Bank of Canada Maintains Overnight Rate and Raises 2019 Forecast

General Bob Rees 15 Jul

Thank you to our Chief Economist, Sherry Cooper, for the below insight!  You’re the best! – Bob

The Bank of Canada held the target overnight rate at 1.75% for the sixth consecutive decision and showed little willingness to ease monetary policy, as stronger domestic growth offsets the risk of mounting global trade tensions. There has been ongoing speculation that the Bank of Canada would be pushed into cutting interest rates by the Fed. I do not believe the Bank will let the US dictate monetary policy when the Canadian economy is clearly on the mend. To be sure, trade tensions have slowed the global economic outlook, especially in curbing manufacturing activity, business investment, and lowering commodity prices. But the Bank as already incorporated these effects in previous Monetary Policy Reports (MPR) and today’s forecast has made further adjustments in light of weaker sentiment and activity in other major economies.

The Governing Council stated in today’s press release that central banks in the US and Europe have signalled their readiness to cut interest rates and further policy stimulus has been implemented in China. Thus, global financial conditions have eased substantially. The Bank now expects global GDP to grow by 3% in 2019 and to strengthen to 3.25% in 2020 and 2021, with the US slowing to a pace near its potential of around 2%. Escalation of trade tensions remains the most significant downside risk to the global and Canadian outlooks.

The Bank of Canada released the July MPR today, showing that following temporary weakness in late 2018 and early 2019, Canada’s economy is returning to growth around potential, as they have expected. Growth in the second quarter is stronger than earlier predicted, mostly due to some temporary factors, including the reversal of weather-related slowdowns in the first quarter and a surge in oil production. Consumption has strengthened, supported by a healthy labour market. At the national level, the housing market is stabilizing, although there remain significant adjustments underway in BC. A meaningful decline in longer-term mortgage rates is supporting housing activity. The Bank now expects real GDP growth to average 1.3% in 2019 and about 2% in 2020 and 2021.

Inflation remains at roughly the 2% target, with some upward pressure from higher food and auto prices. Core measures of inflation are also close to 2%. CPI inflation will likely dip this year because of the dynamics of gasoline prices and some other temporary factors. As slack in the economy is absorbed, and these temporary effects wane, inflation is expected to return sustainably to 2% by mid-2020.

Bottom Line: The Canadian economy is returning to potential growth. “As the Governing Council continues to monitor incoming data, it will pay particular attention to developments in the energy sector and the impact of trade conflicts on the prospects for Canadian growth and inflation.” With this statement, Governor Poloz puts Canadian rates firmly on hold as Fed Chair Jerome Powell signals openness to a rate cut as uncertainty dims the US outlook.

The Canadian central bank is in no hurry to move interest rates in either direction and has signalled it will remain on hold indefinitely, barring an unexpected exogenous shock.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Following Months of Booming Jobs Growth, Gains Stall in June

General Bob Rees 8 Jul

….. From our Economist Dr Sherry Cooper, thank you Sherry! 

 

Following Months of Booming Jobs Growth, Gains Stall in June

 

After a long stretch of stronger-than-expected Canadian jobs growth, it is not surprising that this notoriously volatile data series took a breather. There was little change in the number of employees in both the public and private sectors in June. The Canadian economy shed 2,200 jobs last month as self-employment fell 1.4% and other employment edged up only 0.2%. Despite this slowdown, the economy enjoyed the most robust first-half growth in jobs since 2002.

One positive note in the June report is that full-time jobs were up by 24,100, offsetting a decline in part-time work. Also, wage gains accelerated to the fastest pace in more than a year, with annual pay gains up 3.8% in June compared to 2.8% in May. Another good sign is that total hours worked accelerated to a 1.8% annual-rate gain, up from 1% in May.
The unemployment rate ticked up to a still-low 5.5%, after touching a forty-year low of 5.4% in May.

The recent pace of hiring was unsustainable, so a slowdown was in the cards. The June data, however, does not alter the picture of a red hot labour market driving Canada’s economic rebound. The Bank of Canada has significant reason to resist cutting interest rates when it meets again July 10 and September 4, even if the Federal Reserve decides to ease monetary policy. The Fed’s next decision date is July 30, and it is under continuing pressure from the White House to take rates down a notch.

The Bank will see the strength in wages and hours worked, along with the still low level of unemployment, as plenty of reason to remain on the sidelines. After the dreadful performance last winter, the Canadian economy has bounced back as the central bank predicted. A string of recent reports shows the expansion picked up at the fastest pace since 2017 in March and April. Business and consumer sentiment rose in May and housing activity is improving in most regions. Exports are recovering as trade tensions between Canada and China remain. It appears that the US trade war with China is on hold for now, as the two countries agreed to go back to the bargaining table forestalling a threatened rise in US tariffs on China.

