Entering the Housing Market

General Kimberly Coutts 2 Jul

 

With the first Bank of Canada rate drop having occurred in June, many individuals are looking at the housing market with renewed vigor and an expectation that rates will continue to come down to a more sustainable level.

If you are someone who is considering entering the housing market this summer, there are a few things you should keep in mind:

With the first Bank of Canada rate drop having occurred in June, many individuals are looking at the housing market with renewed vigor and an expectation that rates will continue to come down to a more sustainable level.

If you are someone who is considering entering the housing market this summer, there are a few things you should keep in mind:

Determine Your Budget: Download my app from Google Play or the Apple iStore to help you calculate mortgage payments, affordability, the income required to qualify, and even estimate your closing costs! It also allows you to connect directly with me through the app so that I can answer any questions you have right in the palm of your hand.

Save For a Down Payment: Your typical down payment should be at least 5% of the purchase price, though 20% down is preferable as anything below that requires default insurance. Your down payment can be done through your own savings account or RRSP’s.

  • Thanks to the Federal Government’s Home Buyer’s Plan, first-time homebuyers can leverage up to $60,000 from their RRSPs (maximum of $120,000 for a couple).
  • PRO TIP: The First Home Savings Account (FHSA) is specifically designed to help first-time homebuyers save for their down payment without having to pay taxes on the interest earned on their savings.

Take Advantage of First-Time Buyer Programs: Did you know? First-time home buyers are eligible for an exemption, reducing the amount of property transfer tax paid, depending on the property’s value.

  • PRO TIP: In addition, Ontario, British Columbia, Prince Edward Island, and the City of Toronto offer land transfer tax rebates for first-time homebuyers.

Get Pre-Approved: This means that a lender has stated (in writing) that you qualify for a mortgage and what amount, based on submitted documentation of your current income and credit history. A pre-approval usually specifies a term, interest rate, and mortgage amount and is typically valid for a brief period, assuming various conditions are met.

There are a few benefits to pre-approval such as:

  • It confirms the maximum amount you can afford to spend.
  • It can secure you an interest rate for 90-120 while you shop for your new home
  • It lets the seller know that securing financing should not be an issue. This is extremely important for competitive markets where lots of offers may be coming in.

Understand the Closing Costs: Closing costs are a one-time fee associated with the sale of a home and are separate from the mortgage insurance and down payment. Typically, these costs range from 1.5-4% of the purchase price, depending on your location. Factoring these costs into your maximum budget can help you narrow down an entirely affordable home and ensure future financial stability and security.

Here are a few closing costs to keep an eye out for:

  • Land Transfer Tax: This is calculated as a percentage of the purchase price of your home, with the amount varying in each province. Some cities, such as Toronto, also have a municipal LTT.
  • Legal Fees and Disbursements: You can expect to incur a minimum of $500 (plus GST/HST) on legal fees for the preparation and recording of official documents.
  • Title Insurance: Most lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and is typically $300 or more.
  • PST on CMHC Insurance: Though CMHC insurance itself is financed through the mortgage, PST on the insurance is typically paid at the lawyers and sometimes deducted from your advance.
  • Home Inspection Fee: A home inspection is highly recommended as a condition of your Offer to Purchase to prevent any future surprises. This can cost around $500.
  • Appraisal Fee: An appraisal is performed to certify the lender of the resale value of the home in the case you default on the mortgage. The cost is usually $400 – $600 but is typically covered by the lender.
  • Property Insurance: Property insurance covers the cost of replacing your home and its contents, and must be in place on closing day. This is paid in monthly or annual premiums.
  • Prepaid Utility Bills: You may need to reimburse the previous owner of your property for prepaid costs such as property taxes, utilities, and so forth.
  • Property Taxes: Property taxes are due on an annual basis and are calculated as a percentage of the home value and vary by municipality. You also may need to reimburse the previous property owner if he/she has already paid property taxes for the full year.

Getting Proper Coverage: Purchasing a home is likely the largest investment you will make, and you want to ensure it is protected.

