The Bank of Canada today held its target for the overnight rate at 5%, as was widely expected. The central bank continues to normalize its balance sheet through quantitative tightening, reducing its Government of Canada bonds holdings.

The Monetary Policy Report (MPR) detailed a slowdown in global economic growth “as past increases in policy rates and the recent surge in global bond yields weigh on demand.” Continued increases in longer-date bond yields reflect the stronger-than-expected growth in the US, where the Q3 economic growth rate, released tomorrow, is expected to be a whopping 5%. Ten-year yields in the US have risen to nearly 5%, boosting fixed mortgage rates in Canada.

Oil prices are higher than was assumed in the July MPR, and the war in Israel and Gaza is a new source of geopolitical uncertainty.

The Governing Council said that past increases in interest rates are slowing economic activity in Canada and relieving price pressures. “Consumption has been subdued, with softer demand for housing, durable goods and many services. Weaker demand and higher borrowing costs are weighing on business investment. The surge in Canada’s population is easing labour market pressures in some sectors while adding to housing demand and consumption. In the labour market, recent job gains have been below labour force growth, and job vacancies have continued to ease. However, the labour market remains on the tight side, and wage pressures persist. Overall, a range of indicators suggest that supply and demand in the economy are now approaching balance.”

Economic growth in Canada averaged 1% over the past year, and the Bank forecasts it will continue to be weak for the next year before increasing in late 2024 and through 2025. The Bank is not forecasting a recession over this period. “The near-term weakness in growth reflects both the broadening impact of past increases in interest rates and slower foreign demand. The subsequent pickup is driven by household spending as well as stronger exports and business investment in response to improving foreign demand. Spending by governments contributes materially to growth over the forecast horizon. Overall, the Bank expects the Canadian economy to grow by 1.2% this year, 0.9% in 2024 and 2.5% in 2025.”

The central bank highlighted the volatility of CPI inflation in recent months–at 2.8% in June, 4.0% in August and 3.8% in September. “Higher interest rates are moderating inflation in many goods that people buy on credit, and this is spreading to services. Food inflation is easing from very high rates. However, in addition to elevated mortgage interest costs, inflation in rent and other housing costs remains high. Near-term inflation expectations and corporate pricing behaviour are normalizing only gradually, and wages are still growing around 4% to 5%. The Bank’s preferred measures of core inflation show little downward momentum.”

In today’s MPR, CPI is expected to average about 3.5% through the middle of next year before gradually falling to the 2% target level in 2025. “Inflation returns to target about the same time as in the July projection, but the near-term path is higher because of energy prices and ongoing persistence in core inflation.”

The hawkish tone of the final paragraph of today’s press release is noteworthy. The Bank does not want to boost interest-sensitive spending, such as housing and durable goods purchases, by assuring markets that its next move will be a rate cut. Instead, the Bank said, “Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed. The Governing Council wants to see downward momentum in core inflation. It continues to be focused on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians.”

Bottom Line

Nothing was surprising in today’s report. The slowdown in economic activity since late last year has dramatically reduced excess demand. The output gap–the difference between the actual growth in GDP and its potential growth at full employment–is essentially closed, suggesting that demand pressures have been easing. They had previously expected the output gap to close in early 2024.

Of concern to the Bank is that inflation remains above their 2% target in the face of increased global risks of higher inflation. Upside risks to inflation include elevated inflation expectations of households and businesses, growing extreme weather events, and heightened geopolitical uncertainties including the Israel-Hamas war.

Price gains in energy and shelter — upward pressures on inflation — are “anticipated to be partially offset by the easing of excess demand, weaker pressure from input costs and further disinflation in globally traded goods,” the Bank said.

“Ongoing excess supply in the economy moderates price inflation, helps ease inflation expectations and encourages businesses to gradually return to more normal pricing behaviour.”

Canada’s households are more indebted, on average, than their US counterparts and their shorter-duration mortgages roll over faster. That makes the Canadian economy more sensitive to higher rates and is one reason the Bank of Canada first declared a pause in January, well before the US Federal Reserve. The central bank’s next decision is due Dec. 6, after two releases of jobs data, October inflation numbers and third-quarter gross domestic product figures. I expect the Bank to pause rate hikes for the next six to nine months. When they finally begin to ease monetary policy, they will do so gradually, taking the overnight rate down to roughly 4% by the end of next year.

Dr. Sherry Cooper

In September, the Bank of Canada opted to maintain its policy rate at 5%.  The recent rate hikes over the spring and summer had already begun influencing the housing market.  Let’s take a closer look at the current scenario, what’s on the horizon, and how to navigate property purchases.

Current Market Conditions: The recent rate hikes during the spring and summer caused a slowdown in the housing market.  Some potential buyers chose to wait on property purchases, hoping for more favorable conditions.  Though home prices decreased by 6% in some markets during the summer, increased interest rates affected the amount borrowers could qualify for in some cases.  In the meantime, property owners have been busy navigating renewals and refinances, exploring switching lenders as they weigh out how to optimize their financial situations.