 

 

Early Data for June  Housing Mixed

Local real estate boards report that GTA home sales jumped again in June, while home sales fell to a 19-year low in the GVA. This continues a well-established pattern.

GTA sales were up 10% year-over-year last month. New listings fell 0.4%. Buyers started moving off the sidelines in the spring, while new listings remained virtually unchanged, so market conditions have tightened, and price growth has picked up, especially for condos as more affordable housing has outperformed.

In direct contrast, sales in the GVA were down 14.4% year-over-year last month and are a whopping 34.7% below the 10-year average for June according to the Real Estate Board of Greater Vancouver–the slowest sales pace for June since 2000. Moreover, the residential benchmark price slipped to $998,700, down from a record high of $1.1 million in May 2018. The benchmark figure, an industry representation of the typical home sold in Greater Vancouver, has declined month-over-month for the 13th consecutive time.
The slowdown in the Greater Vancouver housing market is the result of intentional actions by regulators and government. Provincial actions compounded the January 2018 introduction of the B-20 stress-testing rules, which made it more challenging to qualify for a mortgage. Since February 2018, the provincial government has rolled out tax measures, including a ‘speculation and vacancy tax’ targeted primarily at out-of-province residents who don’t rent their homes. Also, there are new taxes on properties valued at more than $3-million, such as an extra land-transfer tax and an annual surtax. Last year, the province also raised the foreign-buyers tax to 20% from 15% in the Vancouver region while also expanding the tax to other urban BC markets.

Also, the province is about to publish a property ownership registry to reveal the actual owners of all properties to combat money laundering through real estate transactions. Formerly, many properties were registered in the name of numbered companies. As well, the Chinese government is now enforcing capital export limitations and penalizing those who broke these restrictions in the past. The new registry will make these activities far more transparent and could well contribute to the weakness in foreign transactions in BC, where foreigners accounted for a proportionately more significant share of the housing market than in other parts of Canada. The recent turmoil in Hong Kong might change these dynamics, but it is too soon to tell.

 

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

 

WHO REALLY SETS INTEREST RATES?

General Bob Rees 5 Jul

Some food for thought here for sure ……

WHO REALLY SETS INTEREST RATES?

A recent article in the Huffington Post addressed the pricing strategy for the Big Six Banks, BMO, CIBC, National Bank, RBC, Scotia and TD and who really sets interest rates.  RBC announcing a rate drop in January and the other banks soon followed.  For consumers the banks are seen as leaders of the pack and everyone waits to see what else they will do.  The reality is the bank rates were higher than the market for some time.

The Huffington article states “Canadians pay attention to the big guys, however, because they’re either too comfortable to make a change or simply not aware they’re being taken for a ride. The banks have a 90-per-cent stranglehold on the Canadian mortgage market and we’ve been slow to start paying attention to the alternative — often cheaper — options out there.”

The drop in rates was a measure to bring bank rates in line with the non-bank lenders who have already been offering lower pricing. The only difference is the banks have high market share of the business and more profit each year so they can afford to spend money on media and other forms of advertising. The media attention helps them to capture more business with a rate drop after a lag time of passing on higher rates to consumers. The informed consumer working with an independent mortgage broker will already know the market and what mortgage product is best for their needs.

However, interest rates are not the only consideration when choosing a mortgage. Each time you make a purchase, renew your mortgage or take equity out to renovate, invest or other reasons, it is always best to consult with your mortgage broker for a review.

One of the big factors is the cost to exit that mortgage before maturity. Life happens. There are costs to breaking the contract early in the event of sale, marital break-up, death or need to consolidate other debts. Bank penalties for early payout are higher than non-bank penalties by a factor of 4 times. By reviewing your needs with your Dominion Lending Centres mortgage broker, we can discuss all of the options available from lenders including bank and non-bank, to ensure you are making an informed decision.

PAULINE TONKIN
Dominion Lending Centres

4 HOME IMPROVEMENTS THAT WILL PAY YOU BACK

General Bob Rees 24 Jun

Dave has some really great points here, thank you Dave!

 

4 HOME IMPROVEMENTS THAT WILL PAY YOU BACK

Some home improvements provide more of a payback when you sell the house down the road.

Here’s a list of the four home improvements which will provide the biggest payback when you sell.

  1.  Adding square footage – while this can be a very expensive project, adding to the size of a house can re-coup between 50-83% of your initial investment. Putting a bonus room on top of your front facing garage increases the square footage without having to enlarge the foundation.
  2. A deck addition – adding a deck makes a house feel larger and allows you to enjoy your backyard during the warmer months. Typically you can get between 65-90% of your investment back .
  3. Re-modeling the kitchen – one of the most important rooms in the house is the kitchen. A well done project will get you between 50-120% back when you sell the house but remember not to over-do the project. A million dollar kitchen in a $500,000 home won’t be fully appreciated by future buyers.
  4. A bathroom addition – the second room buyers check out is the bathroom. While re-modeling a bathroom will recoup a lot of the renovation costs adding a second bathroom to a one bathroom home is huge. Many home owners find that they get between 80-130% of the cost of the project.

If you are thinking about buying a home or renovating your present home, speak to your Dominion Lending Centres mortgage professional about how they can help you to finance any of these projects in your mortgage and pay low interest rates.

DAVID COOKE
Dominion Lending Centres

How to get a 5% down payment for a $500,000 purchase

General Bob Rees 21 Jun

This is a great program if you are trying to get into the market. Informative article from my colleague Angela. Worth checking out.

How to get a 5% down payment for a $500,000 purchase

We have seen a return of the buyers’ market and many people are asking, how long will this last? While some renters without a down payment might be asking, how can o put a plan in place to own?

With the cost of living so high, and student debts coming out of school, many consumers question how they’re going to come up with a down payment for a home.

Here are some ways you can get it done.

  • Decide how much you can save and pick a plan that works for you:  a) A 36-month plan saving $700/month will get you $25,200 (you will need about $2,000 for closing costs if you qualify as a first-time homebuyer) b) A 24-month plan savings $600/month for $14,400
  • Get a gift from a family member
  • Borrow the down payment, or a portion (which may also help with credit building)
  • A combination of all of the above

For those of you that want to partner with government for down payment and profit of home ownership, a new government program can be a helpful tool provided it stays past the October election. https://www.cmhc-schl.gc.ca/en/nhs/shared-equity-mortgage-provider-fund

You might me reading this and thinking, ‘yeah right, that is not reality.’ Or for some people, you know it might just be exactly what will help them move forward.

Perhaps you have graduated from school and your parents don’t charge you rent. Imagine if you could put one of your paycheques every month aside and try living within those means and budgeting accordingly.

Or say you have a partner and one of you just started work in a specific trade and the other’s paycheque went towards the “home purchase plan.”

Also, if you are within the qualifications to buy, you will be earning a combined household income of $125,000-plus per year, so taking those funds right from your paycheque into your RRSP will have additional tax benefits too where you can use the refund for closing costs or amp up your down payment.

Here’s an example of how this worked for a lab technician and chef with a two-year old daughter.

They did a combination plan as they moved up to Canada from the U.S. two years ago, both got stable jobs and had no outside debt. They were paying $1700 a month rent. They used a $10,000 line of credit they took to put into investment to help establish Canadian credit. After getting the line of credit and placing it into a safe investment, they:

  1. Set up an RRSP and placed $600 a month on the loan and $700 a month into their RRSP.
  2. Now this family is used to having a cash outlay of $3,000 per month which will be the actual expectation they have for when they buy a home.
  3. With this plan, they take a mortgage for a test drive, save money on taxes, establish a great credit score and worked away toward their goal.

Are there holes in the plan? Yes, home prices may go up, there was interest on the loan they paid and they may have to adjust or modify their plan. Their employment can change, however, this practice will only benefit them no matter what life brings their way and there is a sense of empowerment when you have a plan and can see how you can get there.

Do you or someone you care about want to know how they can be set up with a multifaceted plan to help them move forward with a goal of owning a home?

Angela Calla
Dominion Lending Centres – Accredited Mortgage Professional

New First Time Home Buyers Plan being released by the Federal Government – Sept 2019

General Bob Rees 21 Jun

Have you heard about the New First Time Home Buyers Plan being released by the Federal Government?  See below for link as well as details.

https://www.theglobeandmail.com/politics/article-new-incentive-for-first-time-home-buyers-to-launch-sept-2/

https://globalnews.ca/news/5393428/first-time-home-buyer-incentive-details/

 

High Points:

  • Reduces the maximum amount a buyer can borrow
  • available to first-time home buyers with household incomes of less than $120,000.
  • The amount of the insured mortgage plus the CMHC incentive would be capped at four times the homebuyers’ annual incomes, or up to $480,000.
  • The incentive is worth up to 5 per cent for the purchase of an existing home and up to 10 per cent for a new build.
  • money must be paid back after 25 years or when the property is sold, whichever occurs first.
  • The government will share in the upside or downside of any change in property value
  • when the time comes for a property owner to pay back the incentive, the value of the incentive will be increased or decreased by the same percentage that the overall value of the property has risen or fallen.

 

Bob Rees

May Shows Signs of Improvement In BC and Alberta

General Bob Rees 21 Jun

May Shows Signs of Improvement In BC and Alberta

Statistics released late last week by the Canadian Real Estate Association (CREA) show that national home sales increased in May. Together with monthly gains in the previous two months, activity in May reached its highest level since early last year when the new B-20 stress testing was introduced. While last month’s home sales stood 8.9% above the six-year low posted in February 2019, this latest uptick has only just returned May’s sales level to its 10-year historical average (see chart below). Nationwide, sales were up 1.9% month-over-month, and relative to a year ago, sales rose 6.7% marking the biggest year-over-year gain since the booming summer of 2016.