Various insurance items can be obtained for your home, including:

  • Title Insurance: Required by most lenders to protect against losses should a property ownership dispute arise. This insurance is done through your lawyer/notary and typically runs $100-$300.
  • Mortgage Protection Insurance: An optional debt replacement that protects your family should anything happen in the future. Many homeowners believe they are covered through their life insurance policy, but the Manulife Mortgage Protection Plan is different. Before closing, it’s important to look at the costs and coverage for you!
  • Property & Fire Insurance: Mandatory and needs to be arranged before your closing appointment. Not sure how much to budget for? Get quotes from various insurance companies! Your lawyer/notary or myself can provide recommendations
  • Default Insurance: Only required if you purchase a house with less than a 20% down payment.

Whether you’re looking at a condo, townhouse, rancher, or a two-story property, there is nothing quite like your first home! However, the mortgage process can be intimidating – and that’s where I come in! If you’re looking to get started on your home-buying journey, don’t hesitate to reach out to me today.

9 Reasons People Break Their Mortgage.

General Kimberly Coutts 26 Jun

Did you know, approximately 60 percent of people break their mortgage before their mortgage term matures? While this is not necessarily avoidable, most homeowners are blissfully unaware of the penalties that can be incurred when you break your mortgage contract – and sometimes, these penalties can be painfully expensive.

Below are some of the most common reasons that individuals break their mortgage. Being aware of these might help you avoid them (and those troublesome penalties), or at least help you plan ahead!

sale and purchase of a new home

If you already know that you will be looking at moving within the next 5 years, it is important to consider a portable mortgage. Not all mortgages are portable, so if this is a possibility in your near future, it is best to seek out a mortgage product that allows this. However, be aware that some lenders may purposefully provide lower interest rates on non-portable mortgages but don’t be fooled. Knowing your future plans will help you avoid expensive penalties from having to move your mortgage.

Important Note: Whenever a mortgage is ported, the borrower will need to re-qualify under current rules to ensure you can afford the “ported” mortgage based on your income and the necessary qualifications.

to utilize equity

Another reason to break your mortgage is to obtain the valuable equity you have built up over the years. In some areas, such as Toronto and Vancouver, homeowners have seen a huge increase in their home values. Taking out equity can help individuals with paying off debt, expand their investment portfolio, buy a second home, help out elderly parents or send their kids to college.

This is best done when your mortgage is at the end of its term, but if you cannot wait, be sure you are aware of the penalties associated with your mortgage contract.

to pay off debt

Life happens and so can debt. If you have accumulated multiple credit cards and other debt (car loan, personal loan, etc.), rolling these into your mortgage can help you pay them off over a longer period of time at a much lower interest rate than credit cards. In addition, it is much easier to manage a single monthly payment than half a dozen! When you are no longer paying the high interest rates on credit cards, it can provide the opportunity to get your finances in order.

Again, be aware that if you do this during your mortgage term, the penalties could be steep and you won’t end up further ahead. It is best to plan to consolidate debt and organize your finances when your mortgage term is up and you are able to renew and renegotiate.

cohabitation, marriage and/or children

As we grow up, our life changes. Perhaps you have a partner you have been with a long time, and now you’ve decided to move in together. If you both own a home and cannot afford to keep two, or if neither has a rental clause, then you will need to sell one of the homes which could break the mortgage.

divorce or separation

A large number of Canadian marriages are expected to end in divorce. Unfortunately, when couples separate it can mean breaking the mortgage to divide the equity in the home. In cases where one partner wants to buy the other out, they will need to refinance the home. Both of these break the mortgage, so be aware of the penalties which should be paid out of any sale profit before the funds are split.

major life events

There are some cases where things happen unexpectedly and out of our control, including: illness, unemployment, death of a partner or someone on the title. These circumstances may result in the home having to be refinanced, or even sold, which could come with penalties for breaking the mortgage.

removing someone from title

Did you know that roughly 20% of parents help their children purchase a home? Often in these situations, the parents remain on the title. Once their son or daughter is financially stable, secure and can qualify on their own, then it is time to remove the parents from the title.

Some lenders will allow parents to be removed from title with an administration and legal fees. However, other lenders may say that changing the people on Title equates to breaking your mortgage resulting in penalties. If you are buying a home for your child and will be on the deed, it is a good idea to see what the mortgage terms state about removing someone from title to help avoid future costs.

to get a lower interest rate

Another reason for breaking your mortgage could be to obtain a lower interest rate. Perhaps interest rates have plummeted since you bought your home and you want to be able to put more down on the principle, versus paying high interest rates. The first step before proceeding in this case is to work with your DLC mortgage broker to crunch the numbers to see if it’s worthwhile to break your mortgage for the lower interest rate – especially if you might incur penalties along the way.

pay off the mortgage

Wahoo!!! You’ve won the lottery, got an inheritance, scored the world’s best job or had some other windfall of cash leaving you with the ability to pay off your mortgage early. While it may be tempting to use a windfall for an expensive trip, paying off your mortgage today will save you THOUSANDS in the long run – enough for 10 vacations! With a good mortgage, you should be able to pay it off in 5 years, thereby avoiding penalties but it is always good to confirm.

Some of these reasons are avoidable, others are not. Unfortunately, life happens. That’s why it is best to seek the advice of an expert. Please book a discovery call with me so I can be part of your journey and help you get the best mortgage for YOU.

May employment growth in Canada stalled as the unemployment rate ticked up to 6.2%

General Kimberly Coutts 10 Jun

May Jobs Report
 

In the first major data release since the Bank of Canada cut interest rates on Wednesday, Statistics Canada Labour Force Survey for May showed a marked slowdown from the April surge. Employment was little changed and the employment rate fell 0.1 percentage points to 61.3%, the seventh decrease in the past eight months.

The number of employed people increased by 27,000 following a gain of 90,000 in April. Year-over-year (y/y), employment rose 2.0% in May. Part-time employment rose by 62,000 (+1.7%) in May, while full-time employment edged down (-36,000; -0.2%). Job creation rose the most in health care and social assistance, followed closely by gains in finance, insurance, real estate, rental and leasing. It fell the most in construction, largely reflecting labour shortages in that sector. Employment gains were reported in only three provinces in May, led by Ontario, Manitoba and Saskatchewan.
 

Population growth isn’t likely to slow near-term, which means that anything short of about a 45k employment gain will push the jobless rate higher. The jobless rate rose to 6.2%, 1.4 percentage points above the July 2022 cycle low, and the highest level since 2017 (excluding the pandemic).
 

Total hours worked were unchanged in May and were up 1.6% compared with 12 months earlier.
Average hourly wages among employees increased 5.1% year over year in May, following growth of 4.7% in April (not seasonally adjusted). This isn’t going to make the Bank of Canada happy, but there will be another Labour Force Survey release before the next BoC decision date on July 24.
 

Bottom Line

This report did not contain anything that would forestall another rate cut at the next meeting, with the possible exception of the rebound in wage inflation. This could well reverse with the June data.

CPI will be the key data release in the coming weeks–reported for May on June 25 and June on July 16. We believe the overnight policy rate will trend toward 2.%-to-3.0% from today’s 4.75% by the end of next year.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

The great news a lot of us have been waiting for!

General Kimberly Coutts 5 Jun

Finally the news we’ve been all waiting for.  That is Variable Rate Mortgage Holders, anyone with a HELOC or perhaps any other source of debt that is tied to the Bank of Canada Prime Rate.  Today, marks the first decrease since the Bank of Canada steadily increased the rate over the last several years.

They have acknowledged that the economy doesn’t need such a high interest rate any longer.  They will continue to proceed cautiously however as they want to ensure that the inflationary pressures don’t rebound like they have in the US in recent months.  As we know our inflation rate has been on a steadily decline over the last several months, reaching 2.7% in April.

While economists aren’t necessarily on the same page as to when the next cut will be, perhaps July 24th or perhaps September 4th fingers are crossed that we’ll see more rate cuts in the coming 12 months.

If you’re wondering how it might affect your own mortgage, check out the simple grid below.  You can also download my Mortgage Calculator and run some potential scenarios.

If you’re wondering why the turn of events, below is the Bank’s rationale for this move.

Canadian inflation

  • Inflation measured by the Consumer Price Index (CPI) eased further in April to 2.7%
  • The Bank’s preferred measures of core inflation also slowed and three-month indicators suggest continued downward momentum
  • Indicators of the breadth of price increases across components of the CPI have moved down further and are near their historical average, however, shelter price inflation remains high

Canadian economic performance and housing

  • Economic growth resumed in the first quarter of 2024 after stalling in the second half of last year
  • At 1.7%, first-quarter GDP growth was slower than the Bank previously forecast with weaker inventory investment dampening activity
  • Consumption growth was solid at about 3%, and business investment and housing activity also increased
  • Labour market data show Canadian businesses continue to hire, although employment has been growing at a slower pace than the working-age population
  • Wage pressures remain but look to be moderating gradually
  • Overall, recent data suggest the economy is still operating in excess supply

Global economic performance and bond yields

  • The global economy grew by about 3% in the first quarter of 2024, broadly in line with the Bank’s April Monetary Policy Report projection
  • The U.S. economy expanded more slowly than was expected, as weakness in exports and inventories weighed on activity
  • In the euro area, activity picked up in the first quarter of 2024 while China’s economy was also stronger in the first quarter, buoyed by exports and industrial production, although domestic demand remained weak
  • Inflation in most advanced economies continues to ease, although progress towards price stability is “bumpy” and is proceeding at different speeds across regions
  • Oil prices have averaged close to the Bank’s assumptions, and financial conditions are little changed since April

Please note, this doe NOT affect your Fixed Rate mortgages which are tied to the Canada Bond Market.  If we’ve pre-approved you with fixed rates, this doesn’t affect your pre-approval purchase price amounts.  However it is important to note that in reviewing the Canada 5 Year Government Bond over the last 5 days it has trended downwards…so there MAY be decreases in fixed rates as well.

I know….it’s confusing….so if you have questions and want to chat about your situation, feel free to book a Strategy Call.  

Weaker-than-expected Canadian Q1’24 GDP Growth Increases Odds of a Rate Cut Next Week

General Kimberly Coutts 31 May

Odds of a Rate Cut Next Week Rise with Disappointed Canadian GDP Growth
 

The likelihood of a rate cut next week has increased due to disappointing Canadian GDP growth. Real gross domestic product (GDP) only rose by 1.7% (seasonally adjusted annual rate) in the first quarter of this year, which is well below the expected 2.2% and the Bank of Canada’s forecast of 2.8%. Fourth-quarter economic growth was revised to just 0.1% from 1.0%. These figures have led traders to increase their bets on a Bank of Canada rate cut when they meet again next week.

In the first quarter of 2024, higher household spending on services—primarily telecom services, rent, and air transport—was the top contributor to the increase in GDP, while slower inventory accumulation moderated overall growth. Household spending on goods increased modestly, with higher expenditures on new trucks, vans and sport utility vehicles.

On a per capita basis, household final consumption expenditures rose moderately in the first quarter, following three-quarters of declines. Per capita spending on services increased, while per capita spending on goods fell for the 10th consecutive quarter.

Business capital investment rose in the first quarter, driven by increased spending on engineering structures, primarily within the oil and gas sector. Business investment in machinery and equipment also increased, coinciding with increased imports of industrial machinery, equipment and parts.

Resale activity picked up in Q1, driving the rise in housing investment, while new construction was flat. Ontario, British Columbia and Quebec posted the most significant volume increases in resales, while prices in these provinces fell in the first quarter.

New housing construction (+0.1%) was little changed in the first quarter, as work put in place decreased for all dwelling types except double houses. Costs related to new construction, such as taxes and closing fees upon change in ownership, increased in the quarter and were mainly attributable to newly absorbed apartment units in Ontario.

The household savings rate reached 7.0% in the first quarter, the highest rate since the first quarter of 2022, as gains in disposable income outweighed increases in nominal consumption expenditure. Income gains were derived mainly from wages and net investment income.

Investment income grew strongly in the first quarter of 2024 due to widespread gains from interest-bearing instruments and dividends. Higher-income households benefit more from interest rate increases through property income received.

Household property income payments, comprised of mortgage and non-mortgage interest expenses, posted the lowest increases since the first quarter of 2022, when the Bank of Canada’s policy rate increases began.
 

Bottom Line

This is the last major economic release before the Bank of Canada meets again on June 5. Traders in overnight markets put the odds of a rate cut at next week’s meeting at about 75%, up from 66% the day before. Bonds rallied, and the yield on the Canadian government two-year note fell sharply, reflecting this change in sentiment.

The Bank of Canada has good reason to cut the overnight policy rate next week. Core inflation measures have decelerated sharply in recent months, and the economy is growing at a much slower pace than the central bank expected. The Bank has been very cautious, and there remains the possibility that they will wait another month before pulling the trigger on rate cuts, but at this point, we see no reason to delay any further.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian CPI Inflation Eased In April, Raising the Chances of a June Rate Cut

General Kimberly Coutts 21 May

Canadian Inflation Eased Again in April, Raising the Chances of a June Rate Cut
 

The Consumer Price Index (CPI) rose 2.7% year-over-year (y/y) in April, down from 2.9% in March. This marks the fourth consecutive decline in core inflation. Food prices, services, and durable goods led to the broad-based deceleration in the headline CPI.

The deceleration in the CPI was moderated by gasoline prices, which rose faster in April (+6.1%) than in March (+4.5%). Excluding gasoline, the all-items CPI slowed to a 2.5% year-over-year increase, down from a 2.8% gain in March.

The CPI rose 0.5% m/m in April, mainly due to gasoline prices. On a seasonally adjusted monthly basis, it rose 0.2%.

While prices for food purchased from stores continue to increase, the index grew slower year over year in April (+1.4%) compared with March (+1.9%). Price growth for food purchased from restaurants also eased yearly, rising 4.3% in April 2024, following a 5.1% increase in March.

According to Bloomberg calculations, the three-month moving average of the rate rose to an annualized pace of 1.64% from 1.35% in March. That’s the first gain since December.
 

The Bank of Canada’s preferred core inflation measures, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trim slowed to 2.9% y/y in April, and the median declined to 2.6% from year-ago levels, as shown in the chart below. Rising rent and mortgage interest costs account for a disproportionate share of price growth, with shelter costs up 6.4% year-over-year. Growth in mortgage interest costs slightly decreased in April but remained 24.5% higher than a year ago.

The breadth of inflationary pressures narrowed again in April, with the proportion of the CPI basket experiencing growth exceeding 3%, decreasing to 34% from 38% in March.
 

Bottom Line

April’s inflation readings largely met expectations but with underlying details (including further slowing in the BoC’s preferred ‘core’ measures) pointing to a further reduction in inflationary pressures. The Bank of Canada is as concerned about where inflation will go in the future as where it is right now. Still, Canada’s persistently softer economic backdrop (declining per-capita GDP and rising unemployment rate) increases the odds that price growth will continue to slow. The case for interest rate cuts from the Bank of Canada continues to build. The central bank has every reason to cut rates at their next meeting on June 5. Still, given the BoC’s extreme caution, we must consider the possibility that they will wait until the July meeting to take action, and only if inflation continues to recede.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

April’s Strong Job Gains Likely Postpone Rate Cuts Until July

General Kimberly Coutts 10 May

April’s Strong Job Gains Likely Postpone Rate Cuts Until July
 

Today’s StatsCanada Labour Force Survey for April blindsided economists by coming in much more robust than expected. Employment in Canada rose a whopping 90,400 in April, the most in 15 months, following a decline in March, surpassing forecasts by a large margin. Substantial job gains were posted in both full-time and part-time work.

After four months of little change, private sector jobs finally took the lead in April. Employment gains were widespread across various industries within the services-producing sector, particularly in professional, scientific and technical services (+26,000; +1.3%), accommodation and food services (+24,000; +2.2%), health care and social assistance (+17,000; +0.6%) and natural resources (+7,700; +2.3%). However, there were declines in the goods-producing sector, notably utilities (-5,000; -3.1%).

Across Canadian provinces, employment increased in Ontario (+25,000; +0.3%), British Columbia (+23,000; +0.8%), Quebec (+19,000 +0.4%) and New Brunswick (+7,800; +2.0%).
 

Despite the surge in net new jobs, the unemployment rate remained steady at 6.1%. The jobless rate in April was up 1.0 percentage points from a year ago.
 

Average hourly wages among employees rose 4.7% in April, down meaningfully from the 5.1% pace in March. This is good news for the Bank of Canada and keeps the door open to rate cuts, probably in July. The overall strength of today’s report gives the Bank breathing room to postpone the next rate cut from June to July.
 

Bottom Line

The central bank meets again on June 5. The April CPI report will be released on May 21. This is by far the most important economic report for the Bank. They will look at the three-month trend in the core inflation measures. These figures have already fallen sharply, but given the strength in the jobs report, the central bank will likely wait another month before they begin cutting interest rates.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

What to Know at Renewal

General Kimberly Coutts 7 May

Is your mortgage coming up for renewal this year or in 2025?

Do you know about all the incredible options renewing your mortgage can afford you?

If not, I have all the details here on how to make the most of your renewal!

Get a Better Rate: Did you know that when you receive notice that your mortgage is coming up for renewal, it’s the best time to shop around for a more favorable interest rate? At renewal time, it’s easy to explore other lenders for a preferable interest rate without breaking your mortgage. With interest rates expected to start coming down next month, reaching out and exploring the market could potentially save you a significant amount of money!

Consolidate Debt: Renewal time is also an excellent opportunity to assess your existing debt and decide whether consolidating it into your mortgage is beneficial. Whether it’s holiday credit card debt, car loans, education loans, or other debts, consolidating your mortgage streamlines your payments into one, potentially at a lower interest rate compared to other sources.

Invest in Renovations: Do you have home improvement projects waiting to be tackled? Renewal time provides a great opportunity to tap into your home equity for renovations, whether it’s your dream kitchen, bathroom upgrades, or even investing in a vacation property. Utilizing your equity can bring your renovation dreams to life.

Adjust Your Mortgage Product: Not satisfied with your current mortgage product? Whether it’s fluctuations in variable rates or seeking a different payment or amortization schedule, renewal time allows you to switch things up. You can lock in a fixed rate for stability or opt for a variable rate if you anticipate changes in interest rates. Adjusting your mortgage product can align it better with your financial goals.

Summer is coming up and you don’t want to miss your chance to make the most of your yard! To help you enjoy your space this year, I have broken down some of the top yard appeal ideas with the biggest ROI giving you the most bang for your buck and can increase your home’s equity and curb appeal at the same time!

Great News On The Canadian Inflation Front

General Kimberly Coutts 17 Apr

Great News On The Inflation Front
 

The Consumer Price Index (CPI) rose 2.9% year-over-year in March, as expected, up a tick from the February pace owing to a rise in gasoline prices, as prices at the pump rose faster in March compared with February. Excluding gasoline, the all-items CPI slowed to a 2.8% year-over-year increase, down from a 2.9% gain in February.

Shelter prices increased 6.5% year over year in March, rising at the same rate as in February.
The mortgage interest cost index rose 25.4% y/y in March, following a 26.3% increase in February. The homeowners’ replacement cost index, which is related to the price of new homes, declined less in March (-1.0%) compared with February (-1.4%) on a year-over-year basis.

Rent prices continued to climb in March, rising 8.5% year over year, following an 8.2% increase in February. Among other factors, a higher interest rate environment, which can create barriers to homeownership, puts upward pressure on the index.

Prices for services (+4.5%) continued to rise in March compared with February (+4.2%), driven by air transportation and rent. This outpaced price growth for goods (+1.1%), which slowed compared with February (+1.2%) on a yearly basis.

On a seasonally adjusted monthly basis, the CPI rose 0.3% in March.
 

The Bank of Canada’s preferred core inflation measures, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trim slowed a tick to 3.1% y/y in March, and the median declined two ticks to 2.8% from year-ago levels, as shown in the chart below.
 

Bottom Line

Most importantly, the three-moving average of all core measures of Canadian inflation fell to below 2%, the Bank of Canada’s target inflation level. Governor Tiff Macklem got exactly what he was hoping for: Further confirmation that core inflation was falling within the target range.

Shelter remains the single most significant contributor to total inflation. Excluding shelter, inflation is tracking just 1.5% and has been below the central bank’s 2% target for most of the past six months. This has slowed economic activity, reducing consumer discretionary spending and making it more difficult for businesses to raise prices. Once interest rates fall, mortgage interest costs—a large component of shelter costs—will start falling.

The three-month annualized rates of the Bank of Canada’s core-median and trim indicators slowed to just 1.3% (see chart below), and the average year-over-year rates are down a tick to 3.0%. According to the economists at Desjardins, “the share of components in the CPI basket that are rising more than 3%, an indicator closely watched by Governor Macklem, is down to 38% from 41%. And the share of components showing price growth of less than 1% is up to 44% from 38% in February. Both suggest that the breadth of inflationary pressures is becoming more consistent with the Bank of Canada’s 2% target”.

We will see the April inflation data on May 21, before the next BoC decision date. While gasoline prices have continued to rise this month, so far, the gain has been more muted than in March. With any luck, today’s data will set the stage for the first BoC rate cut in June.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Bank of Canada Hold Rates Steady for Sixth Consecutive Meeting

General Kimberly Coutts 10 Apr

As you likely have already heard today, the Bank of Canada announced it’s keeping its benchmark interest rate at 5.0%, unchanged from July of 2023.  This means that there is NO change for those within variable rate mortgages, lines of credit or any other loans tied to the Bank of Canada Rate which continues to sit at 7.2%.

Governor Macklem’s prepared opening statement at today’s press conference was more dovish on inflation than in prior months.  “We are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained.”  If things going according to today’s Monetary Policy Report forecasts, policymakers are likely to begin cutting the overnight rate in June.  Once again these Bank of Canada Interest updates affect VARIABLE rate mortgages etc.

Over the last couple of weeks, we have seen a decrease in 3 & 5 year fixed rates due to the Bonds trending downwards, however US inflation unfortunately blew past expectations and caused a spike in the US 10 year Treasury Yield.  Thus causing a spike in the Canadian Government of Canada Bond yield to jump up….Fixed Rates may go up once again so if you’re at all contemplating home ownership or a renewal I URGE you to get in touch asap so that we can complete a full financial analysis and get rate holds completed.  Rate holds are good for 120 days and insured rates (mortgage rates for those that have less than 20% down payment) are sitting at 4.99% as of today.

I’m grateful to my lender partners at First National who provided a summary of the Bank’s key observations below.

Canadian Inflation

  • CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs
  • Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum
  • The Bank expects CPI inflation to be close to 3% during the first half of 2024, move below 2.5% in the second half, and reach the 2% inflation target in 2025

Canadian Economic Performance and Housing

  • Economic growth stalled in the second half of last year and the economy moved into excess supply
  • A broad range of indicators suggest that labour market conditions continue to ease. Employment has been growing more slowly than the working-age population and the unemployment rate has risen gradually, reaching 6.1% in March. There are some recent signs that wage pressures are moderating
  • Economic growth is forecast to pick up in 2024. This largely reflects both strong population growth and a recovery in spending by households
  • Residential investment is strengthening, responding to continued robust demand for housing
  • The contribution to growth from spending by governments has also increased. Business investment is projected to recover gradually after considerable weakness in the second half of last year. The Bank expects exports to continue to grow solidly through 2024
  • Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026. The strengthening economy will gradually absorb excess supply through 2025 and into 2026

Global Economic Performance and Bond Yields

  • The Bank expects the global economy to continue growing at a rate of about 3%, with inflation in most advanced economies easing gradually
  • The US economy has “again proven stronger than anticipated, buoyed by resilient consumption and robust business and government spending.” US GDP growth is expected to slow in the second half of this year, but remain stronger than forecast in January
  • The euro area is projected to gradually recover from current weak growth. Global oil prices have moved up, averaging about $5 higher than the Bank assumed in its January Monetary Policy Report
  • Since January, bond yields have increased but, with narrower corporate credit spreads and sharply higher equity markets, overall financial conditions have eased
  • The Bank has revised up its forecast for global GDP growth to 2.75% in 2024 and about 3% in 2025 and 2026
  • Inflation continues to slow across most advanced economies, although progress will likely be bumpy. Inflation rates are projected to reach central bank targets in 2025

Outlook

Based on the outlook, the Governing Council said it decided to hold the Bank’s policy rate at 5% and to continue to “normalize” the Bank’s balance sheet. It also noted that while inflation is still too high and risks remain, CPI and core inflation have eased further in recent months.

The Council said it will be looking for evidence that this downward momentum is sustained. The Governing Council is particularly watching the “evolution of core inflation,” and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.

As it has said consistently over the past year, the Bank will remain “resolute in its commitment to restoring price stability for Canadians.”

Next Touchpoint

Stay tuned as the Bank returns on June 5th with another monetary policy announcement and economists are already lining up with predictions of a rate cut either then or in July.  Fingers crossed.

If you’re contemplating getting into the market or wanting how to proceed with your renewal, get in touch to set up a Discovery Call.  www.ChatWithTheMortgageMaven.com  I’m always here to assist and happy to chat.

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