Residential Mortgage Commentary – Inflation report offers hope of interest rate relief

General Bob Rees 22 Nov

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Residential Mortgage Commentary – Inflation report offers hope of interest rate relief

The latest Statistics Canada inflation numbers have given some market watchers hope that the Bank of Canada will slow or, perhaps, even pause interest rate increases.

The Consumer Price Index, or “headline inflation”, held steady from September to October at 6.9% on a year-over-year basis.  Lower food price inflation off-set higher gasoline prices.  Another welcome sign showed core inflation, which factors out volatile items like food and fuel, slowed in October to 5.3%, year/year, down from 5.4% in September.  The Bank of Canada uses the core inflation reading when making its interest rate decisions.

However, those numbers will likely come as cold comfort to homeowners and homebuyers who have faced some sharp, inflationary increases.

StatsCan reports mortgage interest costs jumped by 11.4% in October – the biggest y/y increase since February 1991 (11.7%).  Property taxes also rose sharply, climbing 3.6% compared to 1.5% a year ago.

StatsCan’s “homeowners’ replacement cost index’, which relates to the price of new homes, dipped to 6.9% in October, down from 7.7% in September. This measure has been declining since May (11.1%).

Statistics Canada offers a simple, plain-language explanation of how housing, or “shelter costs” fit in to the inflation calculation here.

Looking ahead to December 7th and the BoC’s last interest rate announcement for the year, most analysts expect one more 25 to 50 basis-point increase.



Housing Correction Continued In October

General Bob Rees 16 Nov

Housing Correction Continued In October

Statistics released today by the Canadian Real Estate Association (CREA) show home sales were up 1.3% on a month-over-month basis in October. Still, monthly activity remained a whopping 36% below the October pace in 2021. The housing correction continues in response to the Bank of Canada’s massive rate hikes, but the speed of the correction is slowing.

“October provided another month’s worth of data suggesting the slow down in Canadian housing markets is winding up,” said Shaun Cathcart, CREA’s Senior Economist. “Sales actually popped up from September to October, and the decline in prices on a month-to-month basis got smaller for the fourth month in a row.”

You can see from the chart below just how slight the uptick in October home sales was, but at this stage, it shows that a housing crash is not occurring.

New ListingsThe number of newly listed homes was up 2.2% on a month-over-month basis in October, with gains in the Greater Toronto Area (GTA) and the B.C. Lower Mainland offsetting declines in Montreal and Halifax-Dartmouth.

With sales up by a little less than new listings in October, the sales-to-new listings ratio fell to 51.6% compared to 52% in September. The long-term average for this measure is 55.1%.

There were 3.8 months of inventory on a national basis at the end of October 2022, up slightly from 3.7 months at the end of September. While the number of months of inventory is still well below the long-term average of about five months, it is also up quite a bit from the all-time low of 1.7 months set at the beginning of 2022.

Home Prices

The Aggregate Composite MLS® Home Price Index (HPI) edged down 1.2% month-over-month in October 2022, the smallest decline since June.

The national average transactions price fell 9.9% y/y  in October, while the MLS HPI dipped 0.8% y/y with downward momentum continuing on a month-to-month basis. The HPI is now down eight months or an even 10% from the February high. With mortgage rates across the spectrum pushing above 5% as the Bank of Canada tightens further, this downward price discovery will probably persist well into next year.

In Ontario, for example, the sales-to-new listings ratio has weakened to just above the 40% level. In some markets outside the core of the GTA, benchmark prices are easily down 15%-to-20% from their early-year highs already. It’s a similar situation in B.C. where, while Vancouver is correcting, markets 1-to-2 hours outside the core are doing so even faster—none of this is a surprise given how sharply these exurban markets ballooned during the pandemic. Meantime, Atlantic Canada is holding up relatively well thanks to an ongoing population influx, while Alberta (and the Prairies more broadly) still look pretty solid.

The table below shows the decline in average home prices in Canada and selected cities since prices peaked in March when the Bank of Canada began hiking interest rates. More details follow in the second table below. The largest price dips are in the GTA and the GVA, where the price gains were spectacular during the COVID-shutdown.
Bottom Line

The Bank of Canada slowed its tightening pace to 50 bps when it met in late October. Since then, the US inflation has slowed a bit, causing longer-term bond yields to fall meaningfully. Tomorrow, Canada will release its latest inflation report. All eyes will focus on core inflation (which excludes food and energy prices) in the hopes that evidence will also validate a slowdown in those measures.

The Bank of Canada’s policy announcement date is not until December 7th, when another rate hike is widely expected. Tomorrow’s inflation report will give us a better sense of whether a 25-bps hike might be possible.


Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Bank of Canada signals a slowdown

General Bob Rees 1 Nov

Thank you to our Partners at First National for the below insight!

Residential Mortgage Commentary – Bank of Canada signals a slowdown

Oct 31, 2022

The Bank of Canada has pushed interest rates up again, but the increase came in at the lower end of expectations.

The Policy Rate rose by one-half of a percentage point (or 50 basis-points) to 3.75%.  The majority of market watchers had predicted a 75 basis-point bump.  The smaller than expected increase appears to be an indication the BoC is nearing the end of this rate-hiking cycle. But it is not done yet.

“This tightening phase will come to a close.  We’re getting closer to that point, but we’re not there yet.  So we do expect interest rates will need to go up further,” said Bank of Canada Governor Tiff Macklem following last week’s rate announcement.

Macklem also indicated future increases would likely be smaller than what we have seen so far this cycle.  That leaves the door open for another increase at the next, and final, setting for the year, in December.  Several forecasts predict the Bank will pause at 4%.

The Bank believes its plan for fast, sharp increases in interest rates is working, and it is acutely aware that there is a risk of over-tightening and pushing the economy into a serious recession.

While a pause to measure the effects of its work would seem prudent, the Bank also has to take international factors into account.  Key among those is the U.S. economy.

Inflation pressures in the U.S. remain higher than they are here and the U.S. central bank is expected to deliver another 75 bps increase to its policy rate this week, putting it above the Canadian rate.  That would likely further devalue the Loonie against the U.S. dollar, which has implications for Canada’s broader economy.


– First National Financial LP