Sales were up in only half of all local markets, but that list included almost all large markets, led by gains in both the Greater Vancouver (GVA) and Greater Toronto (GTA) areas. There were encouraging bursts of activity in Victoria, Calgary and, to a lesser degree, Edmonton. Resale activity was up 24% from April in Vancouver, Victoria posted a 10% gain, and Calgary resales rose 6.6% month-over-month.

These are early signs that the cyclical bottom has been reached in that region of the country. Market conditions are still soft, though. Property values remain under downward pressure for now with the MLS Home Price Index down from a year ago in May in Vancouver (-8.9%), Calgary (-4.3%) and Edmonton (-3.7%). That said, the rate of decline moderated in Calgary and Edmonton, which is a further sign that these markets are stabilizing.

New Listings
The number of newly listed homes edged downward by 1.2% in May. With sales up and new listings down, the national sales-to-new listings ratio tightened to 57.4% in May compared to 55.7% in April. Based on a comparison of the sales-to-new listings ratio with the long-term average, almost three-quarters of all local markets were in balanced market territory in May 2019.

There were 5.1 months of inventory on a national basis at the end of May 2019, down from 5.3 in April and 5.6 months back in February. Like the sales-to-new listings ratio, the number of months of inventory is within close reach its long-term average of 5.3 months.

Housing market balance varies significantly by region. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers in those parts of the country ample choice. By contrast, the measure remains well below long-term averages for Ontario and Maritime provinces, resulting in increased competition among buyers for listings and fertile ground for price gains.

Home Prices

MLS® HPI data are now available on a seasonally adjusted basis in addition to the actual (not seasonally adjusted) figures. On a seasonally adjusted basis, the Aggregate Composite MLS® HPI edged down 0.2% in May 2019 compared to April and stood 1.4% below the peak reached in December 2018.

Seasonally adjusted MLS® HPI readings in May were up from the previous month in 12 of the 18 markets tracked by the index; however, home price declines in the Lower Mainland of British Columbia contributed to the monthly decline in the overall index. Markets where prices rose in May from the month before include Victoria (0.5%), Edmonton (0.2%), Saskatoon (0.4%), Ottawa (0.7%), Niagara (0.2%), Oakville (0.8%), Guelph (0.5%), Barrie (3.6%), Montreal (0.5%) and Greater Moncton (0.5%), with gains of 0.1% in the GTA and Regina. By contrast, readings were down from the month before in the GVA (-1.0%), Fraser Valley (-1.1%), the Okanagan Valley (-1.3%), Calgary (-0.1%) and Hamilton (-0.7%), while holding steady on Vancouver Island outside Victoria.

Trends continue to vary widely among the 18 housing markets tracked by the MLS® HPI. Results remain mixed in British Columbia, with prices down on a y/y basis in the GVA (-8.9%), the Fraser Valley (-5.9%) and the Okanagan Valley (-0.7%). Meanwhile, prices edged up 1% in Victoria and climbed 4.7% elsewhere on Vancouver Island.

Among Greater Golden Horseshoe housing markets tracked by the index, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+5.7%), the Niagara Region (+5.4%), Hamilton-Burlington (+3.4%), Oakville-Milton (+3.4%) and the GTA (+3.1%). By contrast, home prices in Barrie and District held below year-ago levels (-6.1%).

Across the Prairies, supply remains historically elevated relative to sales and home prices remain below year-ago levels. Benchmark prices were down by 4.3% in Calgary, 3.6% in Edmonton, 3.9% in Regina and 1.3% in Saskatoon. The home pricing environment will likely remain weak in these cities until demand and supply return to better balance.

Home prices rose 8% y/y in Ottawa (led by a 12.2% increase in townhouse/row unit prices), 6.3% in Greater Montreal (led by a 7.6% increase in condo apartment unit prices), and 2% in Greater Moncton (led by a 15.9% increase in apartment unit prices). (see Table 1 below)

Bottom Line: The Bank of Canada is counting on a rebound in economic activity in the current quarter and believes growth will accelerate further in Q4 and 2020. That should keep the Bank on the sidelines for some time. Currently, the markets are expecting the Federal Reserve to cut interest rates in July and to continue to do so in 2020. Indeed, President Trump is lobbying hard for rate cuts. It is unlikely that the Bank of Canada will follow the Fed unless the trade war with China worsens. Political pressure is mounting on the administration to reduce trade tensions. Trade uncertainty is the only thing right now that would derail the Canadian recovery.

Dr. Sherry Cooper

Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres

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