18 Feb

Canadian New Listings Surged in January as Tariff Uncertainty Weighed on Sales

General

Posted by: Tim Woolnough

Global Tariff Uncertainty Is Not Good For the Canadian Housing Market
 

Canadian MLS® Systems posted a double-digit jump in new supply in January 2025 when compared to December 2024. At the same time, sales activity fell off at the end of the month, likely reflecting uncertainty over the potential for a trade war with the United States.

Although sales were down 3.3% month-over-month in January, this was mostly the result of sales trailing off in the last week of the month.

Meanwhile, the number of newly listed homes increased with an 11% jump compared to the final month of 2024. Aside from some of the wild swings seen during the pandemic, this was the largest seasonally adjusted monthly increase in new supply on record going back to the late 1980s.

“The standout trends to begin the year were a big jump in new supply at an uncommon time of year, as well as a weakening in sales which only showed up around the last week of January,” said Shaun Cathcart, CREA’s Senior Economist. “The timing of that change in demand leaves little doubt as to the cause – uncertainty around tariffs. Together with higher supply, this means markets that had been steadily tightening up since last fall are now suddenly in a softer pricing situation again, particularly in British Columbia and Ontario.”
 

New Listings

With sales down amid a surge in new supply, the national sales-to-new listings ratio fell to 49.3% compared to readings in the mid-to-high 50s in the fourth quarter of last year. 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 close to 136,000 properties listed for sale on all Canadian MLS® Systems at the end of January 2025, up 12.7% from a year earlier but still below the long-term average for that time of the year of around 160,000 listings.

“While we continue to anticipate a more active spring for the housing sector, the threat of a trade war with our largest trading partner is a major dark cloud on the horizon,” said James Mabey, CREA Chair. “While uncertainty about the economy and jobs will no doubt keep some prospective buyers on the sidelines, a softer pricing environment alongside lower interest rates will be an opportunity for others.”

There were 4.2 months of inventory on a national basis at the end of January 2025, up from readings in the high threes in October, November, and December. The long-term average is 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.
 

Home Prices

The National Composite MLS® HPI has barely budged in the last year, owing to ongoing softness in B.C. and Ontario. This has offset rising prices on the Prairies, in Quebec, and across the East Coast.

The National Composite MLS® Home Price Index (HPI) changed slightly (-0.08%) from December 2024 to January 2025.

The non-seasonally adjusted National Composite MLS® HPI was unchanged (+0.07%) compared to January 2024. That said, it was technically the first year-over-year increase since last March.
 

Bottom Line

The Bank of Canada’s aggressive rate cuts and regulatory changes aimed at making housing more affordable were offset last month by the increasing uncertainty surrounding a potential trade war with the United States. Tiff Macklem clearly recognizes from this report that significant uncertainty is detrimental to both the Canadian housing market and the broader economy. Our economy teeters on a precarious line between modest growth and recession. Before the tariff threats emerged, it seemed the housing market was poised for a strong rebound as we approached the spring selling season.

Unfortunately, the situation has only deteriorated, particularly as President Trump has repeatedly suggested that Canada could become the 51st state, further angering Canadians. While the first round effect of tariffs leads to higher prices as importers attempt to pass off the higher costs to consumers, second-round effects slow economic activity owing to layoffs and business and household belt tightening.

The Bank of Canada will no doubt come to the rescue slashing interest rates further. This is particularly important for Canada where interest-rate sensitivity is far higher than in the US.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
18 Feb

Canadian CPI Inflation Edged Upward in January Owing To Rising Energy Prices

General

Posted by: Tim Woolnough

Canadian Inflation Edged Upward to 1.9% Y/Y in January
 

In January, the Consumer Price Index (CPI) rose by 1.9% year over year (y/y), up from 1.8% in December. This rise was primarily due to an uptick in energy prices. Excluding gasoline, the CPI increased by 1.7% in January, down from 1.8% in December.

Higher energy prices, particularly gasoline and natural gas were the main contributors to this acceleration. However, these increases were somewhat countered by continued downward pressure on prices for items affected by the goods and services tax (GST)/harmonized sales tax (HST) break implemented in December. Notably, food prices fell by 0.6% year-over-year in January, marking the first annual decline since May 2017. This decrease was primarily driven by a significant drop in prices for food purchased from restaurants, which fell by 5.1%.

The CPI rose by 0.1% in January, compared to a 0.4% decline in December.

Energy prices rose 5.3% in January y/y, following a 1.0% increase in December. Specifically, gas prices increased 8.6% yearly in January, up from 3.5% in December. In Manitoba, gas prices rose by 25.9% due to the reintroduction of a provincial gas tax at a lower rate after its temporary suspension from January to December 2024.

Additionally, prices for new passenger vehicles increased by 2.3% year-over-year in January, compared to a 0.9% increase in December. In contrast, prices for used vehicles continued to decline in January, decreasing by 3.4%, although slower than the 4.1% decline observed in December. This marks the 13th consecutive month of year-over-year price decreases for used vehicles.
 

In January 2025, prices for food purchased from restaurants decreased by 5.1%. This decline was over three times greater than the previous record drop of 1.6% observed in December 2024.

Canadians also experienced lower prices for alcoholic beverages purchased from stores, which fell by 3.6% in January 2025 compared to January of the previous year, following a decrease of 1.3% in December.

Additionally, prices for toys, games (excluding video games), and hobby supplies dropped by 6.8% year over year in January after a decline of 7.2% in December.

Excluding indirect tax changes, inflation notably increased to 2.6% from 2.2% the prior month and a recent low of 1.5% last September. It was a similar story for core inflation—BoC’s main measures rose 0.2% m/m in adjusted terms, lifting both to 2.7% y/y (from 2.5% for trim and 2.6% for median). Over the past three months, both have risen at just over a 3% annualized pace, or just a touch above the BoC’s comfort zone. The Bank’s old CPIX measure of core, which removes eight volatile items and sales taxes, perked up to a 2.1% y/y pace but remains mild. Similarly, the breadth of prices rising above 3% is close to normal.

It’s a little less flashy, but more importantly, shelter inflation continues to grind down gradually. Rents posted their first monthly decline in more than two years (-0.1%), calming the annual increase to 6.3% (from 7.1% last month and a peak of 9% last spring). Mortgage interest costs eased to 10.2% y/y from 11.7% in December and the plus-30% pace in 2023. Offsetting those milder trends were big pick-ups in many utility charges.
 

Bottom Line

Traders in overnight swaps have reduced their expectations for a quarter-percentage point rate cut by the Bank of Canada at its next meeting on March 12, lowering the odds to just over one-third, down from a nearly even chance last week.

Bank of Canada Governor Tiff Macklem has successfully brought inflation under control. However, an impending tariff war between the U.S. and Canada poses a new threat to his efforts to maintain price stability.

Policymakers eased up on the pace of rate cuts in January after aggressively lowering borrowing costs last year, but they remain uncertain about the future direction. U.S. President Donald Trump has indicated plans to impose tariffs of up to 25% on Canadian goods in March, while Prime Minister Justin Trudeau’s government has promised to retaliate. A tariff war would likely compel the central bank to adjust its rate-cutting strategy to prepare the economy for the potential impact of tariffs on consumer prices.

The central bank will next determine the benchmark overnight rate on March 12. Economists are divided into two viewpoints: some anticipate further rate cuts, while others expect the bank to pause amid increasing uncertainties. Governor Tiff Macklem has expressed a desire to bolster economic growth and expects inflation to remain close to the 2% target in the coming months, influenced by fluctuations in global energy prices. Currently, the odds favor another 25 basis points rate cut in March.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
7 Feb

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

General

Posted by: Tim Woolnough

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
5 Feb

Understanding Second Mortgages: Are They Right for You?

General

Posted by: Tim Woolnough

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.

21 Jan

Canadian Inflation Falls to 1.8% y/y in December

General

Posted by: Tim Woolnough

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
16 Jan

Canadian Existing Home Sales Edged Downward in December

General

Posted by: Tim Woolnough

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
13 Jan

Strongest Canadian Employment Report In Nearly Two Years

General

Posted by: Tim Woolnough

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
7 Jan

General

Posted by: Tim Woolnough

 

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? Book a time for a discovery call with me today!
20 Dec

A 30-year mortgage with no rate hikes: Can the U.S. model work in Canada?

General

Posted by: Tim Woolnough

This story is taken from Global News

 

Imagine it: You buy a house, and the bank offers you a single rate of interest that will keep your mortgage payments steady for the next 30 years.

Pay it off early if you like, by the way: no big penalties to fear.

And if interest rates drop sharply, you can refinance that loan to take advantage of lower monthly payments!

That’s a (very general) explanation of how the bulk of mortgages work in the United States.

And the federal government just signalled it’s curious about bringing that model to Canada.

The fall economic statement tabled on Monday included a short reference to the idea of making long-term mortgages more widely available in Canada.

Under a section on “lowering the costs of homeownership,” Ottawa said it was “examining the barriers” to making mortgages with terms of up to 30 years available — a way to offer more options to borrowers. The federal government now plans to launch consultations to explore bringing these long-term options to the mortgage market.

But experts tell Global News it’s a model so far unique to the U.S. housing market — some have called it a “Frankenstein’s monster” of a mortgage — and warn bringing such a product to Canada would be no easy task.

On top of that, some say those changes might not make the housing market any more affordable to would-be buyers.

“Most fixed-rate borrowers say they want U.S.-style mortgages… until they see the price tag,” Robert McLister, mortgage strategist with MortgageLogic.news, said in an email.

How are the Canadian and U.S. mortgage markets different?

You might already be familiar with the structure of Canadian mortgages, but here it is in a nutshell.

When a homebuyer applies for a mortgage, the typical process sees them take out a loan to be paid back — or amortized — over 25 years, though Ottawa has recently implemented changes making 30-year amortizations more accessible.

Within that 25- or 30-year period, the mortgage is broken up into different terms. Canadian homeowners will often take on a mortgage with a fixed rate of interest for five years or fewer.

At the end of those five years, the rate of interest will change based on market conditions at the time of renewal, and the term will begin anew until the homeowner has paid off the entirety of the loan or broken the mortgage.

There are also variable options that see the rate of interest fluctuate directly after the Bank of Canada’s decisions to raise or lower the cost of borrowing. Those also have set terms that typically renew after a few years.

But as described above, in the U.S., the most popular mortgage option by far is a 30-year fixed mortgage: one rate of interest for the entirety of the loan. Homeowners can still refinance if interest rates drop and they’re willing to pay a fee to take advantage of lower monthly payments, but there’s usually no requirement to renegotiate terms with a lender over the course of the mortgage.

This, by the way, is one of the main reasons that interest rate hiking cycles like the kind Canada and the U.S. have both been through in recent years are more impactful on Canadian households, because they’re more often renewing their mortgage terms in the new environment and adjusting to higher payments.

Variable options also exist in the U.S., called adjustable-rate mortgages. These will have the rate of interest adjusted annually for the remaining lifetime of the loan, sometimes after an introductory fixed period.

In the U.S., most mortgages are also fully open, which makes it easier to pay off early without penalty. In Canada, however, most mortgages are closed and fixed with set conditions for when you can accelerate payments, and these tend to come with lower interest rates.

Oh, and speaking of penalties: because of how Canada’s financial system is structured, McLister noted that lenders can only charge penalties worth up to three months’ interest if a mortgage is terminated early after the first five years.

“Barring a change to Canada’s Interest Act, lenders would bake borrower pre-payment risk into the rate,” he said, thereby making mortgages more than five years in length more expensive.

And not to get too far in the weeds, but breaking that more expensive mortgage within the first five years would also be pretty costly for a homeowner.

“There would be harsh early-exit penalties for people who break 30-year fixed mortgages early before five years, given how interest rate differential charges work,” McLister said.

Why can the U.S. offer these 30-year mortgages?

OK, we’re going to try to keep the jargon to a minimum here, but stick with us.

If you’re the lender, and you’re offering a single loan at the same rate of interest for 30 years, there are many reasons why that is maybe a not-so-great business decision. A lot can change over 30 years, and if central bank interest rates rise and your borrower is still paying that lower mortgage rate, you’re essentially losing money.

Not to mention, there’s a risk that the person you’re lending to has a major change in life circumstances like a layoff that affects their ability to pay you.

Shubha Dasgupta, CEO of Pineapple Mortgage, explains to Global News that there’s a “risk premium” attached to longer mortgages to account for these unknowns at the time the loan is being offered.

U.S. mortgage rates are indeed typically larger than Canadian ones — as of Wednesday morning, the typical mortgage rate on offer in the U.S. was around 6.6 per cent, while Canadian fixed-rate products are floating around the mid-to-low-four-per cent range.

But to account for all of that risk in a 30-year product, the rates in the U.S. really should be astronomically higher

Here’s where we come to the key difference in the two mortgage markets that makes it viable for U.S. banks to offer affordable 30-year mortgages: Fannie Mae and Freddie Mac, two government-backed entities that have a big role to play in keeping the housing market running south of the border.

These two government-sponsored organizations buy up mortgages from lenders, package them together and sell them in financial markets as mortgage-backed securities.

Dasgupta explains that this frees up capital for banks to go out and make more loans or fund other operations while still offering American homebuyers what would otherwise be a costly 30-year loan.

This system has underpinned the functioning of the American housing system dating back to the Great Depression and is the reason why most U.S. homeowners can get access to much longer mortgage terms than those seen elsewhere in the world.

Canada does not have a system like this that offers liquidity to banks making mortgage loans, so Canadian lenders have to protect their investment by renegotiating the terms of the loan after a few years have passed.

Would 30-year mortgages be good for Canadians?

In order to offer mortgages with terms of up to 30 years without a government-sponsored system like the one in the U.S., Canadian lenders would be forced to charge extremely expensive rates of interest, Dasgupta says.

“There would have to be some kind of a rate premium attached to these longer terms to be able to hedge the risk of what the interest rate environment could look like over that period of time,” Dasgupta says. “So it essentially ends up costing more for Canadians.”

He adds that, if the 30-year mortgage options were even being considered, the Canada Mortgage and Housing Corp. and other insurers would likely have to play a big role to mitigate the risk for lenders offering such a long term.

“It would just be very risky on their portfolios,” he says.

There have always been trade-offs to be made between stability and cost when it comes to mortgage payments in Canada. That’s one of the reasons why the five-year, fixed-rate mortgage is so popular in Canada, as it has historically hit a sweet spot of offering peace of mind at a manageable cost.

McLister said Canada’s Big Six Banks would have to be part of the charge to implement a U.S.-style model across the country, and he questioned how much of a push they’d make with uncertain consumer demand for longer-term mortgages.

“I wouldn’t expect significant uptake for one simple reason: 30-year rates would be materially higher than your run-of-the-mill five-year fixed,” he said. “And if policymakers don’t solve the penalty risk problem, that shrinks the potential market even more.”

While the U.S. mortgage market seems more consumer-friendly in terms of both the long-term stability and the flexibility offered by 30-year, open mortgages, Dasgupta argues that Canadians do benefit from a series of shorter terms with typically more manageable rates of interest.

That allows homeowners to more easily take advantage of positive shifts in the market without having to go through the hurdles of completely refinancing the mortgage, he says.

Renewing every few years gives lenders a chance to make sure a borrower’s credit is still suitable for the terms of the loan or make adjustments as needed, and offers Canadians relief that while the good, low-rate days may not be here forever, the bad times hopefully won’t last either.

“I definitely think that there’s a benefit to having (this system) for both the consumer as well as the industry as a whole,” he says.

18 Dec

Canadian Headline Inflation Was 1.9% y/y With Monthly Inflation Unchanged

General

Posted by: Tim Woolnough

Good News On The Inflation Front
 

The Consumer Price Index (CPI) rose 1.9% year-over-year (y/y) in November, down from a 2.0% increase in October. Slower price growth was broad-based, with prices for travel tours and the mortgage interest cost index contributing the most to the deceleration. Excluding gasoline, the all-items CPI rose 2.0% in November, following a 2.2% gain in October.

Prices for food purchased from stores rose 2.6% year over year in November, down slightly from 2.7% in October. Despite the slowdown, grocery prices have remained elevated. Compared with November 2021, grocery prices rose 19.6%. Similarly, while shelter prices eased in November, prices have increased 18.9% compared with November 2021.

Monthly, the CPI was unchanged in November, following a 0.4% increase in October. On a seasonally adjusted monthly basis, the CPI rose 0.1%.
Year over year, gasoline prices fell slightly in November (-0.5%) compared with October (-4.0%). The smaller year-over-year decline resulted from a base-year effect as prices fell 3.5% month over month in November 2023.

Monthly gasoline prices were unchanged in November.

The shelter component grew slower in November, rising 4.6% year over year following a 4.8% increase in October.

Yearly, rent prices accelerated in November (+7.7%) compared with October (+7.3%), applying upward pressure on the all-items CPI. Rent prices accelerated the most in Ontario (+7.4%), Manitoba (+7.9%), and Nova Scotia (+6.4%).

Conversely, the mortgage interest cost index decelerated for the 15th consecutive month in November (+13.2%) after rising 14.7% in October. The mortgage interest cost and rent indices contributed the most to November’s 12-month all-items CPI increase.
 

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

Bottom Line

This was a mixed report, with headline inflation and the old core indicator dipping to 1.9%, but the Bank of Canada’s preferred measures of core inflation remained sticky at an average of 2.65% y/y. The Bank had been expecting core inflation to average 2.3% for Q4.

The mixed news on the inflation front validates the Bank’s intention to ease monetary policy more gradually, in 25 bp tranches, rather than the 50 bps cuts on the past two decision dates in October and December. The deepening decline in the Canadian dollar- now at 0.6988 cents relative to the US dollar- is another reason for the reduction in rate cuts. The overnight policy rate is still likely to fall from 3.25% today to 2.5% by the Spring. It will decline even further if the economy stalls and unemployment rises further. The overnight rate was at 1.75% before the pandemic.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca