12 Jan

What is Ahead: 2021 Forecast


Posted by: Alisa Aragon

By Alisa Aragon

2020 has been an unprecedented year, with so many changes and unknowns. COVID-19 has had a huge impact on our national economy, with the government having to step in, unemployment at a record high, lenders’ helping with mortgage payment deferrals and historically low interest rates. The continuous growth of the housing market is what is helping our economy recover.

The economic recovery will depend on the development of the pandemic and the vaccine. Economists are stating that extensive lockdown measures that we experienced early in the pandemic will not happen again, yet containment measures will be more localized and determined by the provincial governments. The Bank of Canada suggests that vaccines and effective treatment will be widely available by mid 2021. At that time, the direct effects of the pandemic on the economic activity will have ended, yet people will still be cautious and uncertain about COVID-19.

In addition, the Bank of Canada has committed to keeping the overnight rate at 0.25 per cent until the economic conditions be consistent with a “sustained” two per cent inflation rate. With the second wave of COVID cases and rolling shutdowns underway, this means a slow rebound of the economy in the coming quarters. It is very unlikely we will see inflation averaging above 2% or higher though 2022. The forecast for overnight rate by the Bank of Canada will remain at 0.25 per cent until 2023.

The announcement of Pfizer that they have a highly effective vaccine, and Moderna Inc stating that the COVID-19 vaccine as 94.5% effective in their preliminary analysis, has pushed up the US and Canadian bond yield, leading many to suggest a slight increase in fixed mortgage rates and discounts on variable rates may be reduced in the near future. This means that mortgage interest rates will still be at record lows, which will be a good time for buyers to get into the market and homeowners to refinance their mortgages at a lower interest rate.

On the other side, lenders are being more cautious about to whom they are approving mortgages. Lenders are looking at all mortgage applications and documentation a lot more closely. Additionally, more documentation is being requested by lenders to support the mortgage application. For borrowers whose income was affected in 2020 due to the pandemic, and usually get overtime, bonuses, or are self employed, their borrowing power will be less and this will affect how much they qualify for in 2021, as lenders use the two year average. If your income is not guaranteed the lender will ask more questions as well. Additionally, if the borrower has deferred payments whether they were mortgages, credit cards, loans, etc. The lender would want to make sure that you are making those payments again and explain the reason for the deferred payments. They want to make sure you are in a better financial position and will be able to make the payments in the future.

Typically, when applying for a mortgage there are quite a few documents that the lender requires, and do not be surprised if they ask for even more documents in the coming year.

Despite the fact that we are on the way to a slow recovery, the housing market continues to grow and interest rates continue to be at historic lows, it is best to have a strategy in place with the help of a Mortgage Expert that can advise you and assist you throughout the process based on your individual needs.

9 Dec

Budgeting for the Holidays


Posted by: Alisa Aragon

Everyone knows that it can be easy to go all out when it comes to the holidays. Unfortunately, this often means that you end up saddled with a bunch of holiday debt. To avoid a sleigh-size tab, plan ahead to save money and maximize the payoff! To help you make the most of the holiday season, I have put together a few tips for you:

1. Order Online – Most people already order online to avoid getting stuck in the hustle and bustle of holiday shoppers. However, before you do any transactions ensure that you are ordering from a secure and trusted source. Any websites that provide order tracking will also save you stress as you can keep an eye on your package and know when it will arrive!

2. Be Thrifty – Start early and keep an eye out for special sales! Many retailers have Black Friday and Cyber Monday sales, which can help you get a jumpstart on holiday shopping. Get inspired with coupons and get into the routine of flipping through flyers delivered to your home and online to get the most out of your money.

3. Trust Your Budget – Your budget keeps you on track during the rest of the year, so why not lean on it now? Starting the season with a plan and a maximum spending limit will help alleviate stress while shopping. There are plenty of free budget-tracking apps that connect right to your bank accounts and can be pulled out of your pocket for reference at any time – especially when you are feeling overwhelmed at the mall.

4. Get Crafty – Everyone appreciates the handmade touch in a gift, and DIY-ing this holiday can help you save money. There are wonderful options that can be found online, even for beginners. Examples include homemade wreaths, body scrubs, and fun photo scrapbooks that can be done alone or in a group, and you will end up with a gift that money can’t buy. If you are not sure where to find these clever and cost-effective ideas, Pinterest is a great place to start.

5. Give the Gift of Time – Instead of buying gifts, spend quality time with your friends and family while you give back to others, even if it is with a video call now with Covid-19. Sharing the experience and splitting the cost of hosting a dinner for a family in need will offset the cost of spending money on each person and double the amount of joy spread during the holidays. It feels good to pay in kind.

Whatever you choose to spend this holiday season, remember that the holidays are not solely about the gifts. The holidays are a time for celebration and creating memories; not for going into debt. This year make the most of the incredible holiday season YOUR way – within your own limits – and enjoy how much more affordable and less stressful it can be.

25 Nov

Pro tips for securing a mortgage


Posted by: Alisa Aragon

Vancouver has always been a challenging city to get a foot in the door. Add on a pandemic, and it gets even more complicated. HAVAN’s Home Buying Forum, typically held in-person each spring, but cancelled due to COVID-19, led to HAVAN producing a series of information videos to ensure first-time buyers have access to the knowledge they need to buy smarter.

HAVAN has captured the industry experts who typically present at the forum, in a series of nine 10-20 minute Home Buying 101 videos, packed with information and resources, to help people buy smarter.

Offering buying strategies, market knowledge, legal and mortgage advice, plus lots more, the videos are poised to help first-time buyers leverage their buying power. Record low interest rates and pent up demand from lack of spring sales has Vancouver poised to be a sellers market. It only makes sense to empower oneself.

I was invited to be in a video to talk about “Pro tips for securing a mortgage”.  Conducted by Shayne Ramsay, CEO of BC Housing, we discuss about interest rates and mortgages.

Check out the video series and share with your family and friends today!

10 Nov

Home Renovations: Reality vs. Television


Posted by: Alisa Aragon

Guest Blogger: HAVAN Member Alisa Aragon, Bridgestone Financing Pros

Home renovation shows are one of our favorite TV programs to watch. They are entertaining and showcase the latest design trends, but they also tend to lead viewers to believe home renovations are easy and quick.

It is important for homeowners to understand the realities when planning a home renovation.

1. The budget: Plan for all the costs

On television, the designer may have an $80,000 budget to renovate an entire main floor including the kitchen and finish the downstairs basement. The question is – are the numbers realistic? Do they include design fees, building permits, labour and material costs etc.

In order to have a realistic budget for your renovation, it is critical to work with a professional renovator to get a complete picture and reduce surprises. Do your research before you commit to a project or builder. A great source for proven renovators/ builders is an association such as Homebuilder Association Vancouver (www.havan.ca). Generally, if the price is too good to be true, it probably is, so don’t automatically go for the lowest price.

2. Timeline: Plan a realistic work schedule with your renovator

Reality shows complete renovations within a few short weeks. The homeowners come in and are mesmerized by the transformation. The reality however is that sometimes it can take up to eight weeks just for the kitchen cabinets to get built. Before you start your renovation, prepare a timeline with your renovator so you know what to expect. As they say, time is money, and you will want to know in advance the costs for each stage of the renovation and associated timelines.

3. Financing: Plan your financial strategy with a mortgage expert

Most home renovation shows do not talk about the financing aspect of the renovation. Before you commit to a renovation project, it is recommended to meet with a Mortgage Expert to help you assess your financial situation.

Every person’s financial needs and options are unique. Here are some options for consideration.

LINE OF CREDIT: While you are required to make payments on the interest only, many people are under the impression that they can manage paying the interest and go ahead with the renovations. The danger with using this type of financing is that eventually the principal must be paid and in the meantime, you end up paying huge interest costs.

HELOC: A “home equity line of credit” or HELOC typically will give you a lower interest rate than a line of credit, however you will need to have at least 35% of equity in your home to qualify (based on the current mortgage rules by the Bank Act). Currently, you can refinance up to 80% of the value of your home for a mortgage based on the appraised value.

REFINANCE YOUR MORTGAGE: With today’s low interest rates, you will end up paying a higher interest rate on a line of credit or HELOC, compared to a lower interest rate on a closed mortgage. You pay the principal and interest on a closed mortgage which potentially can save you thousands of dollars in interest compared to a line of credit or HELOC where you can pay interest only for the short term.

If you are unable to pay off the debt quickly, you might be better off to refinance your current mortgage. It might be more beneficial to get a one to five year locked mortgage below 3 per cent. You will be saving interest up front and can take advantage of the lender’s pre-payment privileges. If you currently have a fixed rate mortgage, find out what would be your penalty for paying it out early, it might still be worth it to refinance.

A professional renovator will work with you to create a detailed budget and timeline for your project so you know what to expect. As a Financing Expert, I will review your options and provide solutions to help you realize your dream renovation. Check out www.havan.ca for all your building, renovation and home buying resources.

26 Oct

Bank of Canada Will Stop Buying Canada Mortgage Bonds

Latest News

Posted by: Alisa Aragon

This Wednesday, the Bank of Canada will release its interest rate announcement and the October Monetary Policy Report. Most people expect the overnight rate to remain at 0.25%, where it has been since the pandemic hit. A few have suggested that the Bank could take a page from Australia and reduce overnight rates by 15 basis points. I don’t think so.

Canada’s economy is not as similar to Australia’s as you might think. Yes, both countries speak mostly English, are commodity exporters, and have a currency called the dollar. But that is where the similarities end. Australia is largely a supplier to China and East Asia, while the US dominates Canada’s exports. And our major resource is oil rather than metals. Most importantly, the Bank of Canada believes that lower rates would not be helpful, given the squeeze they put on the banking system’s workings.

The Bank has committed to staying at 0.25% until economic conditions would be consistent with a sustained 2% inflation rate. With the second wave of COVID cases and rolling shutdowns upon us, the economic rebound will slow in the coming quarters. Moreover, it is unlikely we will see inflation averaging above 2% or higher through 2022. The base case forecast for overnight rates by the Bank of Canada will remain at 0.25% until 2023 unless we see a miraculous end to the pandemic far sooner than most experts predict.

Where the Bank will make policy changes is in quantitative easing–the buying of financial assets to improve liquidity in financial markets. The Bank’s Governing Council has, for months, hinted at the need for the current structure of the QE program to be “calibrated.” While there have been few details on what this means, we interpret it to imply a move away from a QE program supporting ‘market-functioning’ to one that attempts to achieve a ‘monetary policy objective.’ To some degree, this has already started.

On October 15, the Bank announced it would retire the Repo purchase program, the Bankers’ Acceptance purchase Facility and the Canadian Mortgage Bond Purchase Program (CMBP). These areas of the Canadian fixed income market are fully functioning at present, and the Bank likely felt ongoing support was no longer necessary. The end of the CMBP got the attention of some mortgage market participants who argued it spelled the end of declining mortgage rates. I think this is a misinterpretation of the Bank’s actions.

As the chart below shows, the use of the CMBP has waned considerably since its introduction in March. It just isn’t needed any longer to assure liquidity in the CMB market. Since August, lenders have only been using about $70 to $190 million per week of the BoC’s $500 million capacity. The last time lenders fully utilized, it was in April when the emergency program was clearly needed. Ending this program should have little impact on mortgage rates.
“As overall financial market conditions continue to improve in Canada, usage in several of the Bank of Canada’s programs that support the functioning of key financial markets has declined significantly,” the Bank said in announcing the changes. The program, designed to provide much-needed liquidity to the banking system to keep credit flowing during the worst of the crisis, has “fallen into disuse as the stresses from the pandemic eased, and markets became much more self-sufficient.”

The move follows the bank’s decision a month ago to reduce its purchases of federal government treasury bills and similar short-term provincial money market debt, citing improvements in the health of short-term funding markets.

The CMB purchase program is also dwarfed by the Bank’s Government Bond Purchase Program (GBPP), as the chart below shows. “The central bank has pledged repeatedly that it will maintain the highest-profile of its emergency asset-buying programs – its minimum $5-billion-a-week purchases of Government of Canada bonds – until the [economic] recovery is well underway. It has also so far maintained its two programs to purchase provincial and corporate bonds, even though both programs’ demand has been far below original expectations.
Mortgage rates in Canada have an 85% correlation with the 5-year Government of Canada bond yield, which has fallen sharply over the course of the pandemic crisis.

Bottom Line

Of the three programs being wound down in the bank’s latest announcement, the biggest is the expanded term repo program, under which the central bank has purchased more than $200-billion of the short-term bank financing instruments since mid-March. The program hasn’t generated any purchases since mid-September.

The Bankers’ Acceptance Purchase Facility, involving short-term credit instruments typically used in international trade financing, was used heavily when introduced in March. Still, it hasn’t been tapped at all since late April. The central bank made about $47-billion in purchases under the program. However, all of those purchased assets have since reached maturity, meaning the central bank is no longer holding any bankers’ acceptances on its balance sheet.

The Canada Mortgage Bond Purchase Program predates the pandemic, but the Bank of Canada ramped up its purchases dramatically during the crisis. Since mid-March, it has accumulated about $8-billion of the bonds under its emergency measures through twice-weekly purchases directly from Canada Mortgage and Housing Corp. The size of the bank’s typical purchases in the past couple of months has been less than a quarter of what it was routinely buying in the spring.

These changes in the QE program will have little impact on interest rates and mortgage markets.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

2 Oct

Mortgage rates are at an all time low – here’s what you need to know


Posted by: Alisa Aragon

By Alisa Aragon

While COVID-19 has had a huge impact on the Canadian economy in the first half of this year, after businesses started reopening, the housing market began picking up. Many home buyers resumed their home searches, and homeowners looking at upsizing to a larger home started listing their homes for sale. With interest rates at historical lows, this is a good time for buyers to get into the market.

The Bank of Canada reviews its benchmark rate about eight times a year, depending on the state of the economy. However, the Bank of Canada made two unscheduled announcements reducing the overnight rate from 1.75 per cent at the beginning of March to 0.75 per cent, with another cut to 0.25 per cent. This was done to cushion the effects of the COVID-19 crisis on the economy in an effort to support the credit and financial system. This is the sharpest decline in the economy since the global economic crisis of 2008/2009 when the overnight rate was last at 0.25 per cent.

The new governor of the Bank of Canada, Tiff Macklem was “unusually clear” that interest rates will remain low for a long time. There are no plans to raise rates until capacity is absorbed, and inflation fits its two per cent target on a sustainable basis, which they estimate will take at least two years.

In addition, the qualifying interest rate was reduced from 4.94 per cent to 4.79 per cent which, to borrowers, means an increase in their borrowing power. To put this into perspective, in 2008, fixed rates were 5.99 per cent. This is much higher than the current qualifying rate of 4.79 per cent.

When you are purchasing a home with less than 20 per cent down payment, the mortgage will be an insured mortgage (also known as a high-ratio mortgage). The mortgage must be backed by Canada Mortgage Housing Corporation (CMHC), Genworth or Canada Guaranty. This insurance premium (also know as mortgage default insurance) is a one-time amount added to your final mortgage balance. This insurance protects the mortgage lender in case there is a loss in principal balance due to a mortgage foreclosure. Both the lender and the insurer need to approve the application. The maximum home price allowed is $999,999 and the maximum amortization is 25 years.

All insured mortgages need to qualify at the qualifying rate of 4.79 per cent. Once you find the right home, a Mortgage Expert will help you find the best mortgage with the best rate and terms. The rate that will be presented to you will be the “contract rate” which is what your mortgage payments will be based on.

All uninsured mortgages you must qualify using at the higher of two rates: the contract rate plus 2 per cent or the qualifying rate of 4.79 per cent. The application only needs to be approved by the mortgage lender and these mortgages can have up to a 30-year amortization.

As you start looking for a new home, and you get a mortgage remember that it is not about the maximum amount you qualify for, but what are you comfortable paying on a monthly basis.

As a Mortgage Expert, I can help you find the best mortgage with the best rate and terms based on your individual needs.

Article seen in New Home + Condo Guide:

Photo Credit: Getty Images/iStockphoto

15 Sep

Canadian Housing Market Sets Record Highs in August

Latest News

Posted by: Alisa Aragon

Today’s release of August housing data by the Canadian Real Estate Association (CREA) showed a blockbuster August with both sales and new listings hitting their highest levels in 40 years of data–exceeding the record July activity levels. This continues the rebound in housing that began four months ago.

National home sales rose a further 6.2% on a month-over-month (m-o-m) basis in August, raising them to another new all-time monthly record (see chart below).
Unlike the previous two months in which activity was up right across the country, sales in August were up in about 60% of local markets. Gains were led by the Greater Toronto Area (GTA) and British Columbia’s Lower Mainland. With ongoing supply shortages in so many parts of Canada, it is interesting to note that the GTA and Lower Mainland also saw a considerable amount of new supply become available in August.

Actual (not seasonally adjusted) sales activity posted a 33.5% y-o-y gain in August. It was a new record for the month of August, and the sixth-highest monthly sales figure of any month on record. Transactions were up compared to last August in almost all Canadian housing markets.

So far this year, over 340,000 homes have traded hands over the Canadian MLS Systems, which was up 0.8% from the same period in 2019 despite the COVID-19 pandemic-induced recession.

“It has been a record-setting summer in many housing markets across Canada as REALTORS® and their clients play catch up following the loss of so much of the 2020 spring market,” stated Costa Poulopoulos, Chair of CREA. “Many markets dealing with inventory shortages have been seeing fierce competition among buyers this summer; although, that was something that had been anticipated for 2020 prior to COVID-19. It really does seem that the spring market shifted into the summer”.

According to Shaun Cathcart, CREA’s Senior Economist, “Activity shows signs of moderating in September”.

New Listings

The number of newly listed homes posted a further 10.6% gain in August compared to July. New supply was up in close to three-quarters of local markets, led by gains in the Lower Mainland, GTA and Ottawa.

With the August increase in new supply outpacing the rise in sales for the first time since the rebound began in May, the national sales-to-new listings ratio eased to 69.4% in August compared to 72.3% posted in July. That said, it was still among the highest levels on record for this measure.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about a third of all local markets were in balanced market territory, measured as being within one standard deviation of their long-term average. The other two-thirds of markets were above long-term norms, in many cases well above.

The number of months of inventory is another important measure of the balance between sales and the supply of listings. It represents how long it would take to liquidate current inventories at the current rate of sales activity.

There were just 2.6 months of inventory on a national basis at the end of August 2020 – the lowest reading on record for this measure. At the local market level, a number of Ontario markets are now into weeks of inventory rather than months. So supply constraints are still prevalent in many parts of the country, especially in Ontario.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.7% m-o-m in August 2020 (see chart and table below). This compares to a 2.3% m-o-m jump in July 2020 – the second largest increase on record (after March 2017) going back 15 years. Of the 21 markets currently tracked by the index, m-o-m gains were posted everywhere but Victoria and elsewhere on Vancouver Island.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 9.4% on a y-o-y basis in August – the biggest gain since late 2017.
The largest y-o-y gains were recorded in Ottawa (+19.9%) and Montreal (+16.4%), followed by increases in the 10% – 15% range in the GTA and surrounding Greater Golden Horseshoe markets. Moncton prices were also up in that range in August.

Prices were fairly flat on a y-o-y basis in Calgary, Edmonton and St. John’s, while climbing in the 3.5% – 5.5% range across B.C.

The MLS® HPI provides the best way to gauge price trends because averages are strongly distorted by changes in the mix of sales activity from one month to the next.

The actual (not seasonally adjusted) national average home price set another record in August 2020 at more than $586,000, up 18.5% from the same month last year.

Bottom Line

CMHC forecasted back in May that the national average sales prices will fall 9%-to-18% in 2020 and not return to yearend-2019 levels until as late as 2022. Instead, the national average sales price as of August has posted a 18.5% gain.

Housing strength is largely attributable to pent-up demand by households that have maintained their level of income during the pandemic. The hardest-hit households are low-wage earners in the accommodation, food services, and travel sectors. These are the folks that can least afford it and typically are not homeowners.

The good news is that the housing market is contributing to the recovery in economic activity.
CMHC Annual Residential Mortgage Industry Report

The Residential Mortgage Industry report provides an in-depth view of the residential mortgage market in Canada: from mortgage origination to funding, covering insured and uninsured mortgages, and encompasses activity from all mortgage lender types. It is based on data available at the end of the second quarter of 2020. The following are key highlights:

Mortgage lender type trends

  • The report shows that in 2019, Canada’s big six banks maintained their strong foothold in the housing finance market, with a 67% market share of newly extended mortgages (see chart below).
  • Mortgage Finance Companies (MFCs) hold 20% of the insured mortgage space and credit unions stand at 12%.
  • Mortgage delinquencies of 90 days or more remained at low levels for all mortgage lender types, which suggests that a steady share of mortgage holders continued to be able to make their payments or were able to defer their mortgage payments.
  • MICs continued to represent 1% in nationwide outstanding mortgages, valued at approximately between $14 billion and $15 billion in mortgage debt.
  • Some MICs offered mortgage deferrals and other types of accommodations to financially strained mortgage consumers. An estimated 10% of mortgage consumers asked for a mortgage deferral.

Mortgage Funding Trends

  • Deposits continued to be the primary source of mortgage funding for the big six banks (66%) and credit unions (77%).
  • Covered bonds made up 17% of total mortgage funding for Canada’s big six banks at the end of the first quarter of 2020, representing an increase of 4% from 2019.
  • Private securitization continued to account for a very small share of the mortgage funding mix in Canada, with just 1.1%. However, the residential mortgage-backed securities market appears to be expanding.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

26 Aug

Help me raise funds to support Easter Seals!


Posted by: Alisa Aragon

How awesome does it feel to have a positive impact on the lives of others – especially those who need it most. I’m taking the leap!

This is for charity, so I am sending this email to you, to personally ask for your support to help me raise funds to support Easter Seals and their programs.

Covid-19 has had a devastating impact on charities’ ability to fund much needed community programs to support people in our communities who need support the most. Charitable fundraisers like Drop Zone are more important than ever to raise awareness and desperately needed funds.

On Tuesday, September 15th, I will be rappelling down 25 storeys of the Central City Office Tower in Drop Zone Surrey to raise much needed funds to support children, youth and adults with diverse abilities across BC and Yukon. With your support, Easter Seals will be able to continue to provide essential programs and services that help all people with diverse abilities address life’s challenges and gives them the tools to build their self-esteem, self-confidence and sense of independence. This is especially important and meaningful in today’s environment.

I don’t usually would not ask for your support with anything lie this, but this is an exception! I would really appreciate your support in reaching my fundraising goal. Every amount helps! It only takes a couple of minutes to give and have an impact. These programs simply cannot exist without the generous support of people like us. #Peerpressure #shamefulpitch #desperateplea

Last year the HAVAN Heroes team was able to raise over $23,000 for Easter Seals! Our goal is to top it this year, and I need your help to do so.

Visit this page to donate: https://eastersealsbcy.akaraisin.com/ui/dropzonebc2020/participant/6118104?Lang=en-CA

“I don’t want to live in the kind of world where we don’t look out for each other. Not just the people that are close to us, but anybody who needs a helping hand. I can’t change the way anybody else thinks, or what they choose to do, but I can do my bit.”charles de lint

Every donation helps:
• $47 is a day of nutritious snacks and meals for a camper
• $100 is a day at camp for a child with diverse abilities
• $400 supplies one week of art supplies at camp
• $500 supports employment and skills training programs

Thank you so much for your support in advance!

With gratitude,


15 May

Canadian Home Sales and New Listings Plunge in April


Posted by: Alisa Aragon

Record Declines in Canadian Home Sales and Listings in April

The pandemic shutdown has put every sector of the economy into a medically induced coma, so, of course, the housing sector is no exception. Data released this morning from the Canadian Real Estate Association (CREA) showed national home sales fell a record 56.8% in April, compared to an already depressed March, in the first full month of COVID-19 lockdown (see chart below). Transactions were down across the country.

Among Canada’s largest markets, sales fell by 66.2% in the Greater Toronto Area (GTA), 64.4% in Montreal, 57.9% in Greater Vancouver, 54.8% in the Fraser Valley, 53.1% in Calgary, 46.6% in Edmonton, 42% in Winnipeg, 59.8% in Hamilton-Burlington and 51.5% in Ottawa.

