11 Dec

BC Mortgage Brokers Applaud Bank of Canada’s 50 Basis Point Rate Cut

General

Posted by: Frank Fik

VANCOUVER (December 11, 2024) – The Canadian Mortgage Brokers Association – British Columbia (CMBA-BC) is welcoming today’s announcement by Bank of Canada Governor Tiff Macklem to cut the key overnight rate by 50 basis points —from 3.75 per cent to 3.25 per cent. The central bank is also signalling that further rate reductions may be on the horizon in 2025.

CMBA-BC sees this rate cut as a vital measure to reduce financial pressure on mortgage holders, borrowers, and first-time homebuyers across British Columbia. While immediate shifts in fixed mortgage rates may take time to materialize, variable rate mortgages and Home Equity Lines of Credit will benefit directly from the reduced prime lending rate. Additionally, homeowners with upcoming mortgage renewals are expected to experience meaningful relief.

“Today’s announcement is a critical lifeline for mortgage holders and prospective homebuyers in B.C., particularly for first-time buyers navigating affordability challenges,” said Rebecca Casey, President of CMBA-BC. “We are encouraged by this accelerated rate cut, which will provide much-needed financial stability and help ease the path to homeownership for many.”

CMBA-BC has long advocated for policies and measures that prioritize the needs of mortgage holders and homebuyers, emphasizing how strategic interest rate reductions can mitigate the financial challenges exacerbated by inflation and rising living costs. Today’s decision is an important step toward creating more affordability and stability for British Columbians in the housing market.

Last month, Canada’s unemployment rate rose to 6.8%, the highest since January 2017 excluding the pandemic. The total number of unemployed persons now stands at 1.5 million, up by 276,000 compared to the same time last year. Although the economy added 51,000 jobs, 45,000 of new jobs came from the public sector. Current economic conditions only further necessitates a more supportive rate environment.

“This latest rate cut is a positive signal, but ongoing relief and proactive economic policies are vital to ensuring a stable mortgage market and providing British Columbians with the financial certainty they need,” added Casey.

CMBA-BC remains steadfast in its commitment to advocate for policies that support mortgage holders and homebuyers, promote a healthy housing market, and ensure British Columbians can navigate the challenges of homeownership in a time of economic change.

Published by CMBA – Canadian Mortgage Brokers Association

4 Dec

Residential Market Commentary – Economy continues to grow

General

Posted by: Frank Fik

With inflation deemed to be under control the Bank of Canada is focusing on other factors as it determines its interest rate policy.

A major one of those is economic growth, or Gross Domestic Product.  GDP is the value of all goods and services produced by the economy.

The latest numbers from Statistics Canada show GDP increased by 1.0% in the third quarter (July, August, September).  That is lower than the 1.5% growth forecast by the Bank of Canada but it is unlikely the Bank will alter its current path of interest rate reductions.  In fact, many market watchers, including some of the big banks, believe the BoC will make another, large, 0.50% cut to its benchmark Policy Rate when it announces its final setting for the year on December 11.

Higher consumer and government spending are credited for most of the GDP increase.  Residential investment showed more life in the third quarter, climbing by 3.0% – the first increase in four quarters.

GDP growth was also revised slightly upward for the second quarter, coming in at 2.2%, up from 2.1%.

Unfortunately, GDP per capita (which is GDP divided by the population) continues to shrink, falling for the 6th straight quarter.  That could help explain why many Canadians do not feel that the economy is getting better.

There is one more major report to come before the next BoC rate announcement.  The latest employment numbers are due on Friday.

Published by First National Financial LP

25 Nov

Residential Market Commentary – Inflation increase not likely to bother BoC

General

Posted by: Frank Fik

The October inflation report caused a minor commotion but it does not appear to have upset things enough to see the Bank of Canada change course.

Statistics Canada reports headline inflation, also known as the Consumer Price Index, rose to 2.0%, on a year-over-year basis, up from 1.6% in September.  An increase was expected, but the October bump was bigger than forecast.  Still, inflation remains in the central bank’s sweet spot.

It is now widely expected that the Bank of Canada’s next interest rate setting, in December, will see a quarter point cut, rather than another half point reduction.

Even with less aggressive action by the BoC there is evidence that the rate cuts are working.

Two key drivers of inflation – mortgage interest costs and rent inflation – were down in October and in September, retail sales rose for the fourth straight month, increasing by 0.4% over August.  Statistics Canada’s flash forecast for October is predicting a 0.7% increase.  That would boost third-quarter retail sales by nearly a full percentage point, reversing a significant contraction in the first half of this year.

A further spending increase can be expected if the prime minister’s proposed “GST Holiday” and $250-per-worker stimulus plan is implemented.  Some market watchers are concerned the scheme could be inflationary.  They say that could keep the BoC on a slower, rate cutting schedule.

Published by First National Financial LP

12 Nov

Residential Market Commentary – Trump and Canada’s economy

General

Posted by: Frank Fik

The re-election of Donald Trump as president of the United States will have economic and social repercussions in Canada.

There was an, almost, immediate reaction to the re-election in the bond market which drives fixed-rate mortgage pricing.  Yields jumped triggering rate increases by some lenders.

In the days after the election, the yield on 10-year U.S. treasury bills rose 14 basis-points to more than 4.4%.  Five-year Government of Canada bond yields climbed to 3.11%.  Some lenders responded with fixed-rate increases of 5 to 10 basis-points.

The high level of integration between Canada and America usually means a strong economy there is good here.  But there can be a downside.  A pro-growth agenda that includes more tax cuts and government spending would likely increase the U.S. national debt.  In turn the government would issue more bonds, which would depress bond prices and raise yields, putting upward pressure on fixed-rate mortgage costs in the U.S. and here.

One of the president-elect’s biggest campaign promises is seen as highly inflationary: a 10% tariff on virtually everything entering the U.S.  Earlier this year 16 Nobel Prize-winning economists signed a letter saying Trump’s proposals would “reignite” inflation, potentially pushing it back above 9.0%.  That would end rate cuts by the U.S. Federal Reserve and likely the Bank of Canada as well.

Threats of mass deportations, made by the incoming U.S. president, have triggered concerns about a surge in asylum seekers coming to Canada as this country struggles to adjust to higher immigration and population growth.

Published by First National Financial LP

4 Nov

Residential Market Commentary – How low will rates go?

General

Posted by: Frank Fik

The Bank of Canada’s larger-than-normal interest rate cut last month has a lot of market watchers looking for more of the same.  Most of the well-known economists are forecasting another 50 basis point cut at the setting in December.

That would drop the central bank’s trend setting Policy Rate to 3.25%, which many analysts see as the high end of the so-called neutral range for the rate.

Neutral rates are deemed to neither discourage nor encourage economic growth.  Right now, that range is commonly considered to run between 2.25% and 3.25%.

There are, however, some analysts who see the BoC dropping its Policy Rate to 2.0%, or less, by the middle of next year.  They see some lingering, troubling signals coming from the economy:

  • Lower than forecast growth in Gross Domestic Product, both this is year and next year
  • Higher than forecast unemployment
  • A continuing decline in inflation that falls below the BoC’s target range of 1.0% to 3.0%
  • On-going “excess supply” in the economy, which indicates more is being produced than consumed. That condition is expected to persist into 2026.

Analysts in the real estate market, especially commercial real estate, say there will need to be another 75 to 175 basis points in rate cuts to get construction and development going again.  That would drop the Bank rate to as low as 1.5%.

Published by First National Financial LP

23 Oct

Bank of Canada Cuts Policy Rate by 50 Basis Points to 3.75%

General

Posted by: Frank Fik

VANCOUVER (October 23, 2024) – The Canadian Mortgage Brokers Association – British Columbia (CMBA-BC) welcomes today’s announcement by the Governor of the Bank of Canada Tiff Macklem that the Bank of Canada will substantially cut its key overnight rate by 50 basis points from 4.25 per cent to 3.75 per cent. This decision follows rate cuts in June, July and September of 25 basis points each. The central bank is also signalling that further rate reductions may be on the horizon as we approach 2025.

CMBA-BC is strongly encouraged by today’s decision, viewing it as a positive step towards alleviating financial pressure on mortgage holders, borrowers, and first-time homebuyers across British Columbia. While immediate changes to fixed mortgage rates may not occur, variable rate mortgages and Home Equity Lines of Credit will benefit from the decreased prime lending rate. Additionally, homeowners nearing mortgage renewal can expect significant relief.

“Today’s decision is a crucial lifeline for mortgage holders and prospective buyers in our province,” said Rebecca Casey, President of CMBA-BC. “We are pleased to see this accelerated interest rate cut and believe it will provide much-needed financial relief, particularly for first-time homebuyers who are struggling to enter the market.”

CMBA-BC has strongly advocated for policies that support mortgage holders and homebuyers, emphasizing the importance of reducing interest rates in the current economic climate. Ongoing cuts can significantly help residents facing the challenges of inflation and rising living costs.

Recent economic indicators show many positive trends, including inflation in decline. Statistics Canada reported a stark decline in the Consumer Price Index (CPI) to 1.6 per cent in September, down from 3.8 per cent just a year prior. GDP growth on the other hand has remained steadier, at 0.9 per cent in Q2, up from 0.6 per cent in Q1 of this year.

Despite these improvements, the housing market remains under strain and is top of mind for British Columbians. An October 11 poll conducted by Ipsos indicated that housing affordability and availability was among the top three issues in the BC provincial election, with 31 per cent of voters indicating it was their number one concern.

“To create a more supportive environment for those managing higher payments and to improve the overall mortgage landscape in B.C., ongoing economic relief is essential,” added Casey. “This latest and significant rate cut is a step in the right direction towards enhancing the housing market and providing greater stability for consumers.”

CMBA-BC is committed to advocating for homebuyers and mortgage holders while promoting a stable and thriving housing market in British Columbia.

Published by CMBA – Canadian Mortgage Brokers Association British Columbia

15 Oct

Residential Market Commentary – Coin toss on rate cut

General

Posted by: Frank Fik

High hopes for a big, 50 basis point, rate cut by the Bank of Canada later this month have dimmed.  A strong jobs report for September has several analysts pulling back their forecasts.  They are now saying a, more traditional, 25 basis point cut is most likely.

Statistics Canada’s September employment report shows the economy added 42,000, net, new jobs, including 112,000 new full-time positions.  The unemployment rate ticked down one notch to 6.5% from 6.6% in August.

Those figures are being used to support the argument that the central bank’s current policy of quarter-point cuts is working and there is no need to change.

However, economists are also looking at other aspects of the report that, they say, temper the good news.  Those factors suggest September is an anomaly, given previous reports that show a job market that is not keeping pace with immigration.

They point out that the number of people who are working, or looking for work, dipped for the third time in four months; total hours worked declined and hourly wage growth slowed.  All of these indicate some weakness in the economy that could justify a half-percent cut in the Bank of Canada policy rate.

Given the mixed nature of the jobs report, most economists agree that the up-coming inflation report, which is due before the next rate setting, will likely be the key factor in any decision.

Published by First National Financial LP

1 Oct

Residential Market Commentary – Less stress

General

Posted by: Frank Fik

Conditions seem ripe for a big, 50-point, interest rate cut by the Bank of Canada at its next setting later this month.  But the federal banking regulator has confirmed it will be providing, more direct, mortgage relief.

The Office of the Superintendent of Financial Institutions (OSFI) says it is going to end the stress test for uninsured mortgage switches.  The formal announcement is set for November 21.

The stress test, which was introduced at the beginning of 2018, requires borrowers with uninsured mortgages (i.e., a down payment of 20% or more) to qualify for their loan at the Bank of Canada’s five-year benchmark rate or their mortgage rate plus 2%, whichever is higher.

The upcoming change means borrowers who are making a straight swap of their existing mortgage from one lender to another – keeping the same loan amount and amortization schedule – will not have to requalify and pass the stress test.

Removing the stress test requirement answers a long-standing complaint that it discouraged – even prevented – borrowers from shopping for a new, cheaper lender at renewal time.  OSFI says it is making the change based on feedback from the mortgage industry and Canadians.

In March the federal Competition Bureau recommended dropping the stress test, saying the policy was “not evenly applied.”  OSFI all but admits the policy was wrong, saying the risks it had been intended to address “have not significantly materialized.”

Published by First National Financial LP

16 Sep

Government raises insured mortgage cap

General

Posted by: Frank Fik

Feds also expand access to 30-year amortizations

The federal government is raising the cap on insured mortgages to $1.5 million and expanding access to extended mortgage amortization periods, a bid to tackle a housing affordability crisis that’s put home ownership out of reach of scores of Canadians.

Finance minister Chrystia Freeland said on Monday that the government was increasing the limit on insured mortgages from its previous level of $1 million and allowing home buyers to take out a 30-year loan if they’re buying for the first time or purchasing a newly built house.

The government had previously indicated that a 30-year amortization would only be available to first-time buyers who were purchasing a newly built home.

Freeland’s move to hike the insured cap addresses a longstanding mortgage industry grievance – namely, that the previous limit was freezing some buyers out of being able to purchase a home.

It means insurance, which is required for home purchases with a down payment of less than 20%, is now available to Canadians buying a property for up to $1.5 million.

That could prove significant in markets like Toronto and Vancouver, where average prices sit well over the $1 million mark – although eye watering price appreciation remains a major hurdle for many prospective buyers.

Freeland said the measures would “put the dream of home ownership in reach for more young Canadians,” and first-time buyers would be “in a stronger position” after the adjustments, also highlighting the prospect of an uptick in home building as a result.

Both changes are scheduled to come into effect on December 15.

Published by CMP

 

26 Aug

Residential Market Commentary – More room for rate relief

General

Posted by: Frank Fik

People hoping for more interest rate cuts from the Bank of Canada have been getting some good news.

On Friday the Chair of the U.S. Federal Reserve, Jerome Powell, announced the American central bank is ready to start trimming its policy rate and he hinted several cuts could be coming.

“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data,” he said at the Fed’s annual economic conference in Jackson Hole, Wyoming.

Powell did not say when rate cuts would begin, or how big they will be but it is widely expected there will be a quarter-point drop at the Fed’s next meeting in September.

Reductions in the Fed rate will give the Bank of Canada more room to cut rates here, without fear of overly devaluing the Loonie.  Canada has been leading the U.S. in reducing rates.  There have been concerns that could lower the value of the Canadian dollar, making things more expensive here and rekindling inflation.  Inflation in the U.S. is currently running at 2.5%.

Inflation in Canada took another dip in July falling to 2.5%, down from 2.7% in June.  Food and energy costs were the main drivers of inflation for the month.  Shelter inflation and mortgage interest costs remain high, but they are easing.  Many analysts say that clears the way for another quarter-point cut by the Bank of Canada in September.  There is a broad expectation the Bank will continue making 25 basis-point cuts for the rest of the year.

The BoC’s policy rate currently stands at 4.5%.

Published by First National Financial LP