The Bank of Canada’s Upcoming Announcement: The overnight rate directly impacts various financial products, including lines of credit and variable rate mortgages.  With the Bank of Canada maintaining its 5% policy rate, many are hopeful this might be the peak in the overnight and prime rate.  We’ll have a clearer picture after the upcoming announcement on October 25th.  Borrowers are of course eager for a possible decrease in rates and a bit more potential breathing room.

Looking Ahead: As we look ahead to the coming year, analysts are forecasting a stronger housing market as the Bank of Canada begins to signal interest rate reductions.  Some economists anticipate these to begin by mid-2024.  This is expected to lead to an increase in new listings, addressing the shortage of inventory.  With lower interest rates, more buyers will likely enter the market, boosting demand.  Until then, buyers may have greater opportunities to negotiate property values and other contract terms.

Making the Right Move: Sometimes life dictates the timing of your real estate decisions.  Families grow and evolve, and others relocate for work; these are two examples of why property purchase decisions are made without regard for market conditions.  Most purchasers will buy when the opportunity presents itself.  Historically speaking, time has taken care of dips in the market as values have generally continued to increase over time.  Because property values tend to increase, the best time to buy can sometimes be when you qualify.  If you wait, property values, interest rates, and lender policies can change, and you may not be able to purchase for quite as much as you did when you first began your search.  Some buyers wait until they’re in a better financial position.  With an upcoming raise that might be the best play.  But the best time to get in the market might just be when your pre-qualification terms match your plans vs. waiting for rates or values to move.

Your Next Steps: Whenever the time is right for you, consider a no-obligation pre-qualification terms review and a rate hold for 90-120 days while you explore the market. Rate holds protect your ability to qualify, ensuring your cash flow and interest savings if rates rise while you shop. Understanding your pre-qualification terms will help you create a realistic budget for your property purchase. Additionally, it puts you in a stronger negotiating position. Sellers often prioritize offers from those whose financing has been reviewed in advance.

Conclusion: Regardless of where you are in your real estate journey, don’t hesitate to reach out if you have mortgage questions at any point.  I’m always happy to help.

Adapted from DLC Marketing

Image Credit: Autumn Mott Rodeheaver on Unsplash

Has this ever happened to you?  You’re buying property or refinancing, you have paid for a lender appraisal but you can’t have a copy of it.  Not being able to read a report you paid for is odd on the face of it, especially if you paid for the service in relation to property you may soon own, or property you do own already.  It’s natural you might be curious about every detail.

Unfortunately, lender appraisals are for mortgage purposes only.  This kind of valuation is sometimes done differently than an appraisal a consumer would order to support the valuation for an upcoming property sale or for another use.

Mainly due to liability reasons, only the lender may have a copy as its sole purpose is to confirm the value for lending.  Should anyone rely on the report for another reason and suffer a financial loss because of inaccuracies or omissions, the appraisal company and anyone who shares it may also be liable.

For an additional fee, an appraisal company may be happy to repurpose the report for your own use, which is sometimes open to you to request.

In any case, should you need mortgage information for a purchase, refinance, or other purpose, I am here to help.

Image Credit: Kristina Flour, Unsplash

Start your teen off right and help them prepare for as smooth a financial road ahead as possible.

Needs vs. Wants

Tweens and teens need to learn to differentiate between needs and wants and to prioritize how they spend their money.  Value and cost are two more important concepts they need to understand.  A top-of-the-line cell phone or a carbon fiber mountain bike may really impress, but a cheaper versions may perform similarly and provide more value.  Bombarded by marketing messages, teens need to learn how to stay objective. Even billionaires like Warren Buffett drive basic vehicles and live in modest homes.   If your teen or tween wants the latest and greatest must-have item, challenge them to explain the value beyond items being new, trendy, or fashionable.  When they want to buy something, encourage your teen to research, read reviews, and compare prices to make informed decisions.

Introduce Basic Investing Concepts

Introduce your teens to basic investing and the concept of how to make money with money.  Explain how investments can grow over time and the power of compound interest.  Should you buy a stock (or an ETF, GIC, mutual fund or some other financial product) for a 14-year-old? Absolutely!

Kids are familiar with many publicly traded companies like Disney, Roblox, Mattel and McDonalds.  Holding a few shares (in an informal trust account or simply in your name) may not return enough to put them through university, but it will teach them a few of the basics around investing, risk, and return for managing finances in the future.  Developing an investing mindset pays huge dividends over the course of a lifetime and helps underpin long-term financial security.  As soon as your kids turn 18, have them open a tax-free savings account (TFSA), even if they can only muster $50 or $100 monthly to contribute.

Credit and Debt

First-year post-secondary students are often able to get a credit card.  Responsible use of this first credit card can help establish a credit score and is very convenient.  They’re also a necessity for many online transactions.   However, cautioning about high interest and poorly planned expenses will be imperative from the start.

Federally issued Canada Student Loans are interest-free but provincial loans may still carry interest. Either way, explaining repayment of student loans at the outset is imperative as well.

Financial education is ongoing.  Encouraging openness about money and creating an environment where your teen feels comfortable discussing money matters with you is key.  Instilling sound money habits early as they develop their financial skills will help them eventually grow into financially responsible adults.

Adapted from DLC Marketing

Image Credit: pixelperfektion on Unsplash