The residential real estate industry is not standing still, however. Technological innovation is creating new ways of buying and selling homes. According to Shaun Cathcart, CREA’s Chief Economist, “Preliminary data for May suggests things may have already started to pick up a bit for both sales and new listings, in line with evidence that realtors and their clients have adopted new and existing virtual technology tools. These tools have allowed quite a bit of essential business to safely continue, and will likely remain key for some time.”

I have heard agents discussing software that virtually “stages” properties, allowing potential buyers to see the possibilities of existing and renovated floor plans and options in decor and design. The software replaces the need for expensive “physical” staging and can be far more creative. Where there is challenge, there is opportunity, and the people that create and adopt these innovative virtual solutions could be big winners.

Keeping the lid on price pressures, the number of newly listed homes across Canada declined by 55.7% m-o-m in April. The Aggregate Composite MLS® Home Price Index declined by only 0.6% last month, the first decline since last May. While some downward pressure on prices is not surprising, the comparatively small change underscores the extent to which the bigger picture is that both buying and selling is currently on pause.

Mortgage Qualifying Rate Set To Drop

The mortgage qualifying rate, the so-called Big Bank posted rate, has been above 5% since the OSFI stress test began on January 1, 2018. Despite dramatic declines in the government of Canada bond yield, which currently hovers at a mere 0.388%, and a huge fall in contract mortgage rates, the banks have kept their posted rates elevated. The minimum stress test rate began in 2018 at 5.34%, then finally fell to 5.19% and more recently to 5.04%–all still at a historically wide margin above market-determined rates.

In the past week, RBC and BMO have cut their 5-year posted rates slightly further to 4.94%. If no other banks follow, the Bank of Canada’s OSFI stress test rate will fall to 4.99%. If at least one other bank goes to 4.94%, the qualifying rate will drop to 4.94%. Every little bit helps.

Highlights of the Bank of Canada ‘Financial System Review’ (FSR)

With the first news of the COVID-19 pandemic threat, the BoC report said that “uncertainty about just how bad things could get created shock waves in financial markets, leading to a widespread flight to cash and difficulty selling assets. Policy actions are working to:

  • restore market functioning
  • ensure that financial institutions have adequate liquidity
  • give Canadian households and businesses access to the credit they need”

The Bank of Canada’s actions have put a floor under the economy. These along with the federal government spending initiatives and the mortgage deferral program have cushioned the blow to households and businesses. Governor Poloz said, “our goal in the short-term is to help Canadian households and businesses bridge the crisis period. Our longer-term goal is to provide a strong foundation for a recovery in jobs and growth.”

With the economic outlook remaining highly uncertain, the BoC erred on the side of caution in projecting mortgage arrears and non-performing business loans based on the more severe economic scenario it laid out in the April Monetary Policy Report. The pessimistic reading would be that even with policymakers’ extraordinary actions, that scenario would see mortgage and business loan delinquencies eclipse previous peaks. A more optimistic reading would be that policy support has prevented a significantly worse outcome, and a resilient financial system will be able to absorb losses and leave the foundation in place for an eventual economic recovery. And, as Governor Poloz mentioned, a better economic scenario is still within reach as many provinces are beginning to gradually re-open their economies.

The projections in today’s FSR are based on a scenario in which Canadian GDP is 30% lower in Q2 and recovers slowly thereafter. In that scenario, mortgage arrears are projected to increase to 0.8% by mid-2021 from 0.25% at the end of 2019–nearly double the peak in arrears seen in 2009. Meanwhile, non-performing business loans are forecast to rise to 6.4% at the end of this year from 1% at the end of last year, significantly higher than past peaks of less than 5% in 2003 and 2010.

The upshot is that while we might see a significant increase in mortgage arrears and troubled loans over the next two years in this pessimistic economic scenario, these outcomes would have been much worse without the extraordinary programs that have been put in place to support businesses and households. That has important implications for the banking sector. The BoC’s analysis suggests that, with these policy measures, large bank’s existing capital buffers should be sufficient to absorb losses. Without those interventions, “banks would be faring much worse, with important negative effects on the availability of credit to households and businesses.”


  • 1 in 5 households don’t have enough cash or liquid assets to cover two months of mortgage payments
  • Government support programs (CERB payments and CEWS wage subsidies) will cover a large share of households’ “core” spending (food, shelter, and telecoms)
  • Loan payment deferrals (banks have allowed more than 700,000 households to delay mortgage payments) and new borrowing can help offset remaining income losses
  • Still, some households are likely to fall behind on their debt payments (first credit cards and auto loans, then mortgages)—something we’re already seeing in Alberta and Saskatchewan


  • There have been some signs of reduced funding stress in April: The Bank of Canada’s bankers’ acceptance program is shrinking, the drawdowns of credit lines have slowed as some borrowers are repaying, and corporate debt issuance picked up significantly in April after ceasing in March.
  • Surveys show higher-than-normal rejection rates for small- and medium-sized businesses requesting additional funding from financial institutions
  • Upcoming corporate debt refinancing needs are in line with historical levels, but many borrowers will face in increased costs of funds owing to elevated corporate risk spreads
  • Nearly three-quarters of investment-grade corporate bonds are rated BBB (the lowest investment grade rating)—downgrades would double the stock of high-yield debt and significantly increase funding costs for those borrowers
  • Firms in the industries most affected by COVID-19 tend to have smaller cash buffers, and a sharp drop in revenues will make it difficult to meet fixed costs including debt payments. What started as a cash flow problem could develop into a solvency issue for some businesses
  • The energy sector is facing particular challenges: it has had to rely more on credit lines, has the highest refinancing needs over the next six months and faces the most potential downgrades


  • BoC’s term repos have provided ample liquidity to the banking system and reduced funding costs, hence the drop in some banks’ posted and contract mortgage rates
  • Take-up of term repos has slowed in recent weeks—an indication of improved market functioning
  • Regulators have eased capital and liquidity requirements


  • The BoC’s asset purchases have helped improve liquidity in the key Government of Canada securities market (the baseline for many other bond markets)
  • The FSR made little mention of government debt sustainability, but in his press conference Governor Poloz noted that overall government debt levels are similar to 20 years ago, and federal debt is significantly lower, giving the federal government plenty of room to maneuver

Bottom Line:

Of course, the pandemic shutdown has strained the financial wherewithal of many households and businesses. That was deemed the price we must pay to mitigate the severe health threat and contain its spread. The BoC report acknowledges the economic fallout of the necessary measures and promises to take additional actions to assure the economy returns to its full potential growth path as soon as feasibly possible. Cushioning the blow for those most in need.

Nevertheless, there are businesses that will close permanently and others that will scoop up declining competitors. Some will benefit from the new opportunities created by social distancing, enhanced sanitation, remote activity, new forms of entertainment and advances in healthcare. Others will no doubt die, although many of these companies were at death’s door before the pandemic emerged. Creative destruction is always painful for the losers, but it opens the way for many new winners and those existing businesses and individuals that are creative enough to adapt quickly to the changing environment.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

8 May

Historic Job Losses in April in Canada As the Economy Bottoms


Posted by: Alisa Aragon

Pandemic Batters Canadian Jobs Market

The Canadian economy has been put in a medically induced coma. Never before in modern history have we seen a forced shutdown in the global economy so, not surprisingly, the incoming data for April is terrible. There is a good chance, however, that April will mark the bottom in economic activity as regions begin to ease restrictions.

The economy will revive, but the psychological shock is perhaps the most unnerving. Rest assured, however that, as severe as this is, there are real opportunities here along with the challenges. There are economic winners, not just losers. More on that later.

Employment in Canada collapsed in April, with 2 million jobs lost, taking the unemployment rate to 13.0%, just a tick below the prior postwar record of 13.2% in 1982 (see chart below). The record decline is on the heels of the 1 million job loss in March, bringing the cumulative two-month total to 15.7% of the pre-virus workforce.

Economists had been expecting double the job destruction–a 4 million position decline in April–in reaction to the reports that over 7 million Canadians had applied for CERB. Today’s news reflected labour market conditions during the week of April 12 to April 18. The applications for CERB are more recent, so we may well see these additional losses reflected in the May report.

The 13% unemployment rate underestimates the actual level of joblessness. In April, the unemployment rate would have been 17.8% if the labour force participation rate had not fallen. Compared to a year ago, there were 1.5 million more workers on permanent layoff not looking for work in April – and so not counted as unemployed.

Also, the number of people who were employed but worked less than half of their usual hours for reasons related to COVID-19 increased by 2.5 million from February to April. As of the week of April 12, the cumulative effect of the COVID-19 economic shutdown—the number of Canadians who were either not employed or working substantially reduced hours—was 5.5 million, or more than one-quarter of February’s employment level.

In April, both full-time (-1,472,000; -9.7%) and part-time (-522,000; -17.1%) employment fell. Cumulative losses since February totalled 1,946,000 (-12.5%) in full-time work and 1,059,000 (-29.6%) in part-time employment.

Decline In Employment is Unprecedented

The magnitude of the decline in employment since February (-15.7%) far exceeds declines observed in previous labour market downturns. For example, the deep 1981-1982 recession resulted in a total employment decline of 612,000 (-5.4%) over approximately 17 months.

More of the drop in employment now is the result of temporary layoffs. In April, almost all (97%) of the newly-unemployed were on temporary layoff, whereas in previous recessions, most of the dismissals were considered permanent.

In April, more than one-third (36.7%) of the potential labour force did not work or worked less than half of their usual hours, illustrating the continuing impact of the COVID-19 economic shutdown on the labour market. But job losses were also still weighted, on balance, more heavily in lower-wage jobs. Average wage growth for those remaining in employment spiked sharply higher as a result to 11% above year-ago levels.

All provinces have been hard-hit

Employment declined in all provinces for the second month in a row. Compared with February, employment dropped by more than 10% in all regions, led by Quebec (-18.7% or -821,000).  Quebec leads the country in the number of COVID-19 cases and deaths.

The unemployment rate rose markedly in all provinces in April. In Quebec, the rate rose to 17.0%, the highest level since comparable data became available in 1976, and the highest among all provinces (see table below). The number of unemployed people increased at a faster pace in Quebec (+101.0% or +367,000) than in other regions.

Employment dropped sharply from February to April in each of Canada’s three largest census metropolitan areas (CMAs). As a proportion of February employment, Montréal recorded the largest decline (-18.0%; -404,000), followed by Vancouver (-17.4%; -256,000) and Toronto (-15.2%; -539,000).

In Montréal, the unemployment rate was 18.2% in April, an increase of 13.4 percentage points since February. In comparison, the unemployment rate in Montréal peaked at 10.2% during the 2008/2009 recession. In Toronto, the unemployment rate was 11.1% in April (up 5.6 percentage points since February), and in Vancouver, it was 10.8% (up 6.2 percentage points).

Employment Losses By Sector

In March, almost all employment losses were in the services-producing sector. In April, by contrast, employment losses were proportionally larger in goods (-15.8%; -621,000) than in services (-9.6%; -1.4 million). Losses in the goods-producing sector were led by construction (-314,000; -21.1%) and manufacturing (-267,000; -15.7%).

Within the services sector, employment losses continued in several industries, led by wholesale and retail trade (-375,000; -14.0%) and accommodation and food services (-321,000; -34.3%).

Industries that continued to be relatively less affected by the COVID-19 economic shutdown included utilities; public administration; and finance, insurance and real estate.

In both the services-producing and the goods-producing sectors, the employment decreases observed in the two months since February were proportionally larger than the losses observed during each of the three significant labour market downturns since 1980.

As economic activity resumes industry by industry following the COVID-19 economic shutdown, the time required for recovery will be a critical question.

After the previous downturns, employment in services recovered relatively quickly, returning to pre-downturn levels in an average of four months. On the other hand, it took an average of more than six years for goods-producing employment to return to pre-recession levels following the 1981-1982 and 1990-1992 recessions. After the 2008-2009 global financial crisis, it took 10 years for employment in the goods-producing sector to return to pre-crisis levels.

Green Shoots

As bad as things are, there is some evidence that the economy is approaching a bottom. Business shutdowns are easing in most provinces, and while it will be some time before we see a complete reopening, early signs of improvement are evident. Business sentiment appears to have improved somewhat towards the end of April, as evidenced by data from the Canadian Federation of Independent Business. The Royal Bank economists report that credit card spending looked less weak at the end of April. Housing starts for April held up better than expected. And, most importantly, the spread of Coronavirus has eased, and regions are starting to relax some of the rules to flatten the curve.

Concerning the housing market, before the pandemic, we were going into the spring season with the prospect of record sales activity in much of the country. Aside from oil country–Alberta and Saskatchewan–all indications were for a red-hot housing market. So the underlying fundamentals for housing remain positive as the economy recovers. How long that will take depends on the course of the virus and whether we see a second wave in late fall.

Interest rates have plummeted. Thanks to the 150 basis point decline in the prime rate, variable rate mortgage rates have fallen for the first time since late 2018. Once the Bank of Canada was able to establish enough liquidity in financial markets, even fixed-rate mortgage rates have fallen.

The posted mortgage rate appears stuck at 5.04%, far above contract rates; but with any luck at all, this qualifying rate for mortgage stress tests will ease in the coming months. The Bank of Canada will remain extremely accommodating. In my view, interest rates will not rise until 2022.

Opportunities–There Will Be Winners

Even now, some businesses are enjoying a surge in revenues and profitability. Just to put a more positive note on this period of rapid change, I jotted down a list of companies that are thriving. Top of the list is Shopify, a Canadian company that helps businesses provide online shopping services. Shopify is now the most highly valued company in Canada, as measured by its stock market valuation, surpassing the Royal Bank.

Many who never relied on online shopping have become converts during the lock-down. Amazon is another business that is benefiting, but Amazon needs more competition, and many Canadians would welcome some homegrown online rivals.

Loblaws, with its groceries and drug stores, is booming. So are the cleaning products companies like Clorox and paper products company Kimberly Clark. Staying at home has boosted sales at Wayfair, the online furniture and home products site. Peloton and suppliers of dumbbells and other fitness equipment are seeing increased revenues as people look for in-home alternatives to the locked-down gyms and health clubs.

Demand for cloud services has boosted revenues at Microsoft and Dropbox. Home entertainment is booming, think Netflix and YouTube. Zoom and Cisco (Webex) are also big winners. Qualcomm stands to gain from a more rapid move to 5G. And Accenture and Booz Allen, among other business and government consultants, are busy helping companies reinvent their operations in a post-pandemic world.

In times of enormous uncertainty and volatility, people need expert advice and hand-holding, particularly concerning their finances. That’s where mortgage professionals come in along with financial planners, realtors, accountants and tax lawyers.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres