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

• Mar 17, 2025

It has become the recurring theme in the Canadian economy: the on-again, off-again trade war with the United States. And in the tradition of hoping for the best and preparing for the worst the Bank of Canada is using the one weapon it has, interest rate policy.

Last week the central bank trimmed its trend setting Policy Rate for the seventh straight time, dropping it another 25 basis-points to 2.75%. Even though the year started strong, with good GDP growth and inflation under control, the uncertainty swirling around American tariff threats has caused a chill in the economy.

“While it is still too early to see much impact of new tariffs on economic activity, our surveys suggest that threats of new tariffs and uncertainty about the Canada-U.S. trade relationship are already having a big impact on business and consumer intentions,” Bank of Canada Governor Tiff Macklem said.

Macklem has also warned that the Bank cannot shield the Canadian economy from the financial impact of tariffs, but that it can use interest rates to manage a potential surge in inflation.

The chill in the broader economy is also being felt in the housing market. High hopes, mainly among sellers, have dropped as sales have dipped. Prices are also drifting lower in a number of bell weather markets.

On the positive side, buyers now have a wider selection of homes to choose from given the growth in new listings over the past several months. That, somewhat, better bargaining power might be enough to coax some reluctant house hunters back into the market.

Thank you to our partners at First National for the great summary and insight!

The first significant economic report of the new year landed on Friday and it is raising speculation about the Bank of Canada’s next rate move.

Statistics Canada’s December employment numbers show nearly 91,000 new jobs were added for the month, nearly four times more than had been expected.  Most of the jobs (56,000) are full time.

The hiring boom dropped the unemployment rate to 6.7%, down from 6.8% in November.  The employment rate, which is the percentage of the population that is working, actually increased for the first time in two years.

The news is broadly seen as good, showing the Canadian economy is resilient and doing well as we continue to climb down from high inflation and other lingering effects of the pandemic.

Some market watchers are now suggesting the Bank of Canada may not need to make another rate cut at its next setting on January 29th.  They also point to the weak Canadian dollar, and signs that the U.S. central bank will slow its rate cutting plans, as indicators the BoC will pause.

However, a number of prominent Canadian economists point out that StatsCan’s employment numbers have a history of volatility, which make it difficult to base forecasts on a single report.  They also say the lingering threat of U.S. tariffs is weighing on business and consumer confidence, and lower interest rates could help counter that.

– First National Financial LP

-January 13, 2025

Thank you to our partners at First National for the insight.

Aug 13, 2024

A consistent concern as the Bank of Canada embarks on its interest rate cutting cycle has been what will happen to home prices.  There have been persistent fears that prices will spike as rates fall, effectively stalling efforts to bring down inflation.  The Bank of Canada, however, is not overly worried about it, according to the governing council’s latest Summary of Deliberations.

The central bankers are paying close attention to the housing market but their worries about pent-up demand driving prices higher as interest rates drop have eased.  They do acknowledge that declining mortgage rates and higher-than-expected population growth “could add to demand.”  But there is also a feeling that “housing affordability challenges could have played a greater-than-expected role in dampening demand” and that delays in building homes could limit the growth of supply.

So far, housing market reaction to the rate cuts that have been made is mild.  There have been some upticks in sales and in new listings.  The Bank of Canada’s trend-setting policy rate is currently 4.50%.

A number of market watchers have commented that the Bank of Canada seems satisfied with the progress that is being made to bring inflation back to its 2.0% target.  The Consumer Price Index puts headline inflation at 2.7%.  The analysts suggest the Bank is now shifting its focus away from inflation and toward maintaining economic growth and avoiding a recession.

The Bank’s next interest rate announcement is set for September 4th.

Some great info from our partners at RECA!

June 17, 2024

It appears the advertising slogan is true.  Canadians may well be richer than they think.

A recent survey by Statistics Canada shows that household net worth in this country rose to a record high of nearly $17 trillion in the first quarter of this year. That is a 3.3%, or $548 billion, increase over the fourth quarter of 2023 and is the second quarterly increase in a row.

The growth was fed by a 3.6% quarter-over-quarter rise in financial assets and a 2.6% increase in the value of residential real estate.

StatsCan says 90% of all net worth is held by homeowners.

Along with the gains in assets, Canadian households have also diminished their liabilities.

High interest rates have dramatically reduced borrowing, which grew by just 0.3% in Q1.  That combined with income growth that outpaced debt growth saw the household debt-to-income ratio drop to 176%.  That is still high, but it is the fourth consecutive decline in the debt-to-income ratio and it is a notable reduction from the 178% posted in Q4 of 2023.

Canadians are also saving more.  The household saving rate rose to 6.9% in Q1, its highest level in two years.  Canadians tended to put their savings into mutual funds and ETFs.  They parked $23.8 billion in these investments in Q1, more than in all of 2023.

Dr Cooper  gives a C- …… very generous as I would give a solid F

“I’d give this budget a C-. That’s generous. It squanders what could have been a reduction in the budget deficit for a host of inconsequential spending measures. Worse still, it increases capital gains taxes, which might play well for millennials and Gen Xers, who need help understanding the unintended consequences. Higher taxes will reduce investment in residential real estate, technology, plant and equipment and other productivity-enhancing measures. It reduces risk tolerance at a time when we already have an enormous productivity deficit relative to other industrialized economies.”  Dr Sherry Cooper

Federal Budget Targets Rich Canadians For New Spending The budget focuses on helping Millennial and Gen Z voters experiencing rising housing costs and other inflationary pressures. The government has set fiscal anchors, such as keeping the deficit below 1% of GDP starting in 2027. The Canadian federal government released its 2023 budget over a year ago, promising to conduct a strategic spending review to find $15.4 billion in savings. The savings were supposed to achieve fiscal credibility by offsetting the $43 billion in new government spending. However, nearly a year after its announcement, the spending review found only $9 billion in savings, while the government piles on new spending measures in this year’s budget. The fiscal path is mostly the same as in the 2023 Fall Economic Statement, but only after revenue gains from a resilient economy and further tax increases triggered even bigger spending initiatives. Government spending is expected to be $480 billion in the next fiscal year, including $54 billion in payments on the country’s debt. Finance Minister Freeland also announced a soak-the-rich tax scheme, levelling higher taxes on capital gains for people who make more than $250,000 selling stock or property other than a person’s primary residence. Currently, 50% of capital gains profits are taxed, compared to 100% of a person’s employment income. That will remain the case for the first $250,000 of capital gains income, but it will rise to 66.6% on income above that level. So, the proposal is to reduce the tax-exempt amount to one-third for capital gains exceeding $250,000. The lower exemption would also apply to businesses for all capital gains, not just those over $250,000. The additional capital gains taxes are expected to rake $19.4 billion into the government’s coffers over the next five years, which is no small measure. This will reduce business capital spending, already at rock-bottom lows, rendering the Canadian productivity problem even more egregious. Higher capital gains taxes also disincentivize investment in residential rental real estate.  The FY24/25 budget deficit is estimated at $39.8 billion (1.3% of GDP), with the numbers massaged just enough to meet the various ‘fiscal guideposts’. Any path to a balanced budget continues to be absent. Bank of Canada Governor Tiff Macklem has said provincial government spending is already making it harder to lower inflation. Running federal deficits — on top of large provincial deficits in Quebec, Ontario and British Columbia — is irresponsible. The government had previously set fiscal anchors, like keeping the deficit below 1% of GDP starting in 2027. Philip Cross of the National Post writes, ”deficit spending when inflation is above target violates the 1991 accord between the Government of Canada and the Bank of Canada, which “jointly set forth targets for reducing inflation” and requires both parties to collaborate to achieve that goal.” Cumulatively, the total deficit between FY23/24 and FY28/29 is now running $10 billion larger than in the Fall Economic Statement. The Housing Plan The housing measures were pre-announced, and the market impact should be minimal. However, the higher capital gains inclusion rate will impact those planning to sell valuable properties with much lower cost bases. It will change the economics of real estate investment in rental properties, an area that needs to be more generously funded.  Some Other Housing Measures: Allowing 30-year mortgage amortizations for first-time home buyers purchasing new builds. This measure zeroes in on a small subset of the market. In general, though, it stokes excess demand and ultimately does little to improve affordability once prices adjust. Also, limits on the size of insured mortgages mitigate its impact in our most expensive cities. Pre-construction sales usually require a 20% downpayment, which limits the use of insured mortgages, which account for only 15% of mortgage originations. Increase the RRSP Home Buyers’ Plan limit from $35,000 to $60,000 and extend the three-year payback period. Create a renters’ bills of rights and tenant protection fund. Some details here are curious, such as a national standard lease agreement (which is provincial jurisdiction). At any rate, the deck is stacked against landlords from bringing more quality rental supply to market—think taxes. Accelerated capital cost allowances on the construction of new purpose-built rentals and removal of the HST on the construction of student rentals. Increase the annual Canada Mortgage bond limit to $60 billion from $40 billion. Top up the Housing Accelerator Fund to incentivize the removal of zoning barriers and tie transit funding to densification along transit corridors. Bottom Line This is a pre-election ‘tax and spend’ budget, which will do little to address the problems it claims to solve. It exacerbates other concerns, including insufficient business capital spending, low productivity growth, and insufficient investment in rental real estate. Slowing the growth in nonpermanent immigration will, in time, do more to address the housing shortage than any of these measures. Dr. Sherry Cooper Chief Economist, Dominion Lending Centres drsherrycooper@dominionlending.ca

March 25, 2024 – Thank you to our Preferred Partners at First National for the below insight!

Canada’s realtors are hinting that home prices may have found their bottom.

The February numbers from the Canadian Real Estate Association show price, as measured by the Aggregate Composite MLS Home Price Index (seasonally adjusted), was flat compared to January.  That ends a five month slide in prices, which dropped 1.3% between December and January.

The national average price of a home in February came in at a little less than $686,000, up 3.5% year-over-year.

Sales were up almost 20% from last February, but it has to be remembered that February 2023 was an unusually slow month.  Compared to January sales dipped 3.1% in February.

CREA is hopeful the stabilization of prices signals an impending reversal in demand.

“The fact that prices were unchanged from January to February was noteworthy given the … drop from December to January.  [S]hifts this abrupt are exceedingly rare.  There have only been three other times in the last 20 years that have shared a sudden improvement or increase in the month-over-month percentage change … of this size; all at various points in the last four years when demand was coming off the sidelines,” CREA said in its release.

New listings rose 1.6% in February compared to January, bringing the sales-to-new listings ratio to 55.6%. The long-term average is 55%.

NOTE: First National is one of Canada’s largest non-bank mortgage lenders, offering both commercial mortgages and residential mortgage solutions.