7 Sep

Bank of Canada leaves its benchmark interest rate at 5.0%

General

Posted by: Frank Fik

Under the heading no news is good news, the Bank of Canada decided today to keep its benchmark (overnight) interest rate steady at 5.00%, putting at least a temporary hold on a policy that resulted in 10 increases stretching back to March 2022.

At the Bank’s last meeting in July, it raised the rate 0.25% due to what it said was evidence of more persistent excess demand and elevated core inflation.

Today’s announcement from the Bank struck a similar tone but with a different outcome. We highlight its latest observations below:

Canadian housing and economic performance

  • Canada’s economy has entered a period of weaker growth, which the Bank says “is needed to relieve price pressures”
  • Economic growth slowed sharply in the second quarter of 2023, with output contracting by 0.2% at an annualized rate, reflecting “a marked weakening” in consumption growth and a decline in housing activity, as well as the impact of wildfires in many regions of the country
  • Household credit growth slowed as the impact of higher rates restrained spending among a wider range of borrowers
  • Final domestic demand grew by 1% in the second quarter, supported by government spending and a boost to business investment
  • “Tightness” in the labour market has continued to ease gradually, but wage growth has remained around 4% to 5%

Inflation facts and outlook

  • Recent Consumer Price (CPI) data indicate that inflationary pressures remain broad based
  • After easing to 2.8% in June, CPI inflation moved up to 3.3% in July, averaging close to 3% in line with the Bank’s projection
  • With the recent increase in gasoline prices, CPI inflation is expected to be “higher in the near term” before easing again
  • Year-over-year and three-month measures of core inflation are now both running at about 3.5%, indicating there has been little recent downward momentum in underlying inflation
  • The longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability

Global economic indicators

  • Global growth slowed in the second quarter of 2023, largely reflecting a significant deceleration in China
  • With ongoing weakness in the property sector undermining confidence, growth prospects in China have diminished
  • In the United States, growth was stronger than expected, led by robust consumer spending
  • In Europe, strength in the service sector supported growth, offsetting an ongoing contraction in manufacturing
  • Global bond yields have risen, reflecting higher real interest rates, and international oil prices are higher than was assumed in the Bank’s July Monetary Policy Report (MPR).

Summary and outlook

In summarizing today’s decision, the Bank said “with recent evidence that excess demand in the economy is easing,” and given the lagged effects of monetary policy, Governing Council decided to hold its policy interest rate at 5% and continue to normalize the Bank’s balance sheet.

However, the Bank also noted that it remains concerned about the “persistence of underlying inflationary pressures,” and is prepared to “increase the policy interest rate further if needed.”

Governing Council noted it will continue to assess the dynamics of core inflation and the outlook for CPI inflation. In particular, it noted it will evaluate whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behavior are consistent with achieving the Bank’s 2% inflation target.

Once again, the Bank repeated its mantra of remaining “resolute in its commitment to restoring price stability for Canadians.“

Stay tuned

The Bank’s next scheduled policy announcement – the second last of 2023 – is set for October 25th.

Published by First National Financial LP

5 Sep

Residential Market Commentary – New interest rate outlook

General

Posted by: Frank Fik

The latest reading on Canada’s economy has triggered a quick turnaround in expectations about the Bank of Canada’s course on interest rates.

The latest reading by Statistics Canada shows economic growth slowed markedly in the second quarter.  Gross Domestic Product – which is the total value of all goods and services produced in the economy – contracted by 0.2% in the April to June period.  Forecasters had been calling for a 1.2% increase.  The Bank of Canada had been projecting a 1.5% increase.

StatsCan also downgraded its Q1 growth rate from 3.1% to 2.6%.  Early estimates for July show the month coming in flat.

The report adds to the evidence that the Bank of Canada’s high interest rate policy is having its intended effect.  StatsCan’s latest, monthly jobs report showed the unemployment rate increased to 5.5% in July.

Two key factors led the decline in GDP.  Household spending, which has been a prime target of the interest rate policy, grew by just 0.1% compared with a 2.5% increase in the first quarter.

Housing also saw significant declines.  Investment was down 2.1% quarter-over-quarter.  New construction fell 8.2%.

Most market watchers now believe the Bank of Canada will step to the sidelines for the rest of the year.  Just last month, many analysts were calling for one more quarter-point increase before the end of 2023.  The Bank’s current policy rate is 5.0%.

Published by First National Financial LP

14 Aug

Residential Market Commentary – Inflation projections

General

Posted by: Frank Fik

New reports on a number of the key components that feed into the Bank of Canada’s interest rate decisions are out this week.  The one that will be getting the most attention is the inflation reading for July.

It is expected there will be a small up-tick in the Consumer Price Index – or headline inflation – from 2.8% to 2.9%.  Analysts point to rising energy costs as the main reason for the increase.  However, that rate does remain inside the Bank’s 1.0% to 3.0% target range.

Food price increases will also contribute, but they are expected to moderate as commodity prices decline and supply chains continue to improve.

Of course, the central bank will be paying closer attention to core inflation which has been frustratingly “sticky”.  The increase in core inflation (which excludes volatile items like food and fuel) are expected to slow from 3.5% to 3.0%.  Some of that decline is due to the big increase that hit in April no longer being part of the three-month rolling average.

Mortgage interest costs continue to account for a disproportionate amount of CPI growth (almost a third of total growth).  But the BoC will likely look past that component since it is a direct result of higher interest rates.

The July home sales and housing starts are also due out this week.

The Bank of Canada’s next rate announcement is set for September 6.

Published by First National Financial LP

1 Aug

Residential Market Commentary – GDP and interest rate predictions

General

Posted by: Frank Fik

One of the closely watched components in the Bank of Canada’s interest rate setting process missed growth expectations, but was still up on a month-over-month basis.

The country’s Gross Domestic Product rose by 0.3% in May, less than the 0.4% that had been forecast, but up from 0.1% in April.  (April’s growth rate was revised upward from flat.)

Initial estimates for June suggest GDP, which is the total value of all goods and services produced by the economy, will actually shrink by 0.2%.  If that happens economic growth for the second quarter will come in at around 1.2%, down from 3.4% in the first quarter.  It would also be below the Bank of Canada’s 1.5% forecast.

Those numbers appear to be what the central bank has been trying to achieve with its inflation-fighting interest rate policy.  Several prominent economists are now predicting that the Bank will not be raising its trend-setting Policy Rate at its next setting in September.

There is not a consensus on that forecast though.  A number of market watchers point to transitory shocks that have temporarily slowed the economy in recent months including: the federal public service strike, the B.C. ports strike and the wildfires across the country.

Many of them also point out that the labour market remains tight and wage gains are running in the 4.0% – 5.0% range.  As well, core inflation remains stubbornly sticky, holding in the 3.5% area.

The Bank of Canada rate currently stands at 5.0%.  The next rate announcement is set for September 6th.

Published by First National Financial LP

18 Jul

Residential Market Commentary – Housing market softens

General

Posted by: Frank Fik

Home sales and prices moderated in June according to the latest numbers from the Canadian Real Estate Association and the organization is downgrading its forecast for the longer term.

Sales crept up 1.5% in June compared to May and were 4.7% higher than a year earlier.  But there has been a continuing month-over-month slowing of sales growth since the peak in April.  Nearly 43,500 properties changed hands in June.

The national average home price came in at a little more than $702,000 last month, up 6.7% from a year ago.  But it is a notable drop from $720,000 reported in May.  Taking the biggest, busiest and most expensive markets – Toronto and Vancouver – out of the calculation drops June’s average price to about $672,000.

CREA’s preferred price measurement, the Aggregate Composite Home Price Index, rose 2.0% over May but is 4.5% lower than a year ago.

The bigger story according to CREA is the ongoing increase in new listings.  The number of homes added to inventory in June climbed by

5.9% compared to May, building on last month’s 7.6% gain and the 3.1% rise in April.

