Canada’s January Unemployment Rate Fell to 6.6% On Stronger-Than-Expected Job Growth.

General Kimberly Coutts 7 Feb

Stronger-Than-Expected Jobs Report in January
 

Today’s Labour Force Survey for January surprised on the high side as businesses expanded employment despite threats of a tariff war with the US.

According to Statistics Canada, employment increased by 76,000 last month, bringing the jobless rate down to 6.6%. Economists in a Bloomberg survey expected a smaller rise of 25,000 jobs, with the unemployment rate rising to 6.8%. This pattern of stronger-than-anticipated employment data has continued since November, with increases in both part-time and full-time work.

The employment rate—the proportion of the population aged 15 and older who are employed—increased 0.1 percentage points to 61.1% in January, marking the third consecutive monthly increase. These recent increases follow a period in which employment growth had been outpaced by population growth, resulting in the employment rate declining 1.7 percentage points from April 2023 to October 2024.

Manufacturing employment rose by 33,000 (+1.8%) in January, following an increase of 17,000 (+0.9%) in December. The increase in January was concentrated in Ontario (+11,000; +1.3%), Quebec (+9,700; +1.9%), and British Columbia (+8,700; +4.9%). Despite the gains in the past two months, overall employment in manufacturing changed little year over year in January.

Employment in professional, scientific, and technical services rose in January (+22,000; +1.1%), the second increase in the past three months. On a year-over-year basis, employment in the industry was up by 66,000 (+3.4%).

Employment gains led by manufacturing in January
 

Employment in construction increased by 19,000 (+1.2%) in January, building on a net increase of 47,000 (+2.9%) recorded from June to December 2024. On a year-over-year basis, employment in construction was up by 58,000 (+3.6%) in January.

Employment also increased in accommodation and food services (+15,000; +1.3%), transportation and warehousing (+13,000; +1.2%) and agriculture (+10,000; +4.4%) in January. At the same time, there were fewer people employed in “other services” (which includes personal and repair services) (-14,000; -1.8%).
 

The unemployment rate declined 0.1 percentage points to 6.6% in January, marking the second consecutive monthly decline from a peak of 6.9% in November 2024. The unemployment rate had previously increased 1.9 percentage points from March 2023 to November 2024, as labour market conditions cooled after a period of low unemployment rates and high job vacancies following the COVID-19 pandemic.

Many unemployed people are facing continued difficulties finding employment despite recent employment growth.
 

Wage inflation slowed markedly in the past three months, which is welcome news for the Bank of Canada. While the strength of this report has led some to speculate that the central bank will ease less aggressively, we agree that jumbo rate cuts are a thing of the past. However, monetary policy is still overly restrictive, especially if the Trump tariff threats come to fruition.

We expect the BoC to reduce the overnight rate from 3.00% today to 2.5% in quarter-point increments by the spring season. This should significantly boost Canadian housing market activity, particularly given the recent decline in mortgage rates.
 

Bottom Line

Employment in manufacturing may be particularly susceptible to changes in tariffs and foreign demand. The sector has the most jobs dependent on US demand for Canadian exports,

According to the Labour Force Survey, there were 1.9 million people employed in manufacturing in January, comprising 8.9% of total employment—the fourth largest sector in Canada. As a total share of jobs, manufacturing employment has decreased over the years, particularly in the 2000s, but has been more stable since 2010.

Automotive manufacturing industries are highly integrated with US supply chains; an estimated 68.3% of jobs in these industries depend on US demand for Canadian exports. People working in automotive manufacturing (which includes motor vehicle manufacturing, motor vehicle parts manufacturing and motor vehicle body and trailer manufacturing) were concentrated in Southern Ontario, particularly in the economic regions of Toronto (which accounted for 27.7% of all auto workers), Kitchener–Waterloo–Barrie (19.8%) and Windsor-Sarnia (14.8%) in January. In Windsor-Sarnia, automotive manufacturing industries accounted for 38.3% of manufacturing employment and 7.3% of total employment (three-month moving averages, not seasonally adjusted).

In January 2025, a collective bargaining agreement covered over one-quarter (26.5%) of automotive manufacturing employees. In comparison, the union coverage rate in the automotive industry was nearly twice as high in January 2002 (49.9%).

In January, food manufacturing was the most significant manufacturing subsector overall, accounting for 16.4% of all manufacturing employment. It was also the largest subsector across all provinces except Ontario. This subsector relies less on foreign demand, with 28.8% of jobs dependent on US demand for Canadian exports.

The recent acceleration in job growth may not prevent the Bank of Canada from cutting interest rates further this year. The recent wave of hiring likely won’t be enough to placate concerns that a potential Canada-US trade war could plunge the economy into a recession. Still, overnight swap traders eased expectations for a cut at the March 12 meeting to about 60% from close to 80% previously. We expect another 25 bp rate cut at the March and June BoC meetings.

