Canadians, when we talk about immigrants, and it drives me crazy when people say, oh, immigrants are stealing jobs. Well, what jobs are they stealing? There was an interview in the United States, sorry, a survey. And I love this survey question because it applies in Canada. The survey question was simple. Do manufacturing jobs help the United States or Canada there? Most people would say yes, 100%. Bring manufacturing jobs in. They're going to help us. Second question, would you personally benefit from a manufacturing job? You know what it went? It went from 90 % or in the 80s to less than 20%. So most people say, yeah, manufacturing jobs are great. But not necessarily. For other people. Well, who are those other people? They're probably immigrants that are going to come and take those jobs. Again, in Windsor, Ontario, heavy manufacturing. I came in 1968. A lot of my dad's buddies, you know, they came from Eastern Europe as well. Where did they land jobs? Chrysler, manufacturing plants, the car industry. They took jobs there because those plants were desperate to hire people.


00:23:55 Matt Glen
So like Trump's tariff strategy isn't the whole strategy. to get more manufacturing jobs in the US. Like the end game is to get jobs where nobody wants them.


00:24:04 Bruno Valko
Again, that's the million dollar question. When you look at manufacturing jobs and you look at the growth in manufacturing jobs, you're really not seeing so much of it in the United States. Much of that manufacturing that even if it does happen and you build these new plants, they're heavily automated. We know AI is big now and robotics and different things. It's always been big, but it's just getting bigger and bigger and bigger. So, you know, he's he's he's selling it that way. And it's to my earlier point, 90 percent of people think. manufacturing jobs is great for the country, but very few people want to take those jobs because they work as content creators online. They're not going to get up at four o 'clock and go work in a manufacturing plant. That's not what they want to do. In many cases, some people do. And then I, and don't get me wrong, I'm not disparaging manufacturing jobs. I mean, I grew up in Windsor, Ontario, and there's a lot of people that make a living from those jobs and they are very important jobs and they're good paying jobs and union jobs and so on. So yes, a hundred percent, but many of those jobs are taken by immigrants initially. And that's, I think the biggest challenge. A hundred percent. I mean, it's going to be very sad if we start closing manufacturing plants now. I mean, I read an article that BYD is now visiting a Stellantis plant in Brampton, Ontario, that's been shuttered and all those people lost their jobs, sadly. But they're now looking to invest in BYD being a Chinese. Electric car manufacturing company, one of the largest in the world, is now looking at some of these plants because of our trade disputes and tariffs. And the mayor of Brampton, people can Google this, was talking to BYD and some other manufacturers to see if they can transition some of those plants. So manufacturing is a very important part of our economy. And I'm not saying it isn't. It's just that, you know, where are you going to find these workers? And I think immigrants are a good source of labor. in many cases for these manufacturing clients.


00:26:05 Taylor Atkinson
What is the main strategy with tariffs? And like, if it's not to bring manufacturing back, like, is that just the narrative that they're trying to sell to kind of like help their voting? What's the end game here then?


00:26:18 Bruno Valko
I don't know. It could be to your point, could be very political, could be like, oh, these countries have taken advantage of us. I don't think a lot of people really understand tariffs. They think we're going to tariff. them. We're going to tariff Canada. Canada is going to get tariffs. We're going to fight back. You know, we're going to stand up to mean old Canada and we're going to hit them with these tariffs. In the meantime, they don't understand that it's not Canada paying those tariffs. It is the American importer of them paying the tariffs. So if you import stuff from Canada and the United States, you're going to pay a tariff. And then what are you going to do with that increased input cost? you're probably going to transfer it to the consumer. So the consumer is going to end up paying higher prices. And when the cost of living is the biggest number one issue in the United States, you're just adding to that cost of living when you launch these tariffs. One of the other things I wanted to add is a good example in the United States, which I kind of thought was very ironic, and I don't know if you heard about this story, is beef. So the price of beef has been skyrocketing. There's been cattle issues in the United States. So the administration in the United States said, you know what? We're going to eliminate tariffs on beef to bring prices down. Well, you're just contradicting,


00:27:47 Bruno Valko
right? If you remove tariffs on beef because you want to bring the price of beef down, which is what they recently did, then you're kind of contradicting your statement. that Argentina is paying those tariffs on the beef. They're not. So now you're going to import beef from, I'm just saying Argentina. I believe that's a country that was mentioned. Do we even know it's beef?


00:28:07 Matt Glen
That's the real thing.


