8 Oct

Great News On The Canadian Job Front

General

Posted by: Alisa Aragon-Lloyd

Blockbuster September Jobs Report – Further Fuel For Rising Interest Rates

Statistics Canada released the September Labour Force Survey this morning, providing some unmitigated good news on the jobs front. Employment rose by 157,000 (+0.8%) in September, the fourth consecutive monthly increase. The unemployment rate fell by 0.2 percentage points to 6.9%.
Employment gains in September were concentrated in full-time work and among people in the core working-age group of 25 to 54. Increases were spread across multiple industries and provinces.

Employment gains in the month were split between the public-sector (+78,000; +1.9%) and the private-sector (+98,000; +0.8%).

Employment increased in six provinces in September: Ontario, Quebec, Alberta, Manitoba, New Brunswick and Saskatchewan.

Service-sector increases (+142,000) were led by public administration (+37,000), information, culture and recreation (+33,000) and professional, scientific and technical services (+30,000).

Employment in accommodation and food services fell for the first time in five months (-27,000).

While employment in manufacturing (+22,000) and natural resources (+6,600) increased, there was little overall change in the goods-producing sector.

The gains in September brought employment back to the same level as in February 2020, just before the onset of the pandemic. However, the employment rate—that is, the proportion of the population aged 15 and older employed—was 60.9% in September, 0.9 percentage points lower than in February 2020, due to population growth of 1.4% over the past 19 months.

The number of employed people working less than half their usual hours was little changed in September and remained 218,000 higher (+26.8%) than in February 2020. Total hours worked were up 1.1% in September but were 1.5% below their pre-pandemic level.

Among 15-to-69-year-olds who worked at least half their usual hours, the proportion working from home was little changed in September at 23.8%. The ratio who worked from home was lowest in Saskatchewan (12.3%) and Newfoundland and Labrador (12.8%), and highest in Ontario (28.7%). Overall, at the national level, the proportion of workers who worked from home was higher in urban areas (25.2%) than in rural areas (15.9%).

In September 2021, 4.1 million Canadians who worked at least half their usual hours worked from home, similar to the level recorded in September 2020.

The unemployment rate declined for the fourth consecutive month in September, falling 0.2 percentage points to 6.9%, the lowest rate since the onset of the pandemic. The unemployment rate peaked at 13.7% in May 2020 and has trended downward since, with some short-term increases during the late fall of 2020 and spring of 2021, coinciding with the tightening of public health restrictions. In the months leading up to the pandemic, the unemployment rate had hovered around historic lows and was 5.7% in February 2020.
The adjusted unemployment rate—which includes those who wanted a job but did not look for one—was 8.9% in September, down 0.2 percentage points from one month earlier.

Long-term unemployment—the number of people continuously unemployed for 27 weeks or more—was little changed in September. There were 389,000 long-term unemployed, more than double the number in February 2020.

The ability of the long-term unemployed to transition to employment may be influenced by several factors, including their level of education and current labour market conditions. For example, those with no post-secondary education face a labour market where employment in occupations not requiring post-secondary education was 287,000 lower in September 2021 than in September 2019 (not seasonally adjusted).

Bottom Line

The Bank of Canada has repeatedly suggested that it would not begin to tighten monetary policy until the economy returned to full capacity utilization, which they estimate will not be until at least the second half of next year. Employment will need to surpass pre-pandemic levels before complete recovery is declared because the population had grown since the start of the crisis 19 months ago.

Substantial job losses remain in the hardest-hit sectors. The chart below shows the employment change in percentage terms by sector compared with February 2020.

Sectors where remote work has been widespread–such as professional, scientific and technical services, public administration, finance, insurance and real estate–have seen a net gain in employment. However, in high-touch sectors that were deemed nonessential, the jobs recovery has been far more constrained. This is especially true in agriculture, accommodation and food services, and recreation. Ironically, these sectors have high job vacancy rates as many formerly employed here are reluctant to return. Enhanced benefits and compensation in these sectors will help.

Just this week, the BoC Governor Tiff Macklem reiterated that widespread inflation pressures are likely to remain at least until the end of this year. Most are reflective of global supply chain disruptions as well as extreme weather events. Just how long these will last is uncertain, but tighter monetary policy would have little impact on this type of inflation.

Nevertheless, bond markets have sold off worldwide in response to inflation fears and the annual US debt-ceiling antics. The final chart below shows the steepening of the Canadian yield curve since one year ago. The 5-year bond yield has risen sharply over that period, from 0.378% to a current level today of 1.205%. It is no surprise that 5-year fixed mortgage rates are rising.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

19 Aug

Annual Inflation Hits 3.7% in Canada – A New Election

General

Posted by: Alisa Aragon-Lloyd

This morning’s Stats Canada release showed that the July CPI surged to a 3.7% year-over-year pace, well above the 3.1% pace recorded in June. This is now the fourth consecutive month in which inflation is above the1% to 3% target band of the Bank of Canada. And given the flash election, opposition parties are already making hay. “The numbers released today make it clear that under Justin Trudeau, Canadians are experiencing a cost of living crisis,” Conservative Leader Erin O’Toole said in a statement. He went on to suggest that the Liberal government is stoking inflation with its debt-financed government spending programs.

While it is true that deficit spending has surged during the pandemic, the same is also true for nearly every country in the world. Moreover, accelerating inflation is a global phenomenon and most central banks believe it to be temporary. Certainly, Tiff Macklem is firmly of that view, as is the Fed Chair Jerome Powell.

Supply disruptions and base effects have largely caused the rise in inflation. Semiconductor production, for example, slumped during the 2020 lockdowns, and then couldn’t be ramped up fast enough when demand for cars and electronics returned, leading the prices of new and used autos to rise at a record pace. Prices for airfares and hotel stays also jumped. Companies found themselves short of workers as they reopened, leading some to offer bonuses or boost wages and subsequently raise prices for consumers.

Central bankers believe that the price pressures are transitory, representing temporary shocks associated with the reopening of the economy. Lumber prices, for example, spiked when demand for new homes returned and have since normalized (see the chart below). To be sure, above-target inflation has heightened uncertainty. The central banks do not want to choke off the economic recovery through misplaced inflation fears. Many Canadians remain out of work, and long-term unemployment is still very high. Moreover, the recent surge of the delta variant proves that the recovery is uncertain.

Governor Tiff Macklem, whose latest forecasts show inflation creeping up to 3.9% in the third quarter before easing at the end of the year, has warned against overreacting to the “temporary” spike.

Shelter Prices Rising Fastest

Prices rose faster year over year in six of the eight major components of Canadian inflation in July, with shelter prices contributing the most to the all-items increase. Conversely, prices for clothing and footwear and alcoholic beverages, tobacco products and recreational cannabis slowed on a year-over-year basis in July compared with June.Year over year, gasoline prices rose less in July (+30.9%) than in June (+32.0%). A base-year effect continued to impact the gasoline index, as prices in July 2020 increased 4.4% on a month-over-month basis when many businesses and services reopened.

In July 2021, gasoline prices increased 3.5% month over month, as oil production by OPEC+ (countries from the Organization of Petroleum Exporting Countries Plus) remained below pre-pandemic levels though global demand increased.

The homeowners’ replacement cost index, which is related to the price of new homes, continued to trend upward, rising 13.8% year over year in July, the largest yearly increase since October 1987.
Similarly, the other owned accommodation expenses index, which includes commission fees on the sale of real estate, was up 13.4% year over year in July.

Year-over-year price growth for goods rose at a faster pace in July (+5.0%) than in June (+4.5%), with durable goods (+5.0%) accelerating the most. The purchase of passenger vehicles index contributed the most to the increase, rising 5.5% year over year in July. The gain was partially attributable to the global shortage of semiconductor chips.

Prices for upholstered furniture rose 13.4% year over year in July, largely due to lower supply and higher input costs.

Core Measures

The average of core inflation readings, a better gauge of underlying price pressures, rose to 2.47% in July, the highest since 2009.

Monthly, prices rose 0.6% versus a consensus estimate of 0.3%. Rising costs to own a home are one of the biggest contributors to the elevated inflation rate, following a surge in real-estate prices over the past year.

Bottom Line

Today’s inflation data likely did little to alter the Bank of Canada’s view that above-target inflation will be a transitory phenomenon. They are already ahead of most central banks in tapering the stimulus coming from quantitative easing. They do not expect to start increasing interest rates until the labour markets have returned to full employment, which they judge to occur in the second half of 2022. In the meantime, pent-up demand in Canada is huge as people tap into their involuntary savings during the lockdown to pay higher prices at restaurants, grocery stores and gas stations. Financial markets appear to be sanguine about the prospect for rate hikes, as bond yields have been trading in a very narrow range.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

26 Jul

New Stress Test, First Responder Program and Enhanced First Time Buyer Program

General

Posted by: Alisa Aragon-Lloyd

* New Stress test Rules

As expected, the Office of the Superintendent of Financial Institutions (OFSI) confirmed that it will move ahead with the proposed new stress test which was announced in April. This will affect any uninsured mortgages which would affect anyone buying a property with more than 20% down payment, or anyone refinancing their mortgage.