The bigger inventory and a sense of growing uncertainty, triggered by rising interest rates, has CREA updating its price and sales forecasts for the rest of this year.  The association has dropped its sales projection to just over 464,000 transactions in 2023, a 6.8% drop from last year.  The national average home price is expected to decline 0.2%, to about $702,400, with slower increases going forward.

Published by First National Financial LP

28 Jun

Empowering Aging in Place with the CHIP Reverse Mortgage

General

Posted by: Frank Fik

As we age, maintaining independence and staying in the home we love can be a challenge, especially when faced with reduced mobility and the need for costly home modifications and personal care services. However, with the CHIP Reverse Mortgage by HomeEquity Bank, aging in place becomes more feasible and attainable. Here are three ways in which this unique financial solution can support you:

  1. Enhance your home for accessibility and enjoyment.

The CHIP Reverse Mortgage enables you to make essential home improvements that improve accessibility, safety, and overall livability. For example, you can adjust electrical switches and outlets to a more comfortable height, eliminating the need for reaching overhead. You can also plan for features like relocating the laundry room from the basement to the main floor to facilitate single-level living.

2. Afford the convenience of at-home care.

With funds from the CHIP Reverse Mortgage, you can access financial resources to help with various at-home care needs. From hiring a cleaning crew to maintain your house regularly to securing 24/7 in-home caregivers, the funds provide the means to ensure you receive the necessary assistance and support.

3. Support for transitioning into assisted living or long-term care.

If your spouse or a loved one needs to move into assisted living or long-term care, the CHIP Reverse Mortgage can alleviate the financial strain of the transition. The funds can be used to pay for accommodation and meals, known as co-payment fees, ensuring that your loved one receives the care they need.

Ease financial burdens with the CHIP Reverse Mortgage

The CHIP Reverse Mortgage by HomeEquity Bank allows Canadians aged 55 + to unlock up to 55% of their home’s equity as tax-free cash. This enables you to revitalize your living space, afford at-home care services, or support your spouse’s transition to assisted living or long-term care. What’s more, there are no required monthly mortgage payments until you decide to move or sell your home.

Contact me today to discover how the CHIP Reverse Mortgage can empower your journey of aging in place.

 

Published by HomeEquity Bank

19 Jun

Residential Market Commentary – Strong market in May

General

Posted by: Frank Fik

The residential real estate surge that started in April carried through May. The latest numbers from the Canadian Real Estate Association show both sales and prices continued to rise.

May saw a 5.1% increase in sales compared to April. (April recorded an 11.3% increase over March.) And May sales were up 1.4% over a year earlier. While that is a small gain CREA says it is notable because it is the first national year-over-year sales increase since June 2021.

The national average home price in May rose to $720,000, a 3.2% increase compared to a year earlier. It is the first year-over-year gain in this measure in 12 months. Greater Toronto and Greater Vancouver continue to have an outsized influence on the national average price. When those two markets are taken out of the calculation the price drops to about $579,000.

CREA’s preferred measure of pricing, the Aggregate Composite MLS Home Price Index, climbed 2.1% on a month-over-month basis in May. However, it remains 8.6% below 2022 levels.

There was a significant jump in new listings in May, up 6.8% from April. However, that barely kept pace with the sales increase and new listings remain at historically low levels. The sales-to-new listings ratio was 67.9%, little changed from 69% in April, and firmly favouring sellers. The long-term average is 55.1%.

How long this market rebound will last remains a point of speculation.

Published by First National Financial LP

9 May

Residential Market Commentary – Spring market activity begins to bloom

General

Posted by: Frank Fik

Early reports from real estate boards across the country suggest spring is bringing renewed life to Canada’s housing market.  Activity, on both the buying and selling sides, was up in several major centres in April, compared to March.

House hunters appear to be encouraged by the Bank of Canada’s pause to interest rate increases.  But Canada’s interest rate policy is not entirely within its own control.  Bank of Canada governor Tiff Macklem has warned that further turmoil in global banking could bring the BoC off the sidelines, and he has not ruled out further rate hikes.

Sellers may be returning based on a sense that price declines have bottomed out and they are listing their property into a rising market.  New listings are still not keeping up with demand and competition for properties remains stiff – which often results in bidding wars.  That combined with current, higher interest rates means affordability remains a major roadblock to home ownership, especially for first-time buyers.

Despite the recent month-over-month gains and, seemingly, on-going price pressures both the Canadian Real Estate Association and the Canada Mortgage and Housing Corporation are forecasting an overall price decline for 2023, compared to the peaks hit in 2022.  However, neither organization expects prices to drop back to pre-pandemic levels.  Both are calling for a resumption of price increases in 2024.

CREA and CMHC point to increasing immigration as a key driver of housing demand.  CMHC is also forecasting a decline in construction of new homes.  It cites on-going labour shortages, the high cost of materials and higher financing costs brought on by higher interest rates.

Published by First National Financial

1 May

Residential Market Commentary – The economy slows down

General

Posted by: Frank Fik

The latest measure of Canada’s economy suggests that the widely anticipated slowdown is arriving.

Statistics Canada reports that Gross Domestic Product (GDP) grew by a mere 0.1% in February, down from 0.6% in January.  GDP is the total value of all goods and services produced by the economy.

That kind of pullback would normally be seen as bad news, but it is what the Bank of Canada has been hoping for as it works to bring inflation under control.  The central bank has been raising interest rates in an effort to discourage borrowing and buying. The slowing economy suggests that it is working.  With people and businesses buying less stuff, supply should be able to catch up to demand and price increases should also ease.

It also means the BoC is under less pressure to continue raising rates, which will be welcome news for anyone shopping for a mortgage.  Many market watchers expect the latest GDP numbers will keep interest rate hikes on ‘pause’ for the rest of the year.

Early estimates for the March GDP reading have the economy actually contracting by 0.1%.  April GDP is also expected to be weak, due to the federal workers’ strike.

Currently, the Canadian economy is growing at an annualized rate of 2.5%, which is in line with Bank of Canada estimates.  But analysts say the slowdowns forecast for March and April will likely mean flat or negative GDP readings for the second quarter of this year.

The contraction is not expected to be big enough to trigger interest rate cuts.

Published by First National Financial LP

20 Apr

Are you in the “Gig Economy” and trying to get a mortgage approval?

General

Posted by: Frank Fik

WHAT IS THE GIG ECONOMY?

A gig, by definition, is a temporary job. The gig economy is characterized by people working as independent contractors or freelancers­ or in short-term contracts, possibly for more than one employer.

It’s a shift from the traditional trend of the employer-employee relationship towards one defined by independent workers and self-management. Think on-demand, small bites of work; think Upwork, Fiverr, Uber, Etsy, Airbnb, and TaskRabbit.

It’s where we see workers trading the security and benefits of being an employee for the flexibility of being self-employed or working on demand. These days, where there are labour shortages in many industries, gig workers are finding it easier than ever to pick up work. A recent Statistics Canada report highlights a particular uptick in digital platform employment, which connects customers and service providers through a digital platform.

What is a Gig Worker?

A gig worker can be anyone at any age. It might be someone supplementing another job or working part-time. It could be an entrepreneur who enjoys the flexibility of self-employment. Perhaps it’s someone doing what they need to do to provide for their family.

Gig workers also blur the lines of traditional roles. Students and stay-at-home moms are dipping their toes into gig economy jobs, earning on the side because they don’t have to commit to full-time jobs. They can drop off their kids at school and pick up some fares as a driver with a ride-share service like Uber.

HOW DOES GIG WORK AFFECT MORTGAGE ELIGIBILITY?

Most mortgage lenders want to see a history of consistent income with a likelihood of the same in the future. Consistent employment is the best way to demonstrate that, especially when applying for a mortgage. Good credit scores and a clean credit history can also be important, but showing a consistent and steady income is one of the most significant factors in securing a mortgage.

Gig work doesn’t provide a single, steady paycheque from the same employer, which most A lenders prefer when evaluating a mortgage deal. That doesn’t mean a gig worker can’t qualify for a mortgage. Using a mortgage broker and looking at alternative lenders are great options for people with less traditional sources of income.

Published by Bridgewater Bank