The data were released simultaneously with US nonfarm payrolls, which increased by 143,000 in January as the unemployment rate was 4%. The loonie reversed the day’s loss against the US dollar, trading at C$1.4300 as of 8:34 a.m. in Ottawa. Canada’s two-year yield rose some seven basis points to the session’s high of 2.65%, with Canadian debt underperforming the US and developed markets.

Heightened trade uncertainty will continue to plague Canadian business hiring and spending decisions. Consumers, as well, will likely moderate spending in response to the uncertainty.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Understanding Second Mortgages: Are They Right for You?

General Kimberly Coutts 5 Feb

One of the biggest benefits to purchasing your own home is the ability to build equity in your property. This equity can come in handy down the line for refinancing, renovations, or taking out additional loans – such as a second mortgage.

A second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. Some advantages include the ability to access a large loan sum, better interest rates than a credit card and the ability to use the funds how you see fit. However, keep in mind interest rates are typically higher on a second mortgage versus refinancing and can add additional cash flow tension to your monthly bills. Talk to a mortgage professional today to determine if this is the best option for you!

What is a second mortgage?

First things first, a second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing a second home or property and taking out a separate mortgage for that. A second mortgage is a very different product from a traditional mortgage as you are using your existing home equity to qualify for the loan and put up in case of default. Similar to a traditional mortgage, a second mortgage will also come with its own interest rate, monthly payments, set terms, closing costs and more.

Second mortgages versus refinancing

As both refinancing your existing mortgage and taking out a second mortgage can take advantage of existing home equity, it is a good idea to look at the differences between them.

Firstly, a refinance is typically only done when you’re at the end of your current mortgage term so as to avoid any penalties with refinancing the mortgage. The purpose of refinancing is often to take advantage of a lower interest rate, change your mortgage terms or, in some cases, borrow against your home equity.

When you get a second mortgage, you are able to borrow a lump sum against the equity in your current home and can use that money for whatever purpose you see fit. You can even choose to borrow in installments through a credit line and refinance your second mortgage in the future.

Some key things to note when looking at a second mortgage or refinancing:

  • If you have a favorable interest rate on your first mortgage, a second mortgage allows you to keep the lower rate on your primary loan, resulting in a lower blended rate.
  • Refinancing resets the amortization schedule, which could extend the loan term. A second mortgage leaves the existing term intact, helping you stay on track with your overall financial goals.
  • Second mortgages often come with more flexible terms, such as interest-only payments, fully open, or shorter term, which can suit your immediate needs.

What are the advantages of a second mortgage?

There are several advantages when it comes to taking out a second mortgage, including:

  • Homeowners can access a significant portion of their home equity (typically 80%-85% LTV).
  • Better interest rate than a credit card as they are a ‘secured’ form of debt.
  • You can use the money however you see fit without any caveats.
  • Allows you to access your home equity without breaking your existing mortgage and incurring penalty fees.

What are the disadvantages of a second mortgage?

As always, when it comes to taking out an additional loan, there are a few things to consider:

  • Interest rates tend to be higher on a second mortgage than refinancing your mortgage.
  • Additional financial pressure from carrying a second loan and another set of monthly bills.

Before looking into any additional loans, such as a secondary mortgage (or even refinancing), be sure to reach out to me! Regardless of why you are considering a second mortgage, it is a good idea to get a review of your current financial situation and determine if this is the best solution before proceeding.

No One Benefits from Tariffs

General Kimberly Coutts 3 Feb

Always grateful for DLC’s Dr. Sherry Cooper for sharing her analysis on all things that can effect mortgages and the economy.  See her article below:

Despite having negotiated the current trade agreement among the U.S., Mexico, and Canada during his first administration, Donald Trump broke the terms of that treaty on Saturday. He triggered a global stock market selloff after fulfilling his threat to impose tariffs on Canada, Mexico, and China. These levies are set to take effect Tuesday unless a last-minute deal is reached during Trump’s phone calls with the leaders of Canada and Mexico today. The European Union is next on Trump’s list for potential tariffs, and the EU has promised to “respond firmly” if this occurs.

Trump slapped tariffs of 25% on goods from Mexico and Canada, 10% on Canadian energy, and 10% on goods from China. He said he was doing so to force Mexico and Canada to do more about undocumented migration and drug trafficking. Still, while precursor chemicals to make fentanyl come from China and undocumented migrants come over the southern border with Mexico, Canada accounts for only about 1% of both.

The countries affected by the tariffs are also preparing their defences. Canada has launched a crisis response that parallels the COVID pandemic, while Mexican President Claudia Sheinbaum has developed a “Plan B” to protect her country. China’s reaction was more subdued. They pledged to implement “corresponding countermeasures,” though they did not provide further details.

The Wall Street Journal, hardly a bastion of progressive thought, lambasted Trump, saying this is the “dumbest trade war in history.” The Journal said, “Mr. Trump sometimes sounds as if the U.S. shouldn’t import anything at all, that America can be a perfectly closed economy making everything at home. This is called autarky, and it isn’t the world we live in or one that we should want to live in, as Mr. Trump may soon find out.”

Trump inherited the best economy in the world from his predecessor, President Joe Biden. However, on Friday, as soon as White House press secretary Karoline Leavitt confirmed that Trump would levy the tariffs, the stock market plunged. Trump, who during his campaign insisted that tariffs would boost the economy, said that Americans could feel “SOME PAIN” from them. He added, “BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID.”

Trump loves tariffs and lauds President McKinley for his massive tariff imposition. After 450 amendments, the Tariff Act of 1890 increased average duties across all imports from 38% to 49.5%. McKinley was known as the “Napoleon of Protection,” and rates were raised on some goods and lowered on others, always trying to protect American manufacturing interests. McKinley’s presidency saw rapid economic growth. He promoted the 1897 Dingley Tariff to protect manufacturers and factory workers from foreign competition, and in 1900, secured the passage of the Gold Standard Act.

President Trump has said the McKinley tariffs made the US a global economic leader, but much else was responsible. Over the late 19th century, US immigration increased sharply. American entrepreneurs put a great store in the best practices of Britain, then the global leader in technological development.

The U.S. auto industry is  North American because supply chains in the three countries are highly integrated. In 2024, Canada supplied almost 13% of U.S. auto parts imports, and Mexico provided nearly 42%. Industry experts say a vehicle made on the continent crosses borders a half-dozen times or more as companies source components and add value in the most cost-effective ways.

Everyone benefits. The Office of the U.S. Trade Representative says that 2023 the industry added more than $809 billion to the U.S. economy, or about 11.2% of total U.S. manufacturing output, supporting “9.7 million direct and indirect U.S. jobs.” In 2022, the U.S. exported $75.4 billion in vehicles and parts to Canada and Mexico. According to the American Automotive Policy Council, that number jumped 14% in 2023 to $86.2 billion.

American car makers would be much less competitive without this trade. Regional integration is now an industry-wide manufacturing strategy employed in Japan, Korea, and Europe that aims to source components, software, and assembly from various high-skilled and low-cost labour markets.

The result has been that U.S. industrial capacity in autos has grown alongside an increase in imported motor vehicles, engines, and parts. From 1995 to 2019, imports of automobiles, engines, and parts rose 169%, while U.S. industrial capacity in cars, engines, and parts rose 71%. Thousands of good-paying auto jobs in Texas, Ohio, Illinois, and Michigan owe their competitiveness to this ecosystem, which relies heavily on suppliers in Mexico and Canada.

Tariffs will also cause mayhem in the cross-border trade of farm goods. In fiscal 2024, Mexican food exports comprised about 23% of U.S. agricultural imports, while Canada supplied some 20%. Many top U.S. growers have moved to Mexico because limits on legal immigration have made it hard to find workers in the U.S. Mexico now supplies 90% of avocados sold in the U.S.

Canadian Prime Minister Justin Trudeau has promised to respond to U.S. tariffs on a dollar-for-dollar basis. Since Canada’s economy is so small, this could result in a larger GDP hit, but American consumers will feel the bite of higher costs for some goods.

None of this is supposed to happen under the U.S.-Mexico-Canada trade agreement that Mr. Trump negotiated and signed in his first term. The U.S. willingness to ignore its treaty obligations, even with friends, won’t make other countries eager to do deals. Maybe Mr. Trump will claim victory and pull back if he wins some token concessions. But if a North American trade war persists, it will qualify as one of the dumbest in history.

Bottom Line

This is a lose-lose situation. Prices will rise in all three continental countries if the tariffs persist. While inflation is the first effect, we will quickly see layoffs in the auto sector and elsewhere. Ultimately, the Bank of Canada would be confronted with a recession and will ease monetary policy in response. Interest rates would fall considerably. The Canada 5-year government bond yield has fallen precipitously, down to 2.59%. In this regard, housing activity would pick up, similar to what we saw in 2021, with weak economic activity but booming housing in response to low mortgage rates.

I am still hopeful that an all-out trade war can be averted. There is room to negotiate. As stated by Rob McLister, “Trump underestimates the global revolt against this move, and that’s another reason why these tariffs may be measured in months, not years.” This will not be good for the US. Trump promised to reduce prices, yet sustained tariffs will undoubtedly cause prices to rise. Some of that increase will be absorbed by American importers and some by Canadian exporters anxious to maintain market share. Still, much of the tariff will be passed on to the American consumer in time. This, combined with a North American economic slowdown, will no doubt damage Mr. Trumps approval rating.

Canadian Inflation Falls to 1.8% y/y in December

General Kimberly Coutts 21 Jan

Positive News On The Inflation Front
 

The Consumer Price Index (CPI) increased by 1.8% year-over-year in December, a slight decrease from the 1.9% rise in November. The main contributors to this slowdown were food purchased from restaurants and alcoholic beverages bought from stores. Excluding food, the CPI rose by 2.1% in December.

On December 14, 2024, a temporary GST/HST exemption on certain goods was introduced. The major categories affected by this tax break included food; alcoholic beverages, tobacco products, and recreational cannabis; recreation, education, and reading materials; as well as clothing and footwear.

On a monthly basis, the CPI dropped by 0.4% in December after remaining flat in November. However, on a seasonally adjusted basis, the CPI increased by 0.2%.

Prices decline for items impacted by the GST/HST break
Approximately 10% of the all-items Consumer Price Index (CPI) basket is affected by the tax exemption.

In December, Canadians paid less for food purchased from restaurants, experiencing a year-over-year decline of 1.6%. This marked the index’s first annual decrease and the largest monthly decline of 4.5%, attributed to the GST/HST break.

On a year-over-year basis, prices for alcoholic beverages purchased from stores fell by 1.3% in December, compared to a 1.9% increase in November. Monthly prices also dropped by 4.1%, nearly tripling the previous largest monthly decline for this series, which was recorded in December 2005 at 1.4%.

The prices for toys, games (excluding video games), and hobby supplies decreased by 7.2% year-over-year in December 2024, a significant drop from the 0.6% decline in November. Additionally, the index for children’s clothing fell by 10.6% in December compared with the same month in 2023.

The shelter component of the CPI grew at a slightly slower pace in December, rising by 4.5% year-over-year, following a 4.6% increase in November. Rent prices decelerated on a year-over-year basis in December, rising by 7.1% compared to a 7.7% increase in November. Since December 2021, rent prices have increased by 22.1%.

The mortgage interest cost index continued to slow for the 16th consecutive month, reaching an 11.7% increase year-over-year in December 2024, the smallest rise since October 2022, which was at 11.4%, as interest rates continued to climb.

Additionally, gasoline prices rose due to base-year effects, and consumers paid more for travel services.
 

The central bank’s two preferred core inflation measures stabilized, averaging 2.65% year over year in October and November. Both core inflation measures rose a solid 0.3% m/m in seasonally adjusted terms and have been up at a 3+% pace over the past three months. Excluding food and energy, the ‘old’ core measure dipped to 1.9% year over year, its first move below 2% in more than three years.

The central bank’s two preferred core inflation measures declined, averaging 2.55% y/y in December. Both core inflation measures dipped m/m in seasonally adjusted terms and are up at a 3+% pace over the past three months.
 

Bottom Line

The inflation report for December 2024 showed a downward distortion due to the sales tax holiday, which will also affect the data for January. However, this effect will reverse in the following months. Core inflation measures are concerning, as the three-month moving average of trimmed-mean and median inflation has risen above 3.0%.

This inflation report is sufficient for the Bank of Canada to cut the overnight rate by 25 basis points to 3.0% on January 29, the date of its next decision.

A significant question remains regarding the potential Trump tariffs, which have been postponed to allow federal agencies time to analyze the trade, border, and currency policies of China, Canada, and Mexico. Trump mentioned yesterday that a 25% tariff would be implemented by February 1. However, government agencies typically do not move that quickly. Moreover, Trump aims to maintain pressure on these countries to ensure a robust response on border control and to reduce China’s influence on manufacturing in Mexico and Canada. The new administration also wishes to prevent Mexico and Canada from selling strategically important products to China.

I believe Trump wants to renegotiate the free trade deal between the US, Canada, and Mexico. Canada has already pledged to tighten its borders and has rejected Trump’s claim that it is exporting fentanyl to the US. I do not expect 25% tariffs on Canada; even if they are imposed, there would likely be Canadian retaliation, making the tariffs short-lived. This is a significant threat.

Some have suggested that tariffs would compel the Bank of Canada to increase interest rates in order to combat inflation. While inflation might initially rise due to tariffs, the long-term effects would likely include layoffs and a marked slowdown in business and consumer spending, leading to increased unemployment. The Bank of Canada’s primary concern would be recession, not inflation.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Existing Home Sales Edged Downward in December

General Kimberly Coutts 16 Jan

The Canadian Housing Market Ends 2024 On a Weak Note
 

Home sales activity recorded over Canadian MLS® Systems softened in December, falling 5.8% compared to November. However, they were still 13% above their level in May, just before the Bank of Canada began cutting interest rates.

The fourth quarter of 2024 saw sales up 10% from the third quarter and stood among the more muscular quarters for activity in the last 20 years, not accounting for the pandemic.

“The number of homes sold across Canada declined in December compared to a stronger October and November, although that was likely more of a supply story than a demand story,” said Shaun Cathcart, CREA’s Senior Economist. “Our forecast continues to be for a significant unleashing of demand in the spring of 2025, with the expected bottom for interest rates coinciding with sellers listing properties in big numbers once the snow melts.”
 

New Listings

New listings dipped 1.7% month-over-month in December, marking three straight monthly declines following a jump in new supply last September.

“While housing market activity may take a breather over the winter with fewer properties for sale, the fall market rebound serves as a good preview of what could happen this spring,” said James Mabey, CREA Chair. “Spring in real estate always comes earlier than both sellers and buyers anticipate. The outlook is for buyers to start coming off the sidelines in big numbers in just a few months from now.”

With sales down by more than new listings on a month-over-month basis in December, the national sales-to-new listings ratio eased back to 56.9%, down from a 17-month high of 59.3% in November. The long-term average for the national sales-to-new listings ratio is 55%, with readings between 45% and 65% generally consistent with balanced housing market conditions.

There were 128,000 properties listed for sale on all Canadian MLS® Systems at the end of 2024, up 7.8% from a year earlier but still below the long-term average of around 150,000 listings.

There were 3.9 months of inventory on a national basis at the end of 2024, up from a 15-month low of 3.6 months at the end of November but still well below the long-term average of five months of inventory. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months and a buyer’s market would be above 6.5 months. That means the current balance of supply and demand nationally is still close to seller’s market territory.
 

Home Prices

The National Composite MLS® Home Price Index (HPI) rose 0.3% from November to December 2024 – the second straight month-over-month increase.

The non-seasonally adjusted National Composite MLS® HPI stood just 0.2% below December 2023, the smallest decline since prices dipped into negative year-over-year territory last April.

The non-seasonally adjusted national average home price was $676,640 in December 2024, up 2.5% from December 2023.
 

Bottom Line

The Bank of Canada’s aggressive rate-cutting and regulatory changes that make housing more affordable have ignited the Canadian housing market. While the conflagration isn’t likely to peak until spring, a seasonally strong period for housing, activity already started to pick up in the fourth quarter.

Today, we saw a welcome dip in US inflation in December. Softer core US CPI inflation in December will give the Fed some breathing room ahead of the uncertain impact of tariffs. With the coming inauguration of Donald Trump, there is an inordinate amount of uncertainty. If Trump imposed tariffs on Canada in the early days of his administration, the Canadian economy would slow markedly, and inflation would mount. This could curtail the Bank of Canada’s easing and even trigger a tightening monetary policy if inflation rises too much.

Market-driven interest rates have risen sharply in recent weeks, pushing the interest rate on 5-year Government of Canada bonds upward. US ten-year yields are at 4.67%, up considerably since early December. Canadian ten-year yields have risen as well, but at 3.44%, they are more than 120 basis points below the US, well outside historical norms.

The central bank meets again on January 29 and will likely cut the overnight policy rate by 25 bps to 3.0%. Canada’s homegrown political uncertainty muddies the waters. The Parliament is prorogued until March as the Liberals decide on a new leader. The subsequent election adds to the volatility and uncertainty. We hold to the view that overnight rates will fall to 2.5% by midyear, triggering a strong Spring selling season.
 
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Strongest Canadian Employment Report In Nearly Two Years

General Kimberly Coutts 13 Jan

Stronger-Than-Expected Jobs Report in December
 

Today’s Labour Force Survey for December was much stronger than expected, as many thought the Canada Post strike would have a larger impact. Employment rose by 90,900 net new jobs last month, and the employment rate—the proportion of the population aged 15 and older who are employed— increased by 0.2 percentage points to 60.8%. The jobless rate declined a tick to 6.7%.

Employment gains in December were led by educational services (+17,000; +1.1%), transportation and warehousing (+17,000; +1.6%), finance, insurance, real estate, rental and leasing (+16,000; +1.1%), and health care and social assistance (+16,000; +0.5%).

In December, employment increased in Alberta (+35,000; +1.4%), Ontario (+23,000; +0.3%), British Columbia (+14,000; +0.5%), Nova Scotia (+7,400; +1.4%), and Saskatchewan (+4,000; +0.7%), while there was a decline in Manitoba (-7,200; -1.0%). Employment changed little in the other provinces.

Total hours worked rose 0.5% in December and were up 2.1% compared with 12 months earlier.

Average hourly wages among employees were up 3.8% (+$1.32 to $35.77) on a year-over-year basis in December, following growth of 4.1% in November (not seasonally adjusted).
 

Employment rose by 91,000 (+0.4%) in December, mostly in full-time work (+56,000; +0.3%). This follows an increase in November (+51,000) and marks the third employment gain in the past four months.

The year 2024 ended with 413,000 (+2.0%) more people working in December compared with 12 months earlier. This year-over-year growth rate was comparable to the one observed in December 2023 (+2.1%) and to the average growth rate for December over the pre-COVID-19 pandemic period of 2017 to 2019 (+1.9%).

Public sector employment rose by 40,000 (+0.9%) in December, the second consecutive monthly increase. In the 12 months to December, public sector employment rose by 156,000 (+3.7%), driven by gains in the public-sector components of educational services as well as health care and social assistance. Private sector employment was little changed in December (+27,000; +0.2%) and was up 191,000 (+1.4%) on a year-over-year basis. The number of self-employed people rose by 24,000 (+0.9%) in December, the first increase since February. This brought total gains in self-employment for the year to 64,000 (+2.4%).
 

Wage inflation slowed markedly in November and December, providing welcome news for the Bank of Canada. While the strength of this report has led some to speculate the central bank will ease less aggressively, we agree that jumbo rate cuts are a thing of the past. However, monetary policy is still overly restrictive, especially if the Trump tariff threats come to fruition.

We expect the BoC to take the overnight rate down from 3.25% today to 2.5% by mid-year in quarter-point increments.
 

Bottom Line

The Canadian Labour Force Survey is notoriously volatile. One robust report does not change the Bank of Canada’s easing plans to return interest rates to neutrality–the level at which monetary policy is neither contractionary nor expansionary. Today’s US employment report was also quite strong, reducing the unemployment rate to 4.1%. While the Fed is unlikely to cut rates when the FOMC meets again on January 29, the Bank of Canada has room to ease further. Canada’s economy is far more interest-sensitive than the US, and interest rates in Canada -though historically low compared to the US- are still overly restrictive.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Market Outlook for 2025

General Kimberly Coutts 7 Jan

 

It’s a new year and as we gear up for the upcoming Spring season, it is a good idea to take a look at the market outlook and what we are expecting to see around housing sales, prices, interest rates, and how these current conditions affect buyers versus sellers!

Let’s dive into the Canadian Real Estate Association Forecast and more:
 

National Trends

  • Housing Sales: National home sales are expected to increase by 6.6% in 2025, reaching approximately 499,800 units as interest rates continue to decline, drawing buyers back into the market. This follows a modest 5.2% increase in 2024.
  • Housing Prices:On a national level, Canada’s housing market is expected to see a 4.4% increase in home prices in 2025, reaching an average of $713,375. This follows a more modest 0.9% increase in 2024. The national growth is tempered by regional differences, with areas like Toronto and Vancouver seeing higher price levels due to ongoing demand, while more affordable regions like Quebec may see more moderate growth.
  • Rising Demand: Canada’s housing market remains competitive, with demand continuing to rise in urban centers and suburban areas due to factors like population growth, economic recovery, and strong immigration.
  • Interest Rates: The Bank of Canada’s policy on interest rates continues to play a central role in shaping the housing market. While rates were higher through 2023 and part of 2024, they are expected to continue declining in 2025, which should ease affordability constraints and encourage more buyer activity.

Regional Highlights

Greater Toronto Area (GTA)

  • Housing Prices:The average home price in the GTA reached $1,135,215 in October 2024, reflecting a 0.8% increase year-over-year and 2.5% monthly growth. The City of Toronto itself saw a 3.4% increase, signaling continued demand despite higher prices. Areas like Mississauga and Brampton show mixed price trends, with Mississauga seeing a slight decline of 2.2% year-over-year, while Brampton experienced a 2.0% increase. These fluctuations reflect demand in more affordable areas within the GTA.
  • Rising Demand: Toronto remains one of Canada’s most sought-after markets, driven by its status as a global financial hub and growing tech sector. Suburbs like Mississauga, Brampton, and York Region are seeing rising interest as buyers seek more affordable options. Ontario’s strong job market and immigration influx contribute to population growth, further boosting demand. While some cooling has been seen due to high home prices, the overall demand remains robust, especially for entry-level homes.
  • Interest Rate Impact: Rates are expected to decrease into 2025 increasing buyer demand. Despite higher rates over the last two years, Toronto remains a seller’s market in many areas, though buyers will benefit from more favorable conditions as rates decline.

Greater Vancouver

  • Housing Prices: Vancouver has experienced a slight decline in average home prices, down 0.2% year-over-year in 2024, with prices hovering around $1,250,329. However, Vancouver remains one of Canada’s priciest markets, and some recovery is expected as the market adjusts. While the downtown core sees slower price growth, suburban areas in the Lower Mainland, such as Richmond and Surrey, continue to see moderate price increases, as these areas offer better affordability and space.
  • Rising Demand: Vancouver’s appeal remains strong for both domestic buyers and international investors, particularly in tech, entertainment, and natural resources sectors. Despite price stagnation, demand continues for detached homes and more spacious properties as residents seek to balance living costs with quality of life. Vancouver also benefits from significant immigration, and the city continues to diversify economically, drawing both residents and investors who are fueling demand in the housing market.
  • Interest Rate Impact: Like Toronto, Vancouver has been affected by the Bank of Canada’s interest rate hikes, which have increased borrowing costs and cooled market activity. The rate hikes have caused some slowdown, but the region is expected to see a modest recovery in 2025 with interest rate cuts. As rates decline, Vancouver may experience more balanced market conditions, with higher demand for detached homes in suburban areas and some recovery in the more expensive core areas.

Quebec:

  • Housing Prices:The province has seen steady growth in home prices, with Montreal, in particular, experiencing an 8.9% year-over-year price increase as of October 2024, reaching an average home price of $630,063. While Quebec’s growth is generally more moderate compared to Ontario and British Columbia, the relative affordability of homes in many areas still offers opportunities for buyers compared to more expensive regions like Toronto or Vancouver.
  • Rising Demand: Montreal’s job market, particularly in technology and aerospace, continues to attract young professionals, which fuels housing demand. The province also benefits from ongoing immigration, contributing to population growth, which supports housing demand.
  • Interest Rate Impact: Like the rest of Canada, Quebec will see easing interest rates in 2025, which should help to bolster market activity. However, since prices have risen significantly over the past decade, some buyers in Quebec, particularly first-time buyers, may still face affordability challenges, albeit less severe than in major cities like Toronto.

Expectations for Buyers

  1. Affordability Challenges: While interest rates are expected to decline gradually, the impact of high housing prices in major cities like Toronto and Vancouver will still be a challenge for many buyers. However, some relief is anticipated as lower rates could ease monthly mortgage payments.
  2. Opportunity in the Suburbs: Suburban areas are projected to see more price stability and may be more attractive to first-time buyers and those looking for better value for money. Areas like Mississauga, Brampton, and Ottawa are seeing mixed price changes, making them viable alternatives to the high-cost core regions.
  3. More Inventory: A growing number of homes available for sale could give buyers more choice, but competition may still exist in certain markets due to demand returning as rates ease.

Expectations for Sellers

  1. Tight Timing: Sellers in 2025 will likely benefit from a surge in demand in the spring and summer, driven by the stabilization or decline of interest rates. However, selling in a market with increased inventory may require competitive pricing.
  2. Realistic Pricing: With the market expected to shift towards more buyer-friendly conditions, sellers will need to adjust expectations and price their homes carefully. Those listing too high might face longer waiting periods.
  3. Stronger Negotiation Power in Suburbs: Sellers in high-demand, low-inventory areas (especially in suburban regions) may still enjoy more favorable conditions and could see prices rise or remain stable.

Key Takeaways for 2025

  1. Recovery Driven by Rate Cuts: Declining interest rates are anticipated to accelerate both sales activity and price growth in the latter half of 2025.
  2. Regional Disparities: While Vancouver and Toronto remain expensive, other regions like Montreal and Ottawa offer growth potential due to relative affordability and robust economic conditions.
  3. Inventory and New Construction: Higher inventory levels may moderate price increases in some areas, but affordability concerns and economic factors will shape regional market dynamics.

Overall, 2025 will likely be a year of transition with benefits to both buyers and sellers as the market continues to stabilize.

Looking to purchase or renew your mortgage this year? Please book a strategy call with me today!

Fall Economic Statement Delivered Despite Chrystia Freeland’s Resignation

General Kimberly Coutts 16 Dec

Chrystia Freeland Resigns On The Day of The Fall Economic Statement
 

Finance Minister Freeland rocked markets today by submitting her resignation from Cabinet. Trudeau had asked her to take another Cabinet post, but she declined in a scathing letter accusing Trudeau of “costly political gimmicks” like “bribe-us-with-our-own-money cheques for $250 and a two-month GST holiday.

“Inevitably, our time in government will come to an end,” Ms. Freeland said, openly acknowledging what polls have been saying for over a year. “But how we deal with the threat our country currently faces will define us for a generation, and perhaps longer.”

The Federal deficit for 2023-2024 grows from $40 billion to $61.9 billion, partly boosted by a court settlement to pay funds to Indigenous children. The deficit far surpasses Freeland’s guardrail of $40.1 billion for last year’s budget deficit. New spending initiatives were announced amounting to $24 billion over the next six years. The most significant component is accelerated incentives to encourage business investment to improve productivity. This is very similar to a program issued by Finance Minister Frank Morneau years ago.

Dominic LeBlanc has been sworn in as the new Finance Minister.
 

Bottom Line

Today’s Fall Economic Statement took a backseat to the news that Chrytia Freeland resigned. There is more talk of a Trudeau resignation and an early election. Liberals are suggesting that Trudeau has stayed on too long, likening him to Biden. The caucus is meeting at 5 PM today.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian home sales rose again in November as new listings declined and prices rose

General Kimberly Coutts 16 Dec

The Canadian Housing Market Strengthens Further
 

Home sales activity recorded over Canadian MLS® Systems rose again in November, building on October’s surprise jump.

Sales were up 2.8% m/m in November compared to October and now stand a cumulative 18.4% above where they were in May, just before the first interest rate cut in early June. Actual (not seasonally adjusted) monthly activity was 26% above November 2023.

The November increase was driven by gains in Greater Vancouver, Calgary, Greater Toronto, and Montreal and double-digit sales increases in smaller cities in Alberta and Ontario.

According to Shaun Cathcart, CREA’s Senior Economist, “Not only were sales up again but with market conditions now starting to tighten up, November also saw prices move materially higher at the national level for the first time in almost a year and a half. Normally, we might expect this market rebound to take a pause before resuming in the spring; however, the Bank of Canada’s latest 50-basis point cut together with a loosening of mortgage rules could mean a more active winter market than normal.”
 

New Listings

New listings edged down 0.5% month-over-month in November, building on a larger 3% decline in October. With sales also rising in November, the national sales-to-new listings ratio tightened to 59.2%, up from 57.3% in October. Between April and September this year, the measure had been in the 52% to 53% range. The long-term average for the national sales-to-new listings ratio is 55%, with a sales-to-new listings ratio between 45% and 65%, generally consistent with balanced housing market conditions.

“October and November marked the start of the long-awaited rebound in resale housing activity, with the combination of lower borrowing costs and more properties to choose from coaxing buyers off the sidelines,” said James Mabey, CREA Chair.

A little more than 160,000 properties were listed for sale on all Canadian MLS® Systems at the end of November 2024, up 8.9% from a year earlier but still below the long-term average for that time of the year of around 178,000 listings.

There were 3.7 months of inventory nationally at the end of November 2024, down from 3.8 months at the end of October and the lowest level in 14 months. The long-term average is 5.1 months of inventory, with a seller’s market below about 3.6 months and a buyer’s market above 6.5 months.
 

Home Prices

The non-seasonally adjusted National Composite MLS® HPI stood 1.2% below November 2023, the smallest decline since last April. The non-seasonally adjusted national average home price was $694,411 in November 2024, up 7.4% from November 2023.
 

Bottom Line

The Bank of Canada’s aggressive rate-cutting and regulatory changes that make housing somewhat more affordable have provided kindling for the Canadian housing market. While the conflagration isn’t likely to peak until spring, a seasonally strong period for housing, activity has already started to pick up. The November uptick in home prices could provide more impetus for potential buyers to move off the sidelines. The new housing initiatives go into effect today and tomorrow.

Debt-to-income ratios for Canadian households have improved as growth in disposable incomes continues to outpace borrowing. This bodes well for more robust residential real estate activity as the Bank of Canada continues to cut rates, albeit at a slower pace. We expect quarter-point rate cuts until the overnight rate, now at 3.25%, falls to 2.5% or even lower if US tariffs are introduced.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

November Jobless Rate Surges to 6.8% in Canada Despite Strong Jobs Growth

General Kimberly Coutts 6 Dec

The Surge In Canadian Unemployment Keeps Another Jumbo Rate Cut In Play In December
 

Before the release of today’s Canadian Labour Force Data, the odds favoured a 25 basis point drop in the overnight policy rate when the Bank of Canada meets again on December 11th. The data showed more substantial than expected job creation, as the country added 51,000 net new positions in November compared to the expected rise of 25,000. However, nearly 90% of the job growth was in the public sector, dampening enthusiasm.

Public sector employment rose by 45,000 (+1.0%) in November and accounted for the majority of the overall employment gain in the month. The number of private sector employees and the number of self-employed people were both little changed in November.

The number of public-sector employees grew by 127,000 (+2.9%) in November compared with 12 months earlier. The increase was driven by the public-sector components of health care and social assistance (+81,000) and educational services (+48,000) (not seasonally adjusted). Over the same period, private-sector employment rose at a slower pace (+1.3%; +173,000).
 

Despite the sharp rise in employment, the jobless rate surged to its highest level in three years, bolstering the case for the BoC to consider another 50 bps rate cut next week. Statistics Canada said Friday that unemployment jumped 0.3 percentage points to 6.8%. The jobless rate is now the highest since January 2017 excluding the pandemic period.

Interest rates fell on the news. Traders in overnight swaps boosted the odds of a 50 basis-point cut at the Bank of Canada’s decision next week at more than three-quarters, from about a coin flip previously. The report was released at the same time as US nonfarm payrolls, which rose by 227,000 while the unemployment rate rose to 4.2%.

The report underscores ongoing labour market softness that had already convinced the Bank of Canada to ramp up the pace of rate cuts with a 50 basis-point reduction in October.

Other details in the report pointed to a slowing economy. Hours worked dipped 0.2%, posting its third decline in the past four months. Also flagging was wage inflation, which cooled considerably. After remaining very strong for months, wage inflation dipped to 4.1% in November, down from 4.9% in October and marking its slowest pace in two years.

After falling for six consecutive months from May to October, the employment rate—the proportion of the population aged 15 and older who are employed—held steady at 60.6% in November. Employment growth in the month kept pace with growth in the population aged 15 and older in the Labour Force Survey (LFS) (+0.2%). On a year-over-year basis, the employment rate was down 1.2 percentage points.
 

The proportion of long-term unemployed people has increased along with the unemployment rate. In November, 21.7% had been continuously unemployed for 27 weeks or more, up 5.9 percentage points from a year earlier.

The labour force participation rate—the proportion of the population aged 15 and older who were employed or looking for work—increased by 0.3 percentage points to 65.1% in November, offsetting a cumulative decline of 0.3 percentage points in September and October. The participation rate was down by 0.5 percentage points on a year-over-year basis.
 

Bottom Line

Monetary policy remains overly restrictive as the 3.75% overnight policy rate remains well above the inflation rate. We expect the overnight rate to fall to 2.5% by April or June of next year. This should continue boosting housing activity, which increased significantly in October and November.

Last week’s GDP data release showed that Canada’s third-quarter GDP grew a mere 1.0%, well below the Bank’s downwardly revised forecast of 1.5%. This, in combination with today’s employment report, bodes well for the Bank of Canada to consider cutting rates by another 50 bps seriously. However, given how aggressive they have been compared to the Federal Reserve, which will undoubtedly cut rates by only 25 bps in late December, they could be satisfied with a 25 bp cut for now.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
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