However, it was not expected that the Department of Finance is following OFSI’s lead and applying the new stress test to insured mortgages this now will affect anyone buying a property with less than 20% down payment and are required to have mortgage default insurance.

This means that when applying for a new mortgage or refinance your mortgage whether it is insured or uninsured, you will have to qualify with the new stress test. Borrowers will now have to qualify (show that they can afford the payments) based on the higher of the contract rate (the rate that you will be paying) plus 2% or a new floor rate of 5.25%, previously at 4.79%.

The government, who regulates mortgages are concerned with the hot housing market and this is one way to slow down the market. There are other ways that can slow down the market such as increase interest rates however that will have a negative impact on the overall economy.

What does this mean to you?

This means that the biggest impact to you, will be on the amount that you will be able to qualify for.

The increase of the new stress test will decrease the borrowing power by approximately 4% to 4.5%. For example: prior to the change, a borrower could qualify to purchase a home for $735,000 by putting 20% down payment. With the new stress test the borrower would now only qualify for a home of a purchase price of $700,000.

To put this in perspective, the B-20 stress test that was implemented in January 2019 which required borrowers to qualify at the higher of either the 5-year posted rate or the contract rate plus 2% their buying power was reduced by 22%.

* Enhanced First-time Home Buyer Incentive Program

On September 2nd, the Government of Canada introduced the First Time Home Buyer Incentive (FTHBI) to help qualified First Time Home Buyers purchase a home, making homeownership more affordable by reducing their monthly mortgage payment without increasing their down payment.

The First Time Home Buyer Incentive is considered a Shared Equity Mortgage (SEM) where the Government of Canada has a shared interest in the borrower’s property value. The government shares in both the upside or downside of the property value.

By using the incentive, the borrower may not have to save as much of a down payment for a smaller mortgage, and, ultimately, lower monthly costs.

The homebuyer will have to repay the incentive based on the property’s fair market value at the time of repayment. If a homebuyer received a 5% incentive, they would repay 5% of the home’s value at repayment. If a homebuyer received 10% incentive, they would repay 10% of the home’s value at repayment.

However, due to the higher property values this program was not beneficial in major metropolitan areas such as Vancouver, Victoria and Toronto.

The good news is the program has been enhanced where first time home buyers purchasing a home in these census metropolitan areas are now eligible for an increased qualifying annual income of $150,000 instead of $120,000, and an increased total borrowing amount of 4.5 times instead of 4.0 times their qualifying income. For borrowers purchasing outside these areas the original qualifying income remains the same.

To find out how this program affects you or someone you know buying or the first time, please contact me.

* Introducing First Responder Mortgage Program

I wanted to personally say “Thank you” to all our First Responders. They are an integral part of our communities and a way to show our gratitude, we are happy to introduce the Dominion Lending Centres First Responder Mortgage Program.

This program is backed by one of Canada’s largest banks and includes competitive rates and cash back incentives depending on your mortgage amount.

This program is eligible for the following individuals:

· Police officers

· Paramedics

· Firefighters (employed &volunteer)

· Correctional services

· Border services

· Search & rescue (employed & volunteer)

· Registered physicians

· Registered nurses

Please contact me today for more details!

* Looking at options or have questions?

Interest rates have gone up slightly, yet they are still close to their all time low!

If you think ahead for the coming year and if you wish to access any funds for any reason: investments, renovations, debt payout, etc. The savings on the low interest mortgage rate against high credit card fees is a huge savings on its own. If you have been considering it, now may be just the right time to do something like this and save for the next 5 years.

Also, if you are thinking of selling within the next 2 – 3 years, you can port (move) this mortgage over to your new property as well as increase or decrease according to what you need at that time.

As always, if you have any questions or need assistance, please give me a call at 778.893.0525 or send me an email alisa@financingpros.ca.

Thank you for your business and referrals, they are always much appreciated.

Wishing you a great day ahead and hope you stay healthy!

With gratitude,

Alisa

11 Jun

Friendly reminder that your property taxes due on July 1, 2021

General

Posted by: Alisa Aragon-Lloyd

We hope you are doing well!

We wanted to remind you to apply for the BC Homeowners Grant if you are eligible. To apply for the grant, you have to complete the application sent with your tax bill and return to local municipality. In most municipalities, you are able to apply for the Homeowner Grant online. It is as simple as visiting your municipality’s website and look for the link to apply for your Homeowner Grant. You will need your Folio number and access code that can be found in your property tax notice.

If your lender is collecting the property taxes for you, you are still required to apply for the grant. Your municipality will charge you a 5% penalty if you do not pay your property taxes or claim the grant by July 1, 2021.

If you have any questions or need to find out information on the amount of money that has been collected by your lender to pay towards your property taxes, please contact your lender directly or feel free to contact me and we will be more than pleased to help.
________________________________________

As always, if you have any questions or need assistance, please give me a call at 778.893.0525 or send me an email alisa@financingpros.ca.

Thank you for your business and referrals, they are always much appreciated.

Wishing you a great day ahead and hope you stay healthy!

With gratitude,
Alisa

29 Apr

Credit Card Rules: How to Wean Yourself Off Credit Card Debt

General

Posted by: Alisa Aragon-Lloyd

By Alisa Aragon-Lloyd, published in “New Home and Condo Guide – Vancouver”

The Canadian government has implemented credit card regulations, which it says increase transparency and protect consumers. Here are some of the new regulations now in place:

• Credit contracts and application forms must have a “summary box” that clearly explains interest rates, fees, and how long it would take to fully repay a balance if only minimum monthly payments are made.

• Banks must give advance disclosure of interest rate increases, even if this information is already in the credit contract.

• You must give your consent before your credit limit can be increased.

• If you transfer your balance to a lower-interest card, your payments now have to be allocated in your favour.

• There’s now a limit on certain debt collection practices used by financial institutions.

• Banks can’t charge over-the-limit fees resulting from holds placed by merchants.

• One of the most significant changes you’ll have a minimum 21-day interest-free grace period on all new purchases if you pay your outstanding balance in full by the due date.

Critics of the new rules say they don’t go far enough. However, at least the government is trying to make an effort to help consumers avoid predatory lending practices. And that’s a good thing.

However, an even better strategy is to start weaning yourself off of credit card debt. Unlike taking out a mortgage to buy a home or revenue property, buying stuff with your credit card at high interest rates doesn’t yield any returns – it simply gets you deeper in debt.

The following are some tips to help you use your credit card responsibly so you don’t pay unnecessary charges and get in trouble with credit card debt:

• When you pay for something with a credit card, you are taking out a loan and you have to pay it back.

• Pay the balance in full each month

• If you can’t pay it in full, pay as much as you can

• Don’t make only the minimum payment

• If you always carry a balance, get a low rate card

• Pay a few days before the due date

• If you have a line of credit, transfer the balance to your line of credit with a lower rate. The goal is to pay down your debt and not go further into debt.

Put yourself on a budget, take a part-time job (or start a home business) and eventually get your credit cards paid off. You will be astonished how much extra money you will have to invest in assets that actually appreciate in value and put cash in your pocket!

16 Apr

March Existing Home Sales in Canada Hit New Record High As New Listings Surge To Unprecedented Levels

Latest News

Posted by: Alisa Aragon-Lloyd

What is All the Policy Hysteria About?

Today the Canadian Real Estate Association (CREA) released statistics showing national existing home sales hit another all-time high in March. What was arguably more noteworthy was that new listings hit their highest level on record in seasonally adjusted terms in March. Prices continued to rise as sales dwarfed the new supply.

The number of homes sold across the country rose 5.2% on a seasonally adjusted basis. The actual (not seasonally adjusted) activity was up 76.2% year-over-year (y-o-y). The 76,259 houses that sold were 14,000 more than the previous monthly sales record set last July. The number of newly listed properties jumped another 7.5% from February to March. Benchmark home prices rose 3.1% from the previous month and were up 20.1% y-o-y.

The month-over-month increase in national sales activity from February to March was broad-based and generally in line with locations where more new listings became available. Sales gains were largest in March in Greater Vancouver, Calgary, Edmonton, Hamilton-Burlington and Ottawa.

“Seeing how many homes were bought and sold in March 2021, one could be forgiven for thinking the market just continues to strengthen, and maybe to some extent it is,” stated Cliff Stevenson, Chair of CREA. “The real issue is not strength in housing markets but imbalance. That demand has been around for months, but with the shortages in supply we have across so much of Canada, a lot of that demand has been pressuring prices. So the big rebound in new supply to start the spring market is the relief valve we need the most to get that demand playing out more on the sales side of things and less on the price side. That said, it will take a lot more than one month of record new listings, but it looks like we may finally be rounding the corner on these extremely unbalanced housing market conditions. It’s great news for frustrated buyers…”

“We spent a lot of time over the last year talking about pent-up demand, but I think now is a good time to talk about pent-up supply, which may be the answer to the question everyone is asking right now,” said Shaun Cathcart, CREA’s Senior Economist. “2020 was the year that home became everything, so in hindsight it’s not that surprising that so many people who did not have one in which to ride out the pandemic really wanted one, while so many of those who did have a home to hunker down in were not inclined to give it up. Then, it stands to reason that as the uncertainty caused and the danger posed by COVID wind down, some owners who would not sell during a global pandemic will emerge with properties for sale. At the same time, some of the urgency on the demand side could dissipate. We’ll only know in the fullness of time, but March certainly did nothing to disprove the idea. That said, the third wave of COVID-19 could throw a wrench into the works of a potential supply recovery this spring”.

