29 Feb

No Recession In Canada, As Q4 GDP Growth Rose 1%

General

Posted by: Tim Woolnough

Still No Recession In Canada Thanks to Huge Influx of Immigrants
 

Real gross domestic product (GDP) rose a moderate 1.0% (seasonally adjusted annual rate), a tad better than expected and the Q3 contraction of -1.2% was revised to -0.5%. This leaves growth for 2023 at a moderate 1.1%. Monthly data, also released today by Statistics Canada, showed that December came in flat, well below the robust flash estimate, while the January preliminary estimate was a strong +0.4% (subject, of course, to revision). The January uptick was driven by the return of Quebec public servants and a mild winter.

The fourth quarter growth was fuelled by higher oil exports and was moderated by a significant decline in business investment. Housing investment declined again in Q4–a sixth decline in the last seven quarters. Despite increased activity in Q4 new residential construction and renovations, it was more than offset by a large drop in home ownership transfer costs, reflecting the weakening resale market across Canada. Single-family units and apartments led the rise in new construction, as all provinces and territories, except Prince Edward Island, post a rise in housing starts.

Investment in non-residential structures fell sharply, as did spending on machinery and equipment, especially on aircraft and other transportation equipment. Even government spending declined.
 

Bottom Line

This is the last major economic release before the Bank of Canada meets again on March 6. The central bank will hold interest rates steady at next week’s meeting, and while some are suggesting the first rate cut this cycle will be as soon as the April confab, the consensus remains at June. With the uptick in growth in Q4, there is no urgency for the Bank to ease.

Policymakers will wait for their favourite core inflation measures to fall within the 1%-to-3% target band. They know that GDP per capita is falling and that mortgage renewals at higher interest rates will dampen household discretionary income. That’s why a June rate cut is widely expected.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
29 Feb

Amortization Options.

General

Posted by: Tim Woolnough

Amortization Options.

Your mortgage amortization period is the number of years it will take you to pay off your mortgage. Depending on your choice of amortization period, it will affect how quickly you become mortgage-free as well as how much interest you pay over the lifetime of your mortgage (a longer lifetime equals more interest, whereas a shorter lifetime equals less interest but also bigger payments).

Amortization Benchmarks
Let’s start by looking at the mortgage industry benchmark amortization period. This is typically a 25-year period and is the standard that is used by the majority of lenders when it comes to discussing mortgage products. It is also typically the basis for standard mortgage calculators. While this is the standard, it is not the only option when it comes to your mortgage amortization. Mortgage amortizations can be as short as 5 years and as long as 35 years!

Benefits of a Shorter Amortization
Opting for a shorter amortization period will result in paying less interest overall during the life of your mortgage. Choosing this amortization schedule means you will also become mortgage-free faster and have access to your home equity sooner! However, if you choose to pay off your mortgage over a shorter time frame, you will have higher payments per month. If your income is irregular, you are at the maximum end of your monthly budget or this is your first home, you may not benefit from a shorter amortization and having more cash flow tied up in your monthly mortgage payments.

Benefits of a Longer Amortization
When it comes to choosing a longer amortization period, there are still advantages. The first is that you have smaller monthly mortgage payments, which can make home ownership less daunting for first-time buyers as well as free up additional monthly cash flow for other bills or endeavors. A longer amortization also has its advantages when it comes to buying a home as choosing a longer amortization period can often get you into your dream home sooner, due to utilizing standard mortgage payments versus accelerated. In some cases, with your payments happening over a larger period, you may also qualify for a slightly higher value mortgage than a shorter amortization depending on your situation.

Let’s Chat!
I would be happy to help with the decision for the amortization that best suits your unique requirements and ensures you have adequate cash flow. However, it is important to mention that you are not stuck with the amortization schedule you choose at the time you get your mortgage. You can shorten or lengthen your amortization, as well as consider making extra payments on your mortgage (if you set up pre-payment options), at a later date.

