28 Sep

Advice for Single Home Owners

General

Posted by: Karli Shih

Buying a home is an exciting experience for anyone, and even more of a milestone when you’re doing it solo, but it can be a little different when you’re purchasing on your own.  

In addition to closely evaluating your mortgage options and working with a trusted realtor, here are some other tips that can help improve your homebuying experience:

  1. Understanding Your Financial History

Being aware of your credit score can help to improve your qualification potential.  The details of your credit history will help lenders understand your score and have it accurately reflect your repayment habits. 

2. Ramp Up Your Savings

Of course, while a mortgage will cover a large chunk of your home purchase, you are also required to have a down payment. In addition, you need to consider closing costs, as well as ongoing maintenance and costs for your new home (repairs, utilities, property taxes etc). It is important to determine your budget so you are aware of what you can afford monthly.  Before you shop is a great time to start ramping up your savings account so you can put more down and potentially reduce your overall mortgage.

  1. Study The Marketplace

One of the most important aspects of homeownership is understanding what you can afford and where you want to live. These two key components can help you to determine your budget and the areas that you should be looking for a home, as well as what type of home size, amenities, etc. Understanding what is available can provide you with more information and help you fine-tune your shopping list.  Watching what homes are listed for and what they sell for will give you a good sense of market values so you can set your expectations as you shop. 

4. Be Flexible When Possible and Firm When Not

While shopping for a home on your own can be much easier as you’re only concerned about your own needs, it is still important to be flexible. While it is easier to find a home that fits just ‘you’, keeping your options open can also have its benefits. Of course, if there are things you cannot live without or a location you really need to be in, it’s important to be firm about those things as well. Creating a list of wants and needs can help you determine where there is room to be flexible, and where there isn’t.  Knowing what you want will also help your realtor pinpoint suitable properties for you.  

  1. Consider Your Present and Future Needs

While you’re shopping for your new home for you today, you will also want to consider what your life might look like in the future. What are you doing 5 years from now? 10 years? Do you want to start a family or have children? Do you plan on changing jobs or perhaps requiring a move in a few years? These may factor into your mortgage choices today to give you the flexibility you need down the road as your property needs change.  

  1. Planning for the Future

Lastly, while you might not be purchasing your current home with a partner, it is important to know how residing in your property with a partner in the future might change things for you both as you move into a common-law relationship. Agreements can go a long way to protecting you both, protecting your relationship, and to helping you leverage opportunities together in the future if you plan properly from the start.  

If you are a single homeowner looking to make a purchase, but are not sure where to start, don’t hesitate to reach out to me any time.  I would be happy to walk you through the process and ensure you get the best home and mortgage for you.

 

20 Sep

Canadian Inflation Slows For the Second Consecutive Month

General

Posted by: Karli Shih

Inflation Cooled Again in August, But Higher Rates Still Coming

Canada’s headline inflation rate cooled again in August, even a bit more than expected. The consumer price index rose 7.0% from a year ago, down from 7.6% in July and a forty-year high of 8.1% in June, mainly on the back of lower gasoline prices.

The CPI fell 0.3% in August, the most significant monthly decline since the early months of the COVID-19 pandemic. On a seasonally adjusted monthly basis, the CPI was up 0.1%, the smallest gain since December 2020. The monthly gas price decline in August compared with July mainly stemmed from higher global production by oil-producing countries. According to data from Natural Resources Canada, refining margins also fell from higher levels in July.

Transportation (+10.3%) and shelter (+6.6%) prices drove the deceleration in consumer prices in August. Moderating the slowing in prices were sustained higher prices for groceries, as prices for food purchased from stores (+10.8%) rose at the fastest pace since August 1981 (+11.9%).

Price growth for goods and services both slowed on a year-over-year basis in August. As non-durable goods (+10.8%) decelerated due to lower prices at the pump, services associated with travel and shelter services contributed the most to the slowdown in service prices (+5.5%). Prices for durable goods (+6.0%), such as passenger vehicles and appliances, also cooled in August.

In August, the average hourly wages rose 5.4% on a year-over-year basis, meaning that, on average, prices rose faster than wages. Although Canadians experienced a decline in purchasing power, the gap was smaller than in July.

Core inflation–which excludes food and energy prices–also decelerated but remains far too high for the Bank of Canada’s comfort.  The central bank analyzes three measures of core inflation (see the chart below). The average of the central bank’s three key measures dropped to 5.23% from a revised 5.43% in July, a record high. The Bank aims to return these measures to its 2% target.

 

Bottom Line

Price pressures might have peaked, but today’s data release will not derail the central bank’s intention to raise rates further. Markets expect another rate hike in late October when the Governing Council of the Bank of Canada meets again. But further moves are likely to be smaller than the 75 bps-hikes of the past summer.

There is still more than a month of data before the October 25th decision date. The September employment report (released on October 7) and the September CPI (October 19) will be critical to the Bank’s decision. Right now, we expect a 50-bps hike next month.

Courtesy of Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca

 

14 Sep

Cash Back and Cash Back Mortgages  

General

Posted by: Karli Shih

Cash Back and Cash Back Mortgages  

How do they Differ?

 

A “Cash Back” promotion is an offer of funds credited to you after your mortgage completes.  The funds are an incentive for borrowers to move lenders by offsetting the closing costs involved in transferring.  A Cash Back can in since cases impact the mortgage rate, but not always.  Terms can include paying the mortgage from an account held with that lender, or moving some portion of your regular banking to the institution.  Cash Back incentives can be of value and should be evaluated if offered.  

 

Cash Back mortgages operate like a loan added to the mortgage itself and rates are not always in the borrower’s favour.  Interest rates are higher for these mortgages.  Standard penalties apply if the mortgage is repaid before the end of the term, and a prorated amount of the cash back amount would be due at that point as well.    

 

Before signing for a Cash Back promotion, or a Cash Back mortgage, it’s best to ensure you understand all of the relevant terms attached with each.  Feel free to reach out to find out more, I’m here to help on any mortgage related questions you may have.  

 

 

Adapted From: 

https://dominionlending.ca/mortgage-tips/3-things-you-may-not-know-about-cash-back-mortgages

7 Sep

Bank of Canada Hiked Rates Again

General

Posted by: Karli Shih

The Bank of Canada Hiked Rates Again And Isn’t Finished Yet
 

The Governing Council of the Bank of Canada raised its target for the overnight policy rate by 75 basis points today to 3.25% and signalled that the policy rate would rise further. The Bank is also continuing its policy of quantitative tightening (QT), reducing its holdings of Government of Canada bonds, which puts additional upward pressure on longer-term interest rates.

While some Bay Street analysts believed this would be the last tightening move this cycle, the central bank’s press release has dissuaded them of this notion. There has been a misconception regarding the so-called neutral range for the overnight policy rate. With inflation at 2%, the Bank of Canada economists estimated some time ago that the neutral range for the policy rate was 2%-to-3%, leading some to believe that the Bank would only need to raise their policy target to just above 3%. However, the neutral range is considerably higher, with overall inflation at 7.6% and core inflation measures rising to 5.0%-to-5.5%. In other words, 3.25% is no longer sufficiently restrictive to temper domestic demand to levels consistent with the 2% inflation target.

As the Bank points out in today’s statement, though Q2 GDP growth in Canada was slower than expected at 3.3%, domestic demand indicators were robust – “consumption grew by about 9.5%, and business investment was up by close to 12%. With higher mortgage rates, the housing market is pulling back as anticipated, following unsustainable growth during the pandemic.”

Wage rates continue to rise, and labour markets are exceptionally tight, with job vacancies at record levels. We will know more on the labour front with the release of the August jobs report this Friday. But the Bank is concerned that rising inflation expectations risk embedding wage and price gains. To forestall this, the policy interest rate will need to rise further.

Traders are now betting that another 50-bps rate hike is likely when the Governing Council meets again on October 25th. There is another meeting this year on December 6th. I expect the policy rate to end the year at 4%.
Bottom Line

The implications of today’s Bank of Canada action are considerable for the housing market. The prime rate will now quickly rise to 5.45%, increasing the variable mortgage interest rate another 75 bps, which will likely take the qualifying rate to roughly 7%.

Fixed mortgage rates, tied to the 5-year government of Canada bond yield, will also rise, but not nearly as much. The 5-year yield has reversed some of its immediate post-announcement spike and remains at about 3.27% (see charts below). Expectations of an economic slowdown have muted the impact of higher short-term interest rates on longer-term bond yields. This inversion of the yield curve is consistent with the expectation of a mild recession next year. It is noteworthy that the Bank omitted the usual comment on a soft landing in the economy in today’s press release. Bank economists realize that the price paid for inflation control might well be at least a mild recession.

Another implication of today’s policy rate hike is the prospect of fixed-payment variable-rate mortgages taken at the meagre yields of 2021 and 2022, hitting their trigger rate. There is a good deal of uncertainty around how many these will be, as the terms vary from loan to loan, but it is another factor that will overhang the economy in the next year.

We maintain the view that the economy will slow considerably in the second half of this year and through much of 2023. The Bank of Canada will hold the target policy rate at its ultimate high point– at least one or two hikes away– through much of 2023, if not beyond. A return to 2% inflation will not occur until at least 2024, and (as Governor Macklem says) the Bank’s job is not finished until then.