New Listings

The number of newly listed homes climbed a further 7.5% to set a new record in March. With February’s big rebound, new supply is up more than 25% in the last two months.

With the rebound in new supply outpacing recent sales gains, the national sales-to-new listings ratio eased back to 80.5% in March compared to a peak level of 90.9% set in January. The long-term average for the national sales-to-new listings ratio is 54.4%, so it is currently still very high historically. The good news is it appears to be moving in the right direction finally.

Based on a comparison of sales-to-new listings ratio with long-term averages, less than 20% of all local markets were in balanced market territory in March, measured as being within one standard deviation of their long-term average. The other 80%+ of markets were above long-term norms, in many cases well above. The first three months of 2021 and the second half of 2020 have seen record numbers of markets in seller’s market territory. For reference, the pre-COVID record of only around 55% of all markets in seller’s territory was set back at the beginning of 2002.

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 only 1.7 months of inventory on a national basis at the end of March 2021 – the lowest reading on record for this measure. The long-term average for this measure is a little over five months.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) climbed by 3.1% m-o-m in March 2021 – similar to but slightly less than the record gain in February.

While price growth remains the largest in the single-family home space, the pace of those gains decelerated in March while price gains in the more affordable townhome and apartment segments continued to pick up steam. Of the 41 markets now tracked by the index, all but one were up on a m-o-m basis.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 20.1% on a y-o-y basis in March. Based on data back to 2005, this was a record y-o-y increase, surpassing the previous record of 18.6% set back in April 2017.

The largest y-o-y gains continue to be posted across Ontario, followed by markets in B.C., Quebec and New Brunswick, then by single-digit gains in the Prairie provinces and Newfoundland and Labrador.

The actual (not seasonally adjusted) national average home price was a record $716,828 in March 2021, up 31.6% from the same month last year. That said, it is important note that the biggest increase in new supply and thus sales in March was in Greater Vancouver, which raised that market’s share of national activity to its highest level in almost four years.

Detailed home price data by region is reported in the table below:

Bottom Line

The continued strength in the market comes amid a debate in Canada over whether a housing bubble is building and what policymakers should do about it. Last week, Canada’s banking regulator, OSFI, said it is examining whether to set up a new higher minimum benchmark interest rate of 5.25% to determine whether people qualify for uninsured mortgages, and Prime Minister Justin Trudeau’s government has said it is looking to impose a tax on foreign, non-resident homeowners. Some economists have argued these steps aren’t enough, though March’s increase in supply may ease some of these concerns.

The simplest explanation for why the housing market has been so strong is the dramatic decline in mortgage rates generated by the Bank of Canada’s easing in monetary policy in March 2020 with the onset of the pandemic. The central bank’s policy move did precisely what it was intended to achieve, even though it may now be proving counterproductive. Trying to now halt or temper demand through a myriad of additional complex rules is not only inefficient but also risks unintended consequences.

The dramatic decline in mortgage rates to record low levels boosted the purchasing power of households. Also, many were able to buy further away from expensive cities also easing the burden of home purchases of household expenses. This not only occurred across Canada, but we observed the same phenomenon in many countries around the world. Home price inflation has been greatest the further you go out from city centres.

I agree with Beata Caranci, SVP & Chief Economist of TD Bank when she pointed out that, “Canada already has a number of safety levers in place around household financial risks. In fact, the IMF concluded in January 2020 that Canada’s “macroprudential stance is broadly adequate” and the stance was relatively tight, reflecting the six rounds of tightening mortgage insurance rules by the Department of Finance. Provinces and cities have also enacted measures over the years to discourage speculative activity via taxing vacant properties or upping land transfer taxes.”

Buyers are not irrational when they are concerned about being priced out of a home purchase. For the past thirty years, despite all the hype about housing bubbles in cities like Vancouver and Toronto, residential real estate has been a great investment and far less volatile than alternative uses of funds. This has been boosted by Canada’s immigration policy which has triggered the strongest population growth among the G7 countries. Property taxes and land transfer taxes are already among the highest in the world and, unlike the US, mortgage payments and property taxes are not tax-deductible.