Ideally, you are re-evaluating your mortgage at renewal time (every 3, 5, or 10 years depending on your mortgage product). During renewal is a great time to review your amortization and payment schedules or make changes if they are no longer working for you.

If you have any questions or are looking to get started on purchasing a home, don’t hesitate to book a strategy call with me today!

20 Feb

Great News On The Inflation Front Cause Big Bond Rally

General

Posted by: Tim Woolnough

Canadian Inflation Falls to 2.9% in January, Boosting Rate Cut Prospects
 

The Consumer Price Index (CPI) rose 2.9% year-over-year in January, down sharply from December’s 3.4% reading. The most significant contributor to the deceleration was a 4% decline in y/y gasoline prices, compared to a 1.4% rise the month before (see chart below). Excluding gasoline, headline CPI slowed to 3.2% y/y, down from 3.5% in December.

Headline inflation of 2.9% marks the first time since June that inflation has moved into the Bank of Canada 1%-to-3% target band and only the second time to breach that band since March 2021.

Grocery price inflation also decelerated broadly in January to 3.4% y/y, down from 4.7% in December. Lower prices for airfares and travel tours also contributed to the headline deceleration. Prices for clothing and footwear were 1.3% lower than levels from a year ago, potentially reflecting the discounting of winter clothing after a milder-than-usual winter in much of the country.

The shelter component of inflation remains by far the largest contributor to annual inflation. The effect of past central bank rate hikes feeds into the CPI with a lag. The y/y growth in mortgage interest costs edged lower in January but still posted a 27.4% rise and accounted for about a quarter of the total annual inflation. Inflation, excluding mortgage costs, is now at 2.0%. Home rent prices continue to rise, but another component under shelter – homeowners’ replacement costs inched lower on slower house price growth.

On a monthly basis, the CPI was unchanged in January, following a 0.3% decline in December. On a seasonally adjusted monthly basis, the CPI fell 0.1% in January, the first decline since May 2020.
 

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 three ticks to 3.4%, and the median declined two ticks to 3.3% from year-ago levels, as shown in the chart below.

Notably, the share of the CPI basket of goods and services growing at more than 5% has declined from the peak of 68% in May 2022 to 28% in January 2024.
 

Bottom Line

The next meeting of the Bank of Canada Governing Council is on March 6. While January’s inflation report was better than expected and shows that the breadth of inflation is narrowing, it is still well above the level consistent with the 2% inflation target.

Shelter inflation will remain sticky as higher mortgage rates over the course of last year filter into the index and the acute housing shortage boosts rents.

The Bank of Canada will remain cautious in the face of still-high wage gains and core inflation measures above 3%. I hold to my view that the Bank will begin cutting rates in June.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
14 Feb

Canadian Home Sales Continued to Rise in January as Markets Tightened

General

Posted by: Tim Woolnough

Canadian Home Sales Continued Their Upward Trend in January As Prices Fell Modestly
 

The Canadian Real Estate Association announced today that home sales over the last two months show signs of recovery. National sales were up 3.7% between December 2023 and January 2024, building on the 7.9% gain in December. The chart below shows that despite the two-month rise, sales remain 9% below their ten-year average. According to Shaun Cathcart, CREA’s Senior Economist, “Sales are up, market conditions have tightened quite a bit, and there has been anecdotal evidence of renewed competition among buyers; however, in areas where sales have shot up most over the last two months, prices are still trending lower. Taken together, these trends suggest a market that is starting to turn a corner but is still working through the weakness of the last two years.”

National gains were once again led by the Greater Toronto Area (GTA), Hamilton-Burlington, Montreal, Greater Vancouver and the Fraser Valley, Calgary, and most markets in Ontario’s Greater Golden Horseshoe and cottage country.

The actual (not seasonally adjusted) number of transactions was 22% above January 2023, the most significant year-over-year gain since May 2021. While that sounds like a resounding rise in activity, January 2023 posted the weakest transaction level in nearly twenty years.

There is pent-up demand for housing, and recent buyers are lured back into the market by the recent price decline and the fear that prices could rise significantly once the Bank of Canada starts cutting interest rates. 
 

New Listings

The number of newly listed homes increased 1.5% month-over-month in January, although it remains close to the lowest level since last June.

“The market has been showing some early signs of life over the last couple of months, probably no surprise given how much pent-up demand is out there,” said Larry Cerqua, Chair of CREA.

With sales up by more than new listings in January, the national sales-to-new listings ratio tightened further to 58.8% compared to under 50% just three months earlier. The long-term average for the national sales-to-new listings ratio is 55%. A sales-to-new listings ratio between 45% and 65% is generally consistent with balanced housing market conditions, with readings above and below this range indicating sellers’ and buyers’ markets, respectively.

There were 3.7 months of inventory on a national basis at the end of January 2024, down from 3.8 months at the end of December and 4.1 months at the end of November. The long-term average is about five months of inventory.
 

Home Prices

The Aggregate Composite MLS® Home Price Index (HPI) fell by 1.2% month-over-month in January 2024, adding to the 1.1% price decline in December.

Price descents of late have been predominantly in Ontario markets, particularly the Greater Golden Horseshoe and, to a lesser extent, British Columbia. Elsewhere in Canada, prices are mostly holding firm or, in some cases (Alberta and Newfoundland and Labrador), continuing to rise.

The Aggregate Composite MLS® HPI was up 0.4% year-over-year in January 2024, similar to readings over the past six months.
 

Bottom Line

Sales in December and January generally run at about half the peak spring season pace. That could be especially true this year, with interest rates likely to begin falling by mid-year. A strong housing rebound is coming. Housing markets have bottomed, buyer sentiment is improving and fixed mortgage rates have started declining.

Housing markets in Toronto, Vancouver and Montreal are relatively balanced again, and with the spring season, we will see a rise in new listings.

In other news, the inflation data released yesterday in the US were higher than expected, pushing rate-cut forecasts further out. With the strength in the US economy, the 5-year government of Canada bond yield has quietly risen more than 50 basis points this year.

Canada’s Housing Minister, Sean Fraser, said he expects the fall in interest rates this year to encourage builders to ramp up their activity, helping to alleviate some of the country’s crunched housing supply. At a news conference yesterday, the minister said, “My expectation is if we see a dip in interest rates over the course of this year, a lot of the developers that I’ve spoken to will start those projects that are marginal today.”

Sean Fraser, asked whether he’s concerned that Bank of Canada rate cuts will unleash pent-up demand and higher home prices, said lower borrowing costs should also lead to an increase in supply. Fraser said whatever happens with rates, the government’s course of action will remain the same. “We need to do everything we can as quickly as we can to build as many homes as we can. And that’s going to be true today and six months from now, regardless of what may happen in the interest rate environment that we’re dealing with.”

At a news conference last week, Bank of Canada Governor Tiff Macklem said that while he’s heard from developers who’ve indicated higher rates are delaying projects, lowering rates would have a more significant impact on demand.

“It’s very clear in the data that the effects of interest rates on demand are much bigger than those on supply,” he told reporters.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
12 Feb

Estate Planning: Are You Covered?

General

Posted by: Tim Woolnough

Estate Planning: Are You Covered?

“New Year, new you” may be a cliché but it is for a reason! The New Year always has us thinking about where we are now, and where we want to end up. When it comes to your personal goals, a review of your finances and estate should be at the top of your list. Proper estate planning can ensure that you have a stress-free year knowing you are covered!

Is your will up-to-date?

The purpose of a will is to outline your assets and determine how they will be distributed, as well as who will be in charge of managing affairs. Some key components to include in this document are:

  • Up-to-date list of your significant assets; note the location if outside your province or outside Canada.
  • Who will inherit your assets? And which?
  • Outline of where you want assets to pass outside your estate to avoid probate fees (e.g., an insurance policy, an RRSP)? Do this via beneficiary designation.
    • If they are minors, do you have a trust or other provisions in place?
  • Is the list of beneficiaries in your will up to date? Have there been recent births, deaths or marriages in your family?
  • Have you included alternates in case your named beneficiaries predecease you?
  • Do you want to give to charities or other organizations?
  • If you have children, have you indicated a guardian and spoken to them?
    • Did you include an alternate in case the guardian you chose is unable to commit?
    • Have you reviewed your choice of guardian as your child grows older?
  • Your executor who will carry out your wishes after you die. You can name one executor or two or more co-executors. Be sure to name one or more alternates as well.

Have you assigned a power of attorney?

Another important (and often overlooked!) aspect of estate planning involves naming a power of attorney. This individual is someone you trust to make decisions for you should you become unable to do so due to injury or illness, whether temporary or otherwise.  Power of attorney documents are created for you by a wills and estates lawyer (or notary in Quebec) as part of your estate plan.

Do you have mortgage protection insurance?

Through Manulife Mortgage Protection Plan (MPP), you have the opportunity to add a portable insurance policy to your mortgage that helps protect your loved ones and your home should something unexpected happen to you.  Unlike bank insurance, MPP is a portable life and disability product that you can take with you, from lender to lender and property to property.  This gives you the utmost future flexibility and is unlike bank insurance products which tie you down exclusively to them.  To ensure you get the best rate at renewal, you must have invested in an insurance product like MPP that will give you the freedom to move!

Mortgage life insurance will protect your family’s future by paying out your mortgage should the mortgage holder pass away. Manulife will also make your mortgage payments while your claim is being adjudicated, so there is no added stress for a loved one at an already difficult time.  Mortgage disability insurance will take care of your mortgage payments plus property taxes if you become disabled.  Disabilities from sickness and accidents are relatively common and will affect 1 in 3 borrowers throughout their mortgage amortization.  Manulife provides budget-friendly payment options, the ability to top-up your coverage and so much more.

These are all important aspects to consider to ensure your estate and family will be provided for should something happen. While never a fun topic, it is an important one and the better prepared you are, the better off your loved ones will be.

12 Feb

Canadian January Jobs Report Suggests No Recession In Sight

General

Posted by: Tim Woolnough

January Jobs Report Dispells Recession Fears
 

Today’s StatsCanada Labour Force Survey for January was a mixed bag and shows the dramatic effect of surging immigration. Canadian employment rose by a stronger-than-expected 37,300, but part-time jobs rose by 48,900, and in the public sector, the gain was huge. The employment rate fell a tick because population growth outpaced employment growth. The working-age population surged by 125,500 in a single month and is up by a remarkable 1 million adults year-over-year.

This ballooning of the working-age population is without precedent. In the past, it has never grown more than 500,000 in any year. Holy Cow, what are we doing?  Where will all of the people live, where will their kids go to school, where will the new hospitals be built, not to mention the transportation infrastructure on already crowded subways and roadways?
 

The unemployment rate fell a tick to 5.7%, the first such drop since December 2022. This reflected the 0.2 percentage point decline in the labour force participation love to 65.3%, as the number of people in the labour force held steady and the population rose.

Most of the new jobs were in the service sector, led by wholesale and retail trade, and finance, insurance, real estate, rental and leasing. There were declines in other sectors, especially in accommodation and food services.
 

In  January, average hourly wages were up 5.3% year-over-year, still way too high for the Bank of Canada. According to Statistics Canada, average hourly wages rose 5.9% to an average of $60.58 for employees with hourly wages in the top 25% of the wage distribution in January 2024, compared with an increase of 4.6% (to $17.64 per hour) for those with hourly wages in the bottom 25% of the wage distribution (not seasonally adjusted). Of course, the highest-paid workers earn a salary and are not paid by the hour.
Bottom Line

The next Bank of Canada announcement date is on March 6th. There is plenty of data yet to come out before then. But judging from what we already know, the economy is not in recession, and wages are still rising too rapidly. Housing markets are already beginning to heat up, and the US economy is running red hot. The strong US inevitably spills into Canada. This gives the BoC more time to ponder inflation. So far, there is no hurry for them to cut rates.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca