2 Mar

Canadian GDP Slowed Dramatically in Q4 2022, Another Reason the BoC Won’t Raise Rates in March

Bank of Canada

Posted by: Peter Carstensen

If you are among the growing number of Canadians worried about the upcoming Bank of Canada announcement due out on March 8th, 2023, Dominion Lending Centre’s Chief Economist, Dr Sherry Cooper, has some insights. As Dr. Cooper states in the article posted below, “Bad news is good news for the Bank of Canada.” It may be good news for you too!

Bad News Is Good News for the Bank of Canada
Statistics Canada released the real gross domestic product (GDP) figure for the final quarter of 2022 this morning, showing a marked slowdown in economic activity. This will undoubtedly keep the central bank on the sidelines when they announce their decision on March 8. The Bank had estimated the Q4 growth rate to be 1.3%. Instead, the economy was flat in Q4 at a 0.0% growth rate. This was the slowest quarterly growth pace since the second quarter of 2021.

Inventory accumulation in the fourth quarter declined for manufacturing and retail goods, driving investment in inventories to decline by $29.8 billion. Further, higher interest rates by the Bank of Canada hampered investment in housing (-8.8% at an annual rate), and business investment in machinery and equipment was a weak -5.5%. On the other hand, personal expenditure in the Canadian economy expanded by 2.0% (vs -0.4% in Q3), supported by the red-hot labour market. Government spending growth also accelerated. At the same time, net foreign demand contributed positively to GDP growth as exports grew by 0.8% while imports shrank by 12.0%.

The weak Q4 result reduced the full-year gain in GDP for 2022 to 3.4%, compared to 2.1% in the US, 4.0% in the UK, and 3.6% in the Euro area.

The January GDP flash estimate was +0.3%, pointing towards a rebound in the first quarter of this year. However, flash estimates are always volatile and subject to revision. Nevertheless, the growth in GDP this year will likely be much more moderate, less than 1%.

Bottom Line
The weakness in today’s economic data will be good news to the Bank of Canada, having promised a pause in rate hikes to assess the impact of the cumulative rise in interest rates over the past year. Today’s GDP report and the slowdown in the January CPI inflation numbers portend no interest rate hike on March 8.

Now the Bank will be looking for a softening in the labour market.

Source:

https://sherrycooper.com/articles/canadian-gdp-slowed-dramatically-in-q4-2022-another-reason-the-boc-wont-raise-rates-in-march/

28 Feb

Need an Appraisal?

General

Posted by: Peter Carstensen

Need an Appraisal? Here’s some tips for success.

If you are looking to buy a home or want a current value of your property, you will need an appraisal.

Before banks or lending institutions can consider loaning money for a property, they need to know the current market value of that property. The job of an appraiser is to check the general condition of your home and determine a comparable market value based on other homes in your area.

While you may think “it is what it is”, we actually have a few tips that can help improve your home’s appraisal to ensure you are getting top market value!

Clean Up: The appraiser is basing the value of your property on how good it looks. A good rule of thumb is to treat the appraisal like an open house! Clean and declutter every room, vacuum, and scrub to ensure your home is as presentable and appealing as possible.

Curb Appeal: First impressions can have a huge impact when it comes to an appraisal. Spending some time ensuring the outside of your property from your driveway entrance to front step is clean and welcoming can make a world of difference.

Visibility: The appraiser must be able to see every room of the home, no exceptions. Refusal to allow an appraiser to see any room can cause issues and potentially kill your deal. If there are any issues with any spaces of your home, be sure to take care of them in advance to allow the appraiser full access.

Upgrades and Features: Ensuring the appraiser is aware of any upgrades and features can go a long way. Make a list and include everything from plumbing and electrical to new floors, new appliances, etc. This way they have a reference as to what has been updated and how recent or professional that work was done.

Be Prudent About Upgrades: While the bathroom and kitchen are popular areas, they are not necessarily the be-all-end-all for getting a higher home value. These renovations can be quite costly so it is a good idea to be prudent about how you spend your money and instead, focus on easy changes such as new paint, new light fixtures or plumbing and updated flooring to avoid breaking the bank while still having your home look fresh.

Know Your Neighbourhood: You already know where you live better than the appraiser. Taking a look at similar homes in your neighbourhood and noting what they sold for will give you a ballpark. If your appraisal comes in low, you will be prepared to discuss with the appraiser the examples from your area and why you believe you property is worth more.

Be Polite: The appraiser is there to get in and get out. Avoid asking them too many questions or making too many comments and simply be prepared should they have questions. Once they have completed the review of your home, that is a good time to bring up any comments you might have.

Don’t forget to contact your Dominion Lending Centres mortgage expert if you have any questions about your existing home or mortgage, or if you are looking to sell and relocate in the future!

Source:
https://dominionlending.ca/mortgage-tips/need-an-appraisal-tips-for-success

16 Feb

Canadian Housing Market Remains Weak

Home Sales

Posted by: Peter Carstensen

New data was released the week of February 13th on January home sales across the country.

What follows below is a summary of Dr. Sherry Cooper’s article on the housing data.

December Housing Data Ended 2022 On A Weak Note

The Canadian Real Estate Association says home sales in January were the lowest for the month since 2009 and fell 37.1% from a year ago. The Canadian housing market has been sliding for eleven consecutive months as the unprecedented rise in interest rates–up from 25 basis points to 4.5% for the policy rate–has moved buyers to the sidelines. This is an abrupt reversal in the fevered pace of home sales during the pandemic.

The rapid rise in interest rates, designed to combat inflation, has driven many buyers to the sidelines. Higher borrowing costs have reduced affordability despite the sharp decline in prices in many regions.

On a regional basis, sales gains in Hamilton-Burlington and Quebec City were more than offset by declines in Greater Vancouver, Victoria and elsewhere on Vancouver Island, Calgary, Edmonton, and Montreal.

New Listings

Last month, the number of newly listed homes rose 3.3% on a month-over-month basis, led by increases across British Columbia. Despite the slight increase, new listings remain historically low nationally. New supply in January 2023 hit the lowest level for that month since 2000.

With new listings up and sales down in January, sales-to-new listings eased back to 50.7%. This is roughly where it had been over the entire second half of 2022. The long-term average for this measure is 55.1%. There were 4.3 months of inventory on a national basis at the end of January 2023. This is close to where this measure was in the months leading up to the initial COVID-19 pandemic lock-downs, considered historically slow.

Home Prices
Canadian home prices fell by the most on record in 2022 as rapidly rising interest rates forced a market adjustment that is still ongoing.

The Aggregate Composite MLS® HPI was 15% below its peak in February 2022. Looking across the country, prices are down from peak levels by more than they are nationally in many parts of Ontario and some parts of B.C. and down by less elsewhere. While prices have softened to some degree almost everywhere, Calgary, Regina, Saskatoon, and St. John’s stand out as markets where home prices are barely off their peaks at all.

In contrast, some East Coast markets have bottomed and appear to be trending higher.

Housing Construction Falls

In other news, CMHC reported that the annual pace of housing starts fell 13% in January. The national housing agency says the seasonally adjusted annual rate of housing starts for the year’s first month was 215,365 units compared with 248,296 in December.

This is very troubling as the population growth in Canada is slated to be very strong, and rental properties are in very short supply. The housing shortage will only rise. Rents have surged in many parts of the country for new inhabitants, straining household budgets even more.

With interest rates high and the cost of construction booming, many developers are moving to the sidelines.

The table below shows the decline in MLS-HPI benchmark 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 most significant price dips are in the GTA and the GVA, where the price gains were spectacular during the COVID-shutdown.

Even with these large declines, prices remain roughly 33% above pre-pandemic levels.

Bottom Line

The Bank of Canada has promised to pause rate hikes assuming inflation continues to abate. We will not see any action in March. But the road to 2% inflation will be a bumpy one. I see no likelihood of rate cuts this year, and we might see further rate increases. Markets are pricing in additional tightening moves by the Fed.

There is no guarantee that interest rates in Canada have peaked. We will be closely monitoring the labour market and consumer spending.

You can read the full article by Dominion Lending Centre’s Chief Economist, Dr Sherry Cooper by clicking on the link below

https://sherrycooper.com/category/articles/

https://dominionlending.ca/economic-insights/canadian-housing-market-remains-weak

9 Feb

Title Fraud. What is it? How can you protect yourself and your property?

General

Posted by: Peter Carstensen

Title Fraud

Recent news stories have highlighted the dangers of real-estate title fraud, which occurs when fraudsters or scam artists steal ownership of a home to benefit from its value.
CBC News recently reported on a number of cases in the province of Ontario. In one such case, the homeowners left Canada for work overseas only to learn months later upon their return to Canada that their property had been sold without their knowledge by people using fake credentials and identification.

What is Title Fraud?

Title fraud takes place when a person uses fake identification or forged documents to steal the identity of a homeowner and take away their “title,” or legal ownership of a property.

Once fraudsters have their hands on a property’s title, they can re-mortgage it, sell it to an unsuspecting buyer, or extract value from it in some other way and make away with the proceeds.

Homeowners often don’t learn about what’s happened until they receive notice of missed payments or they try to sell, title insurance company First Canadian Title (FCT) says on its website.

How can you protect yourself and your property?

You can take steps to protect your identity

Government-issued identity documents, including driver’s licences, passports, birth certificates, social insurance number (SIN) cards and citizenship cards, can all be used to apply for mortgages or to take steps to buy or sell a home.

The Canadian Anti-Fraud Centre offers the following tips for preventing identity theft:

Be wary of who you share personal information with.
Regularly check credit card reports, and bank and credit card statements and report anything irregular.
Shred documents containing personal information before placing them in the garbage.
Limit mail theft by regularly retrieving mail.
Notify the post office, financial institutions and other service providers of your new address when you move.

Another Important Step to Take is to Get Title Insurance


What to Know About Title Insurance.

There are many insurance products when it comes to your home, but not all are created equal. Potential homeowners may encounter one such insurance policy called “title insurance”.

This particular insurance is designed to protect residential or commercial property owners and their lenders against losses relating to the property’s title or ownership. In fact, it is so important to lenders that every single lender in Canada requires you to purchase title insurance on their behalf. It is not a requirement to have coverage for yourself, but that doesn’t mean you should dismiss it outright.

While title insurance can protect you from existing liens on the property’s title, the most common benefit is protection against title fraud.

Title fraud typically involves someone using stolen personal information, or forged documents to transfer your home’s title to him or herself – without your knowledge. The fraudster then gets a mortgage on your home and disappears with the money. As the old adage goes: “It’s better to be safe than sorry” and the same goes for insurance.

Similar to default insurance, title insurance is charged as a one-time fee or a premium with the cost based on the value of your property. This insurance typically runs around $300 for the lender and $150 for the individual. It can be purchased through your lawyer or title insurance company, such as First Canadian Title (FCT).

Industry experts are urging homebuyers to purchase title insurance as part of closing. Tim Hudak, CEO of the Ontario Real Estate Association (OREA) recently described title insurance as “the best safeguard” for homebuyers.

Title fraud protection for existing homeowners

Title insurance is still an option for homeowners after they take possession, even years later. But once an issue like fraud is discovered, it can be too late to provide coverage. According to Daniela DeTommaso, President of FCT, the best time to purchase a title insurance policy is now.

“There’s no reason you shouldn’t be getting title insurance, just like you wouldn’t buy a house without property and casualty insurance,” she explains. When a homeowner with a title insurance policy learns their title has been stolen, they benefit from more than just their coverage.

“The title insurance company also has a duty to defend,” says Daniela. “That means that the minute we find out [title fraud] has happened, we step in and we protect [the insured]. We pay all of the costs.”

Those costs include the legal fees to restore a homeowner’s title, which can be in the tens of thousands, as well as the costs of investigating the fraud and handling all the legal processes.

“It’s not only compensating for that significant loss,” Daniela continues. “It’s also just providing that peace of mind knowing that someone’s going to navigate this process for you, and any costs […] having to prove that you are who you say you are.”

If you are wanting to know more about title insurance, or confirm that you (and your home) are properly protected, don’t hesitate to reach out to a Dominion Lending Centres mortgage expert today for a mortgage review!

Sources:
http://https://www.cbc.ca/news/canada/toronto/prevent-title-insurance-fraud-1.6711615
https://dominionlending.ca/mortgage-tips/the-importance-of-title-insurancehttps://dominionlending.ca/sponsored/how-can-homeowners-protect-themselves-against-title-fraud

16 Dec

Canadian Home Prices Fell For the Ninth Consecutive Month As Activity Slowed

Home Sales

Posted by: Peter Carstensen

The Canadian Real Estate Association released statistics for the month of November on December 15th.
Here are Dominion Lending Centre’s Chief Economist, Dr. Sherry Cooper’s thoughts on the future of home sales in the country.

Another Month, Another Dip in Housing

Statistics released today (December 15, 2022) by the Canadian Real Estate Association (CREA) show home sales edged down in November. National home sales fell 3.3% between October and November, continuing the moderating sales trend that began last February on the precipice of unprecedented monetary policy tightening. Sales are down a whopping 39% from a year ago. The Bank of Canada has hiked their overnight policy rate by 400 bps, from 25 bps to 4.25%, triggering a whopping rise in mortgage rates.

About 60% of all local markets saw lower sales in November, led by Greater Vancouver and the Fraser Valley, Edmonton, the Greater Toronto Area (GTA) and Montreal.

The actual (not seasonally adjusted) number of transactions in November 2022 came in 38.9% below a near-record for that month last year. It stood about 13% below the pre-COVID-19 10-year average for November sales (see chart below).

New Listings

Sellers remain on the sidelines as the number of newly listed homes edged down last month by 1.3%, declining 6.1% from a year ago. Most sellers are waiting for interest rates to fall, either because they expect a rebound in sellers or are unwilling to buy new properties themselves with mortgage rates so high.

While sales have swung wildly, new listing flows have remained relatively steady through the recent turbulence and are very much in line with pre-COVID norms. There’s still not a lot of forced selling, which can exacerbate a price correction.

New listings fell in slightly more than half of the local markets. Among the larger markets in Canada, month-over-month movements in new supply were generally small, the only exception being some more significant declines in the B.C. Lower Mainland and Okanagan regions.

In terms of monthly new supply, the bigger picture is listings are not flooding the market. With the one exception of 2019, November 2022 saw the fewest new listings for that month in 17 years.

With sales down month-over-month by a little more than new listings in November, the sales-to-new listings ratio fell to 49.9% compared to 50.9% in October. The ratio has remained close to around 50% since May. The long-term average for this measure is 55.1%.

Based on a comparison of the current sales-to-new listings ratio with long-term averages, about 70% of local markets are currently in the balanced market territory.

There were 4.2 months of inventory on a national basis at the end of November 2022. This is close to where this measure was in the months leading up to the initial COVID-19 lockdowns and still nearly a full month below its long-term average.

Home Prices

The Aggregate Composite MLS® Home Price Index (HPI) edged down 1.4% month-over-month in November 2022, continuing the trend that began in the spring.

The Aggregate Composite MLS® HPI now sits about 11.5% below its peak level. Breaking that down regionally, the general trend is prices are down somewhat more than they are nationally in Ontario and parts of B.C. and down by less elsewhere. While prices have softened to some degree almost everywhere, Calgary, Regina and Saskatoon stand out as markets where home prices are barely off their peaks at all.

The table below shows the decline in MLS-HPI benchmark 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 most significant price dips are in the GTA and the GVA, where the price gains were spectacular during the COVID-shutdown.

Bottom Line

OSFI announced this morning that the minimum qualifying rate for uninsured mortgages at federally regulated financial institutions would remain unchanged. They will review Guideline B-20 next month, but don’t hold your breath for an easing of the stress test.

In other news, housing starts were little changed last month at 264,600 annualized units. This is a strong level of new construction; the year-to-date average is roughly 265,000 units. Combined with the record 275,000 new units started last year, we are in line for the most significant two-year wave of housing starts on record. On a per-capita basis, we’re starting 2023 with an unprecedented construction boom despite higher costs, labour shortages and much higher interest rates.

Outlook

The Bank of Canada is likely to raise the policy rate a couple of times by 25 bps in the first half of next year, pausing between rate hikes. They will not cut rates in 2023 even though the economy will post at least a mild contraction.

2024 will be a recovery year but don’t expect the overnight rate to return to the pre-Covid level of 1.75%. Indeed, the new cycle low will likely be more like 2.5% assuming inflation continues to trend downward. Price growth will be much more subdued than during the rocking ten-year period before the pandemic. Still, the underlying fundamentals of rapid population growth, mainly from immigration, bode well for sustained growth going forward.

https://dominionlending.ca/economic-insights/canadian-home-prices-fell-for-the-ninth-consecutive-month-as-activity-slowed

12 Dec

The Rate Debate – Fixed or Variable? What is Right For Me?

General

Posted by: Peter Carstensen

The recent Bank of Canada’s rate hike has many Canadian’s asking for advice about variable versus fixed mortgage rates. What may work for one person may not work for another. In May of this year, Dominion Lending Centre answered some common questions. Let’s take another look at the article below.

 

The Rate Debate

One of the first questions that potential buyers want answered is: “What is your interest rate?”

It is easy to think that this is the most important question, but there is a lot more to your mortgage contract than just the rate. And so, the rate debate continues!

The rate debate is a hot topic in the mortgage world. Not just the rates itself, but the importance of the rate versus other factors in the mortgage – such as terms and penalties. As a borrower, it can be easy to get caught up in one thing but, if you’re not paying close attention, ignoring other factors could cost you in the long run.

Before we get into these other factors, let’s talk rate. While not the only factor, it does continue to be an important decision criteria with any mortgage product. The interest rate is the percentage of interest you are paying on the principal loan; lower interest rates means more money to the mortgage and who doesn’t want that?

Variable Vs. Fixed

There are two types of mortgage rates: variable-rate and fixed-rate. A fixed-rate is just that – a fixed amount of interest that you would pay for the term of the mortgage. A variable-rate, on the other hand, is based off of the current Prime Rate, and can fluctuate depending on the markets.

Fixed rates are typically tied to the world economy where the variable rate is linked to the Canadian economy. When the economy is stable, variable rates will remain low to stimulate buying.

Fixed-Rate Mortgage: First-time homebuyers and experienced homebuyers typically love the stability of a fixed rate when just entering the mortgage space. The pros of this type of mortgage are that your payments don’t change throughout the life of the term. However, should the Prime Rate drop, you won’t be able to take advantage of potential interest savings.

Variable-Rate Mortgage: As mentioned, variable-rate mortgages are based on the Prime Rate in Canada. This means that the amount of interest you pay on your mortgage could go up or down, depending on the Prime. When considering a variable-rate mortgage, some individuals will set standard payments (based on the same mortgage at a fixed-rate), this means that should Prime drop and interest rates lower, they are paying more to the principal as opposed to paying interest. If the rates go up, they simply pay more interest instead of direct to the principal loan. Other variable-rate mortgage holders will simply allow their payments to drop with Prime Rate decreases, or increase should the rate go up. Depending on your income and financial stability, this could be a great option to take advantage of market fluctuations.

Beyond Rates

When considering your mortgage, other considerations such as penalties can be important factors for deciding on a mortgage product. If you have two competing products, say 1.65% interest fixed-rate and a 1.95% interest variable-rate, it seems as though it is a pretty easy decision. But, what about the ability to make extra payments? And what are the penalties?

It is easy to think that nothing will change throughout your 5-year mortgage term, so you probably haven’t even considered the penalties. However, when looking at the fixed versus variable rate mortgage, penalties can be quite different. Where variable rates typically charge three-months interest, a fixed rate mortgage uses an Interest Rate Differential (IRD) calculation.

Given that nearly 70% of fixed mortgages are broken before the term ends, this is an important variable. Fixed-rate mortgages are typically okay when the penalty is your contract rate versus the Benchmark rate. However, when penalties are based on the Benchmark rate (sometimes called the Bank of Canada rate), it is typically much higher than your contract rate, resulting in greater penalties.

In some cases, penalties for breaking a fixed mortgage can sometimes be two or three times higher than that of a variable-rate. While the interest rate is lower, lower penalties are sometimes best should anything happen down the line.

Conventional vs. High-Ratio Mortgage

Another consideration beyond just the interest rate, is whether or not you will be obtaining a conventional or a high-ratio mortgage. Whenever possible, it is recommended to put 20 percent down payment on a new home. This results in a conventional mortgage. However, as not everyone is able to do this, many buyers will end up with a high-ratio mortgage product.

So, what does this mean?

High-ratio mortgages need to be insured by either Genworth Financial, the Canada Mortgage and Housing Corporation (CMHC), or Canada Guaranty. This is due to the Bank Act, which will only allow financial institutions to lend up to 80 percent of the homes purchase price WITHOUT mortgage default insurance. Insurance on the mortgage is important to protect the lender should you default on your payments, leaving the insurer to deal with the borrower.

The difference between conventional and high-ratio mortgages is that high-ratio mortgages require insurance, which results in an insurance premium. This is added to and paid along with the mortgage, but is an important factor when considering your monthly payments. These premiums are based on the loan to value (LTV), which is the amount of the loan versus the value of your home.

All high-ratio mortgages are regulated to have mortgage insurance, but some homeowners with a conventional mortgage may choose to pay for mortgage insurance to get a better rate.

Smart Questions to Ask

To ensure you understand your mortgage contract, and how it could affect you now and in the future, we have compiled a few smart questions to ask before you sign.

1) What is my interest rate? Can I qualify for a better one?
2) Do you recommend fixed or variable-rate?
3) What are the penalties for breaking my mortgage?
4) Are there any pre-payment penalties?
5) Will I require mortgage insurance? If so, what are the premiums?
6) What will my monthly payment be?
7) Is my mortgage portable?

These are just a few examples of good questions to ask. It is important to do your own research and be diligent with any contract you are signing. Contacting a Dominion Lending Centres mortgage broker today can help ensure you understand what you are agreeing to, and that you are getting the best mortgage product for you!
https://dominionlending.ca/mortgage-tips/the-rate-debate

9 Dec

Financial Mistakes to Avoid in Today’s Economy

General

Posted by: Peter Carstensen

As we head into another holiday season and with the uncertainty of what lays ahead many Canadians are looking to how they can weather the current financial pressures they may be under.

2022 has been nothing but bad news financially for most Canadians. Our stock portfolios are worth a lot less, everything we buy costs more, and interest rates are making our mortgages and other loans a lot more expensive. More than ever it is time to tread carefully and avoid any financial mistakes, so we gathered up the top 5 missteps you definitely want to steer clear of for the rest of this year and beyond!

1. Not understanding your loan agreements

It is shocking to see how many people fail to understand the terms and conditions before entering into potentially life-changing contracts like a mortgage or student loan. Don’t assume your student loan will have a low interest rate and make sure to investigate the amount of your monthly payment post-graduation, and how many years you will be paying.

Mortgages can be complicated, but that’s no excuse and a good mortgage broker will take the time to answer all of your questions. Trigger rates in mortgage agreements have recently been in the news with rising interest rates and are a good example of people not full understanding what they signed.

2. Not having any system to track your expenses

“I don’t know where my money goes” is a common refrain as prices continue to rise. However, given the number of mobile applications, web programs and other online tools available to simplify this task (or just use a pencil!), there isn’t any excuse. Regardless of how much income you have coming in, monitoring and controlling expenses is critical step as plenty of high-earning-now-bankrupt athletes and actors have proven!

3. Investing before paying off debt

The question of whether it’s better to invest any “extra” cash or pay down debt needs a re-think given recent economic changes. In 2021, mortgages and lines of credit could be had for around 2% and most stock indexes reported double-digit gains. Paying down those debts with money you could have invested in the markets was not the best option.

A year later, borrowing rates have doubled in many cases (mortgages for example) and financial markets are wobbly at best, with many deep into the red year to date. These aren’t the only factors to consider, and you need to do the math for your situation, but the case for paying down debt is getting stronger by the day.

In case you are wondering, credit card debt is another deal altogether! In almost every case you would be much better off by throwing all you have at the unpaid balance before investing any of that money.

4. Not saving and investing

As higher prices and interest rates suck up more of our disposable cash, something has to give, and putting a little bit of money away each month may be on the chopping block. If you need the money for essentials like food or rent, then you have no choice but be honest with yourself on what is essential! Once you break the saving habit it’s hard to get it back and saving is not really a discretionary expense unless you have an alternative plan to fund your retirement? Catching up on savings might be possible when things get better, but that could be years and the earlier you start, the more your savings are going to grow.

5. Spending too much on a car

You should be aiming for 15% of your take-home pay for total car costs including the loan payment, insurance and gas. This leaves you between $30K and $35K for a vehicle if you make $100k annually. That’s not a lot given new and used cars have been in short supply in 2022 and prices are through the roof. Although repairs aren’t cheap and you won’t get that new car smell, hanging on to your current ride may be the best option financially.

At the end of the day, financial knowledge is the best defense for avoiding mistakes and we hope you continue to learn with us.

Source: https://dominionlending.ca/enriched-tips/financial-mistakes-to-avoid-in-todays-economy

2 Dec

Little Comfort for the Bank of Canada in Today’s Jobs Report

Bank of Canada

Posted by: Peter Carstensen

Following the release of the labour force survey for the month of November, Dominion Lending Centres’ Chief Economist, Dr. Sherry Cooper, has posted some thoughts on the report.

Below is Dr. Cooper’s summary:

Today’s Labour Force Survey for November will do little to assuage the Bank of Canada’s concern about inflation. While employment growth slowed to 10,100 net new jobs–down sharply from October’s reading–the report’s underlying details point to excess labour demand and rising wages. This is compounded by Monday’s data release showing that the Canadian economy grew by 2.9%, double the rate expected by the Bank of Canada. Everyone expects a slowdown in the current quarter and a modest contraction in the new year. However, excess demand is still running rampant in almost everything except housing.

Indicative of hiring strength, full-time employment was up a robust 50,700, and the private sector added 24,700 jobs. The jobless rate ticked down for the second consecutive month to 5.1%–well below the 5.7% rate posted immediately before the pandemic, which was considered full employment at that time. Total hours worked edged up, consistent with growth in the fourth quarter. And most notably, wage inflation came in at a year-over-year pace of 5.6% in November, the sixth consecutive month of greater than 5% wage inflation. Moreover, private and public sector unions demand even more significant wage gains as inflation remains close to 7%.

Businesses report difficulty filling jobs as job vacancies rose in the latest reading. The employment rate among core-aged women reached a new record high of 81.6% in November.

Employment rose in finance, insurance, real estate, rental and leasing, manufacturing, information, culture, and recreation. At the same time, it fell in several industries, including construction and wholesale and retail trade.

While employment increased in Quebec, it declined in five provinces, including Alberta and British Columbia.

Bottom Line

Today’s data are the last key input into the Bank of Canada’s December 7 interest rate decision. Overnight swap markets are fully pricing in a 25 basis-point hike next week, with traders putting about a one-third chance on a 50 basis-point move. Rising wages show no sign of cooling, and the economy posted much more robust growth in the third quarter than the Bank expected. 

The overnight policy rate target is currently at 3.75%. If I were on the Bank’s Governing Council, I would vote for a 50-bps rise to 4.25%. Returning to a more typical 25 bps rise is premature, given inflation is a long way above the Bank’s 2% target. Inflation will not slow, with consumers and businesses expecting continued high inflation. Wage-price spiralling is a real risk until inflationary psychology can be broken. 

In either case, additional rate hikes early next year are likely. Even when the central bank pauses, it will not pivot to rate cuts for an extended period. Market-driven longer-term interest rates have fallen significantly as market participants expect a recession in 2023. Fixed mortgage rates have fallen as well. The inverted yield curve will remain through much of 2023, with a housing recovery in 2024.

https://sherrycooper.com/articles/little-comfort-for-the-bank-of-canada-in-todays-jobs-report/

1 Dec

Canada Mortgage and Housing Corporation Releases Fall 2022 Edition of the Residential Mortgage Industry Report

General

Posted by: Peter Carstensen

Canada Mortgage and Housing Corporation (CMHC) just released the latest available data on trends in the residential mortgage industry. The latest report provides insights into the evolving mortgage industry landscape and market trends using data from Q2 and Q3 2022.

Here is a brief summary of CMHC’s findings:

Mortgage Market Trends
– Mortgage growth slowed down as interest rates hiked in the second quarter of 2022
-Since June, mortgage consumers are increasingly turning back to fix rates as interest rates rapidly increase and the discount on variable interest rates vanishes
-Declining ratios of mortgage loan approvals to applications in the first two quarters of 2022 show it is increasingly difficult for potential borrowers to get qualified for loans subject to the stress test.
-At the end of the second quarter, the share of Mortgages in arrears (i.e. delinquent for 90 days or more) continued to trend downwards across all types of lenders.

Housing Finance Research at-a-glance

-in the third quarter of 2022, consumers without a mortgage registered notable delinquency rate increases in auto loans and credit cards.
– Mortgage lending growth by alternate lenders outpaced conventional lenders in the second quarter of 2022. Their portfolio metrics indicated a decreasing risk profile.
– Based on data as of Q3 2022, mortgage borrowers in the alternative lending space are more likely to renew their loans as it becomes harder to qualify with traditional lenders.

CMHC’s full Residential Mortgage Industry Report – Fall 2022 edition can be found here:
https://www.cmhc-schl.gc.ca/en/professionals/housing-markets-data-and-research/housing-research/research-reports/housing-finance/residential-mortgage-industry-report

1 Dec

Homeowners with variable mortgages squeezed between rising rates and falling home prices

General

Posted by: Peter Carstensen

The Bank of Canada is widely expected to raise its benchmark rate yet again on Dec. 7

Mortgage brokers say homeowners with variable-rate mortgages will be squeezed even further next week, as the Bank of Canada is widely expected to raise the country’s key lending rate as part of its continued efforts to curb rapidly rising inflation.

The rate adjustment is scheduled for Dec. 7, and if it happens the way most are predicting, it will be the seventh such hike in the prime rate since March.

Variable rate mortgages, where payments are linked to the rise and fall of the country’s key lending rate, account for about a third of all mortgage debt in the country, according to the Bank of Canada.

They grew in popularity during the COVID-19 pandemic, as housing prices soared while interest rates were close to zero — keeping many buyers’ payments significantly lower than if they were to choose a fixed-rate mortgage.

Now that interest rates are rising, and home prices are falling, many homeowners who bought at the market’s peak have found themselves questioning whether they made the right choice and if it’s not too late to make a change.

‘Should I lock in?’ There’s no easy answer

“Should I lock in? That’s the million dollar question right now, and it’s a tough question to answer,” said Dani Hanna, a mortgage broker and owner of the Mortgage Firm in London, Ont.

“The reason the rates have been increasing so quickly is because of inflation. Inflation is through the roof. We could see that start to subside in the next couple of months, and if that starts to subside, could we see interest rates go down? Possibly,” he said.

It’s why some mortgage brokers are reticent to advise their clients to lock in now at a fixed rate.

If inflation starts to slow, the central bank could lower rates again, bringing payments down with them. If a homeowner were to switch to a fixed rate, they could be stuck paying significantly more than they would have if they just kept a variable rate, Hanna said.

“For me, I ask my clients, ‘is this keeping you up at night? Are you stressed out about the fact that your payment can increase again?’ If the answer is ‘yes,’ then I strongly recommend locking into the fixed rate,” he said.

“If you have the ability to maintain these higher payments for now — ride the wave. See what happens. The Bank of Canada has mentioned that it has started to slow down on the increases, which means your payment won’t go up”

Half of all variable rate mortgages hit trigger rate in October

Part of the reason is that many borrowers are reaching the point where the interest portion of their payment has become larger than the principal, called the trigger rate.

A recent analysis by the Bank of Canada estimated half of all variable rate mortgages in Canada hit their trigger rate last month.

The analysis said it is anticipated “variable mortgage rates will increase by another 50 basis points by mid-2023.” At that point, it’s believed the number of variable rate mortgages to hit their trigger point will be 65 per cent, or 17 per cent of all mortgages in Canada.

In London, Ont., the average price of a home has fallen for eight months to roughly $640,000 in October, down from the market’s peak of about $825,000 in February.

“It’s tough,” said Mark Mitchell, a London, Ont., mortgage broker with Real Mortgage Associates. “Rates have gone sky-high.”

Like many financial experts, Mitchell anticipates a hike of at least 50 basis points on Dec. 7, putting the Bank of Canada prime rate at 4.25 per cent. He believes there are more to come, putting homeowners who chose variable rate mortgages in an even more difficult position.

“The prime rate is 3.75 and the inflation rate is seven. Historically, the prime rate is supposed to be higher than inflation. Now I don’t think they’re going to go that far, but they still have a ways to go.

“All signs point to it’s going to get worse before it gets better.”

Mitchell said he’s advising borrowers with a variable rate mortgage to lock in now to avoid even more pain down the road, but if a client can’t afford to lock in because the payments are too high, he said it might be time to consider selling.

“I’m already seeing a lot of anticipatory selling because it’s too high for them to lock in,” he said. “There’s a lot of pain out there. It’s been a lot of tough conversations as of late, that’s for sure.”

Mitchell said many people who are considering selling a home they can’t keep are looking at renting, but they likely won’t see any relief there as rental rates also rose alongside real estate prices during the frenzy of the pandemic.

“The payments are just as high as you were paying, if not more, than when you owned your home, unfortunately.”

Source CBC.ca

Colin Butler

https://www.cbc.ca/news/canada/london/variable-rate-mortgage-interest-1.6667899