The bulk of the new housing supply has been in multi-unit housing. The pandemic has highlighted the value of a much-coveted single-family home. That has been reflected in the surge in the prices of such homes, which were still affordable in heretofore untapped markets well beyond the major cities. Why shouldn’t today’s dual-income households aspire to the same homeownership dreams their parents fulfilled? Even after this boom in housing, which will no doubt slow as the pandemic ends and interest rates return to more normal levels, delinquency rates on outstanding mortgages will remain low. The guardrails put in place by the series of actions since 2016–reducing amortizations, increasing minimum downpayments, and tightening mortgage stress testing requirements–all but guarantee that in the strong economic recovery from the pandemic, credit risks are already sufficiently low.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

9 Apr

Banking Regulator Aims To Make It Tougher To Get An Uninsured Mortgage

General

Posted by: Alisa Aragon-Lloyd

With several Big-Five bank CEOs calling for regulatory action to slow the red-hot housing market, it didn’t take long for the Office of the Superintendent of Financial Institutions (OSFI), the governor of federally regulated financial institutions, to respond. In a news release issued today, OSFI proposed an increase in uninsured mortgages’ qualifying rate to the higher of the mortgage contract rate plus 200 basis points or 5.25% as a minimum floor.

Based on posted rates of the country’s six largest lenders, the current threshold is at 4.79%. Before the pandemic, the posted rate was widely considered too high relative to much lower contract rates. Remember, Canada’s six largest lenders under OSFI’s jurisdiction set the posted rate each week when they submit to the Bank of Canada the so-called ‘conventional 5-year mortgage rate’. It has increasingly born little relationship to actual contract rates.

OSFI, once again, shows itself to cozy up to the Canadian banking oligopoly. Keep in mind that delinquency rates on the Canadian banks’ mortgage books are very low–both in historical terms and compared with financial institutions in the rest of the world. OSFI couched this proposal in terms of “the importance of sound mortgage underwriting.”

In the release, OSFI said, “The minimum qualifying rate adds a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of a change in circumstances, such as the reduction of income or a rise in mortgage interest rates. As mortgages are one of the largest exposures that most banks carry, ensuring that borrowers can repay their loans strongly contributes to the continued safety and soundness of Canada’s financial system.”

The comment period ends on May 7. OSFI reported that they would communicate the revised B-20 Guideline by May 24, with an implementation date of June 1, 2021.

This all but ensures that the current boom in home buying will accelerate further in the spring market–providing an impetus for borrowers to get in under the June 1 deadline. OSFI’s move will trigger an even hotter spring housing market as demand is pulled forward just as it was before the January 1, 2018 implementation date of the current B-20 ruling.

This will not impact non-federally regulated FI’s such as credit unions, mono-lines and private lenders, nor does it immediately impact insured-mortgage borrowers.

The federal government is in charge of mortgage qualification for insured mortgages. CMHC and the finance department could well follow OSFI’s lead in tightening qualifying rules for insured loans.

Bottom Line

It is noteworthy to remember that on January 24, 2020, OSFI indicated that it was reviewing the benchmark rate (or floor) used for qualifying uninsured mortgages. At that time, the thought was that the widening gap between the posted rate and the contract mortgage rate was too large and that OSFI and the Bank of Canada would publish a mortgage rate weekly that would better reflect the contract rates. The new qualifying rate would be that contract mortgage rate plus 200 basis points. This consultation was suspended on March 13, 2020, in response to challenges posed by the COVID-19 pandemic.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

10 Mar

Bank of Canada Holds Rates and Bond-Buying Steady

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Posted by: Alisa Aragon-Lloyd

Much has changed since the Bank of Canada’s last decision on January 20. While the second pandemic wave was raging, new lockdowns were implemented in late 2020, and there were fears that the economy, in consequence, was likely to grow at a 4.8% annual rate in Q4 and contract in Q1. Instead, the lockdowns were less disruptive than feared, as Q4 growth came in at a surprisingly strong 9.6% annual rate–double the pace expected by the Bank.

Rather than a contraction in Q1 this year, Statistics Canada’s flash estimate for January growth was 0.5% (not annualized). Strength in January came from housing, resources and government spending, and the mild weather likely helped. In today’s decision statement, the central bank acknowledged that “the economy is proving to be more resilient than anticipated to the second wave of the virus and the associated containment measures.” The BoC now expects the economy to grow in the first quarter. “Consumers and businesses are adapting to containment measures, and housing market activity has been much stronger than expected. Improving foreign demand and higher commodity prices have also brightened the prospects for exports and business investment.”

A massive $1.9 trillion stimulus plan in the US is also about to turbocharge Canada’s largest trading partner’s economy, which will be a huge boon to the global economy and explains why commodity prices and bond yields have risen substantially in recent months. The Canadian dollar has been relatively stable against the US dollar but has appreciated against most other currencies.