00:28:08 Bruno Valko
Apparently that was one of the questions. I think it is beef. And the beef that comes from Argentina is not going to have tariffs because we want to drive the price of beef down. remove tariffs on beef. And they limit the amount of tariffs the Americans do on oil because they need that oil, especially now with the upward pressure on prices. So oil never gets hit with the same tariffs that aluminum and steel. Aluminum, steel is 50%. I don't know what oil is, but I think it's a lot less. It might be 10%. So they reduce it because they don't want to put upward pressure on prices. And look at all those tariff refund checks that Amazon's been getting and different companies. They've been getting astronomical, Target, Walmart. They've been getting a lot of money back in tariff refund checks. It's not the American that's getting the money back. It's the companies that imported from China and different companies on those previous tariffs. Remember the fentanyl tariffs? were happening a year ago, well, that money had to be given back. And that's adding to this massive $40 trillion debt that the United States has. How are the tariffs affecting our industry,


00:29:26 Matt Glen
are the tariffs affecting our industry, like the real estate market and the mortgages? Is it having a tangible impact yet? The general solving.


00:29:35 Bruno Valko
I think so. You know, if you do work in manufacturing, I live in Kitchener, Waterloo. We have a Toyota plant not far from where I live. Employees, you know, I believe thousands of people are employed by Toyota in the manufacturing sector. Again, they're good jobs, good paying jobs. that those people have. But what's the impact on real estate? Well, if you worked in one of those plants and yes, you're doing well, you're making good income and so on. But there's all this talk in the plant that they might shut the plant down if these tariffs continue. Look at the Stellantis plant in Brampton. Unfortunately, that BYD is looking at those people. They know that those people lost their jobs in Brampton. You know, are you really going to make the biggest purchase of your life, which is a home? And are you going to invest the down payment in that home if you're not really sure and you have all this uncertainty around that manufacturing job or any industry that relies on American trade? It's really, I believe, negatively impacting a person's decision to buy a home. It's the biggest financial decision in most people's lives is to purchase a house. You want to make sure. Your job is secure. Your income is secure. So you're able to make that payment. The uncertainty is just a killer. I mean, I just think we all on this call and anyone listening in on this call certainly hopes that we get some level of agreement that is good for Canada as well as the United States. So we have some certainty in this environment and we can get the real estate market back on track. In many markets, remember, Halifax is different than Kelowna, which is different than Kitchener -Waterloo. I mean, markets are different across Canada.


00:31:18 Taylor Atkinson
Yeah, I feel like we've been living in uncertainty for five years. So it's just becoming like the norm. We're becoming a little bit numb to it. Will that like trickle down into the way we spend money? Like at some stage, will this just be the norm? Like we're at like an inflationary marker again. Oh, well, or will people actually continue to take it seriously and tighten up budgets?


00:31:39 Bruno Valko
You know, it's difficult to say because, I mean, we touched on it earlier. The GDP for Canada performed very well in Q2 of 2026. Income growth has been decent. Our unemployment rate actually came down a little bit. I believe tomorrow we're going to get Canada's. employment numbers and I think we're at 6 .1 we peaked at 6 .4 so even though we have all these headwinds and we're talking about these trade issues and so on we have been doing pretty well as a country And I think the goal of this current administration is to diversify our trade. So yes, if we can't manufacture cars for the United States, you know, is there a way we can manufacture cars for BYD or some other companies? Or maybe there's apparently an Italian manufacturer that was interested in looking at that plan. So is there a way to diversify somewhat away from the United States? I don't know. I mean, such a large percentage of our trade goes to the United States. We're so heavily reliant. on them. We certainly hope we can figure something out, but we have been doing well. This recent issue, I believe, has been probably one of the most serious ones. And our reciprocal tariffs are coming out next week, which might not be deemed good. Then you might get into a back and forth and it might just get worse from there. I don't know. A lot of people would argue that these reciprocal tariffs are not good. Simply because if we're arguing tariffs are inflationary as they are, us launching reciprocal tariffs against the United States. is inflationary so now we're going to have higher prices and then we don't know if the united states government will then further react remember when china and the united states were going back and forth and they went from like 20 20 and they went up to 50 50 80 80 it was like 120 like it was just it got completely out of control you know we certainly hope that does not happen and the best case scenario is we figure out some sort of an agreement but of course it's got to be and as the argument is sometimes no agreement is better than a horrible agreement so you want to make sure the agreement is good for canada and is better than no agreement if the agreement on the table is worse than no agreement why would you sign that agreement well the problem is we had an agreement that we changed nafta to kuzma with trump to get an agreement and now it's nothing so like what is the point of signing another agreement if it's just


00:33:58 Matt Glen
the problem is we had an agreement that we changed nafta to kuzma with trump to get an agreement and now it's nothing so like what is the point of signing another agreement if it's just


00:34:08 Bruno Valko
Well, it was up for renewal. So the agreement itself is still in play. It just wasn't renewed. Now, having said that, apparently there is a clause that says with a six -month notice, we can cancel the entire agreement. And that would be the fear that the United States comes back and cancels the agreement with a six -month notice period. So it wasn't renewed and extended, but the agreement... is still somewhat intact. It's just a matter of modifying it and extending it to satisfy the new demands, I guess, because you're right, the Kuzma Agreement was signed by the current president back in, I believe, 2018. It just came up for renewal, and they didn't want to renew it unless there were some certain changes to it. I also strongly believe, and this is my personal opinion, that the United States needs to generate some level of revenue. They can't increase taxes because that's a bad thing. But if you increase tariffs on imported goods, it's essentially a tax anyway. So you're increasing taxes when you launch tariffs. I think they're looking at Canada and saying, you know what? We're not getting enough tariff revenue from Canada to offset this massive deficit spending that we have and this $40 trillion debt. that we have. So whatever level of agreement, from what I understand, there's got to be some baseline tariff within that agreement, which might be 10 % or 15 % seems to be the magic number. I think it's 15 % with Europe and different countries. They want to generate some level of tariff revenue to help their deficit spending, in my opinion.


00:35:48 Taylor Atkinson
Okay. Well, we'll have to start wrapping up, but I want to finish off with a question that I get all the time that's hard to answer. So I want to pass the buck. Let's say you're, and I'll try and take the hypotheticals out of it. You specifically, your mortgage is coming up for renewal. What are you doing? Are you going fixed, variable, three -year fixed? And I know it is really specific to each borrower and their risk tolerance, but where do you feel the opportunity is to secure the lowest rate for the next three to five years?


00:36:17 Bruno Valko
So it's a good question, but it's an easy one to answer because my mortgage came due last year in April. And what I did is I took a variable. Now, to your point, I have a high risk tolerance and I don't lie awake at night worried about what interest rates are going to do. If you do lie awake at night, you know, worried about what interest rates are due, you might be more inclined just for your own health and stress to take a fix. But I don't worry about it. That's A. But B. When you look at the rates, I'm going to look at high ratio rates and I'm going to look at kind of RMG's high ratio rate. So right now, you know, you can take about prime minus 80, which doing the quick math on that, you're looking at about 3 .65 % for a high ratio prime minus 80 mortgage. The high ratio fixed rate mortgages are give or take approximately four and a half percent. So even if the Bank of Canada increased rates three times. A quarter percent, a quarter percent, a quarter percent. You're still not at that, give or take, 4 .5 % for a five -year fixed. Or I don't know what the three -year fixed are, but you can use that same argument. So you've kind of baked in three where you're not even there. And you can hold your payment at higher amounts with certain lenders, if you like, to better your amortization schedule. So really, you'd have to go up 1 % for your rate. the net rate to surpass what you could have had on, say, a five -year fixed rate mortgage, just using that kind of simple math. Everything's based on qualifications and interest rates, you know, will change or vary with or without notice, so on. But the bottom line is, I mean, the variable right now is a very large percentage of what we as a lender are doing. And it's the product I took when I renewed was a variable, and I'm pretty happy in it. Again, we talked earlier, you know, is the economy really there? Is inflation really as a result of an overheated economy where higher interest rates are required to cool things? All of that comes back. How much higher will rates go? I can't make a prediction. I don't know how long the war in Iran is going to last. I don't know about the Kuzma trade agreement because that's definitely hanging over the Bank of Canada as a negative drag on GDP. Trade war continues. That doesn't help the economy. So there's a lot of variables out there. I hope that answers your question in a long window. No, that was awesome.


00:38:48 Taylor Atkinson
awesome. I appreciate the transparency. I'm similar. I'm bullish on the variable, primarily because, yeah, there's lots of positives to it. But like you highlighted there, which I do explain to clients is. Let's say there's a half a percent spread. In a year from now, Bank of Canada increases rates by half a percent, then you're net zero. You haven't really lost anything. I think that's the mental part that's tough for borrowers to digest. It's like, oh, no, rates are going up. It's like, yeah, but you actually saved money for the last 12 months. Now, the rate would have to go up an additional half a percent for another 12 months for you to come full circle and be like, okay. Now I'm net zero completely in the first 24 months. And moving forward, maybe I'm starting to lose money.


00:39:31 Bruno Valko
You can lock in. I can call my lender. And if I wanted to, after this call and negotiate a fixed rate mortgage to lock into, I won't be making that call, but I could. So the variable allows that option to lock in if you really do panic.


00:39:46 Taylor Atkinson
No, I love it. Well, thanks for all the information today. And hopefully next time we have you on, there'll be some more certainty in the market because that's obviously what we're all looking for. And it would be boring, though. Yeah, yeah, totally. OK, well, thanks, Bruno. Thank you. Appreciate your time and we'll keep in touch. Thanks a lot, Bruno.