Economists now expect Canada to expand at a 5.5% pace this year versus a 4% projection by the Bank of Canada in January. Going into today’s meeting, no one expected the Bank to raise the overnight policy rate, but markets were pricing in more than a 50% chance of an increase by this time next year, up from about 25% odds in January.

On the other hand, the BoC continued to emphasize the risks to the outlook and the huge degree of slack in the economy. “The labour market is a long way from recovery, with employment still well below pre-COVID levels. Low-wage workers, young people and women have borne the brunt of the job losses. The spread of more transmissible variants of the virus poses the largest downside risk to activity, as localized outbreaks and restrictions could restrain growth and add choppiness to the recovery.”

The Bank also attributed the recent rise in inflation was due to temporary factors. One year ago, many prices fell with the onslaught of the pandemic, so that year-over-year comparisons will rise for a while because of these base-year effects combined with higher gasoline prices pushed up by the recent run-up in oil prices. The Governing Council expects CPI inflation to moderate as these effects dissipate and excess capacity continues to exert downward pressure.

According to the policy statement, “While economic prospects have improved, the Governing Council judges that the recovery continues to require extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved. In the Bank’s January projection, this does not happen until 2023.” The Bank will continue its QE program to reinforce this commitment and keep interest rates low across the yield curve until the recovery is well underway. As the Governing Council continues to gain confidence in the recovery’s strength, the pace of net purchases of Government of Canada bonds will be adjusted as required. The central bank will “continue to provide the appropriate monetary policy stimulus to support the recovery and achieve the inflation objective.”

Bottom Line

The Bank gave no indication when it might start to taper its bond-buying. The next decision date is on April 21, when a full economic forecast will be released in the April Monetary Policy Report. Governor Macklem is more dovish than many had expected and will err on the side of caution. When the central bank starts tapering its asset purchases, it will be the equivalent of easing off the accelerator rather than applying the brakes. The Bank of Canada has been buying a minimum of $4 billion in federal government bonds each week to help keep borrowing costs low. That pace may no longer be warranted with an outlook that appears to show the economy absorbing all excess slack by next year, ahead of the Bank of Canada’s 2023 timeline for closing the so-called output gap.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

23 Feb

Canadian Home Sales Hit An All-Time Record High in January

General

Posted by: Alisa Aragon-Lloyd

The Canadian Real Estate Association (CREA) released statistics showing national home sales hit another all-time high in January 2021. Canadian home sales increased 2.0% month-on-month (m-o-m) building on December’s 7.0% gain. On a year-over-year (y-o-y) basis, existing home sales surged 35.2%. As the chart below shows, January activity blew out all previous records for the month.

The seasonally adjusted activity was running at an annualized pace of 736,452 units in January, significantly above CREA’s current 2021 forecast for 583,635 home sales this year. Sales will be hard-pressed to maintain current activity levels in the busier months to come, absent a surge of much-needed new supply; However, that could materialize as current COVID-19 restrictions are increasingly eased and the weather starts to improve.

A mixed bag of gains led to the month-over-month increase in national sales activity from December to January, including Edmonton, the Greater Toronto Area (GTA), and Chilliwack B.C., Calgary, Montreal and Winnipeg. There was more of a pattern to the declines in January. Many of those were in Ontario markets, following predictions that sales in that part of the country might dip to start the year with so little inventory currently available and many of this year’s sellers likely to remain on the sidelines until spring.

Actual (not seasonally adjusted) sales activity posted a 35.2% y-o-y gain in January. In line with activity since last summer, it was a new record for January by a considerable margin. For the seventh straight month, sales activity was up in almost all Canadian housing markets compared to the same month the previous year. Among the 11 markets that posted year-over-year sales declines, nine were in Ontario, where supply is extremely limited at the moment.

CREA Chair Costa Poulopoulos said, “The two big challenges facing housing markets this year are the same ones we were facing last year – COVID and a lack of supply. It’s looking like our collective efforts to bring those COVID cases down over the last month and a half are working. With luck, some potential sellers who balked at wading into the market last year will feel more comfortable listing this year.”

New Listings

The dearth of new listings continues to be the biggest problem in the housing market. As we move into the spring market and continue to see fewer COVID cases, the likelihood is that new supply will emerge. But for now, the number of newly listed homes plunged 13.3% in January, led by double-digit declines in the GTA, Hamilton-Burlington, London and St. Thomas, Ottawa, Montreal, Quebec and Halifax Dartmouth.

With sales edging higher and new supply falling considerably in January, the national sales-to-new listings ratio tightened to 90.7% – the highest level on record for the measure by a significant margin. The previous monthly record was 81.5%, set 19 years ago. The long-term average for the national sales-to-new listings ratio is 54.3%.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about 20% of all local markets were in balanced market territory in January, measured as being within one standard deviation of their long-term average. The other 80% were above long-term norms, in many cases well above. This was a record for the number of markets in seller’s market territory.

There were only 1.9 months of inventory on a national basis at the end of January 2021 – the lowest reading on record for this measure. At the local market level, some 35 Ontario markets were under one month of inventory at the end of January.

Low available supply is the reason property values will continue to go up. Strong demand pre-pandemic and the historic market rally since summer have cleaned up inventories in many parts of the country. Relative to the 10-year average, active listings had plummeted between 50% and 61% in Ontario, Quebec and most of Atlantic Canada, and 29% in BC by the late stages of 2020. And that’s despite a surge in downtown condo listings since spring in Canada’s largest cities. With so few options to choose from (outside downtown condos), buyers will continue to compete fiercely. Buyers in the Prairie Provinces, and Newfoundland and Labrador, however, will feel less pressure to outbid each other given supply isn’t quite as scarce in these markets.

Home Prices

Viewed from another angle, sellers enter 2021 holding a powerful hand when setting prices in most of Canada. We see this continuing during most of 2021. We expect provincial sales-to-new listings ratios—a reliable gauge of price pressure—to generally stay above the threshold (0.60) where sellers have historically yielded more pricing power. In several cases (including BC, Ontario and Quebec), ratios are well above the threshold, providing plenty of buffer against demand-supply conditions flipping in favour of buyers.

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.9% m-o-m in January 2021. Of the 40 markets now tracked by the index, prices were up on a m-o-m basis in 36.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 13.5% on a y-o-y basis in January – the biggest gain since June 2017.

The largest y-o-y gains – above 30% – were recorded in the Lakelands region of Ontario cottage country, Northumberland Hills, Quinte & District, Tillsonburg District and Woodstock-Ingersoll.

Y-o-y price increases in the 25-30% range were seen in Barrie, Niagara, Grey-Bruce Owen Sound, Huron Perth, Kawartha Lakes, London & St. Thomas, North Bay, Simcoe & District and Southern Georgian Bay.

Y-o-y price gains followed this in the range of 20-25% in Hamilton, Guelph, Oakville-Milton, Bancroft and Area, Brantford, Cambridge, Kitchener-Waterloo, Peterborough and the Kawarthas, Ottawa and Greater Moncton.

Prices were up 16.6% compared to last January in Montreal. Meanwhile, y-o-y price gains were in the 10-15% range on Vancouver Island, Chilliwack, the Okanagan Valley, Winnipeg, the GTA and Mississauga. Prices rose in the 5-10% range in Victoria, Greater Vancouver, Regina and Saskatoon. Home prices were up 2% and 2.2% in Calgary and Edmonton, respectively.

Bottom Line

The rollercoaster that was 2020 left Canada’s housing market more or less where it started the year: full of bidding wars, escalating prices and exasperated buyers unable to find a home they can afford. The pandemic changed some dynamics—it drove many buyers to the suburbs, exurbs and beyond, ground immigration to a virtual halt, triggered a downturn in big cities’ rental markets and caused households to build up their savings—but it didn’t dial down the market’s heat.

The marked shift in housing strength from urban centres–Toronto, Vancouver, Montreal–to perimeter cities is ongoing. For example, Toronto’s prices are up ‘only’ 11.9% y-o-y, but Barrie (+27%) and London (26%) have far outpaced these gains.

Condo price growth has slowed to just 3.1% y-o-y, or a record 14.3 percentage points below the price gains in single-detached homes. That’s by far the widest gap in 20 years and reflects the hunt for space and social distancing.

Housing starts (reported yesterday by CMHC) surged to 282,428 annualized units in January, the second-highest monthly posting since 1990. This figure could be distorted upward by the unseasonably mild January weather in much of the country. But the new high in starts is in line with record sales and solid building permits.

For policymakers, it doesn’t appear that there’s much interest in leaning against a sector that is helping to prop up the economy, especially with years of tightening mortgage rules already in place.

There appears to be little on the horizon to stop sales or prices from reaching new heights in 2021. Yet, cooling signs will emerge as the year progresses, which will come into fuller view next year. The foremost restraining factors will be a rise in new listings, waning pandemic-induced market churn, a modest creep-up in interest rates and an erosion of affordability. Call it a 2022 soft landing.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

12 Jan

What is Ahead: 2021 Forecast

General

Posted by: Alisa Aragon-Lloyd

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.