When applying for a mortgage, one of the factors lenders review is your credit score.  Many prospective property owners don’t pay much attention to this metric until they begin a mortgage pre-qualification discussion. However, your credit score is one of the most important aspects of a mortgage application when it comes to maximizing your purchasing power at the best possible rate.

Credit scores range from 300 to 900; the higher the number the better.  Lenders sometimes offer a greater mortgage amount relative to your income if your credit score is at least 680.

Your score is based on spending habits, repayment, and general credit behaviour including:

• Previous payment history
• Your credit usage relative to your total credit limit
• How long you have had your credit in good standing
• Frequency of seeking new credit
• Your credit mix – this is the overview of the number of each type of credit facility you have across credit cards, loans, lines of credit, etc.

Improving your credit score an be a gradual process, but is well worth it. Here are some tips to help you get started:

1. Pay Your Bills In Full and On Time: If you are unable to afford the full amount, pay at least the minimum required as shown on your monthly statement to prevent any reports of late payments, those reduce your score.
2. Pay Down Your Debts: If you are carrying balances from month to month and are wondering how to pay them down with any extra funds beyond the minimum payment due on each one, there are a few strategies you can employ to pay down debt quickly. Pay down highest interest debt first.  You might then consider paying off lower balances next, to ultimately free up extra cash flow each month to direct to paying off larger balances.  Some weigh paying off debt against the return they can earn on investments and choose to invest should the rate of return be higher than the rate of interest on debts.  A good financial planner can help you decide where to concentrate those efforts.
3. Keep Balances Within 30% of Their Limits: This is key when it comes to managing debt and maintaining a good credit score. Using all or most of your available credit will lower your score. Your goal should be to use 30% or less of your available credit. If you have a limit of $1000 on your credit card, you should keep your balance below $300.
4. Credit and Loan Application Management: Reduce the number of credit card or loan applications you submit. Multiple applications in a short period can reduce your score.

Whether you have debt or not, there are ways to manage what you owe to position your finances to your best advantage and to plan for an eventual property purchase.  If you have questions or if you’d like to start your next pre-qualification discussion early to see when you might be ready to buy or refinance property, please feel free to reach out.  Also, if you have a mortgage renewal question, or know of others who could use my assistance, I’m always happy to help.

The Consumer Price Index (CPI) rose 2.8% year-over-year in February, down from the 2.9% January pace and much slower than the 3.1% expected rate. Gasoline prices rose in Canada for the first time in five months, which led many analysts to forecast a rise in February inflation as seen in the US. However, offsetting the increase in gas prices was a deceleration in the cost of cellular services, food purchased from stores, and Internet access services.

Excluding gasoline, the headline CPI slowed to a 2.9% year-over-year increase in February, down from 3.2% in January. Prices for rent and the mortgage interest cost index continued to apply upward pressure on the headline CPI.

On a monthly basis, the CPI rose 0.3% in February, the same as in January. The most significant contributors to the monthly increase were higher travel tours and gasoline prices.

On a seasonally adjusted monthly basis, the CPI rose 0.1% in February.

Prices for food purchased from stores continued to ease year over year in February (+2.4%) compared with January (+3.4%). Slower price growth was broad-based, with prices for fresh fruit (-2.6%), processed meat (-0.6%), and fish (-1.3%) declining. Other food preparations (+1.4%), preserved fruit and fruit preparations (+4.0%), cereal products (+1.7%), and dairy products (+0.6%) decelerated in February.

February was the first month since October 2021 that grocery prices increased slower than headline inflation. The slower price growth is partially attributable to a base-year effect, as food purchased from stores rose 0.7% month over month in February 2023 due to supply constraints amid unfavourable weather in growing regions and higher input costs.

While grocery price growth has been slowing, prices continue to increase and remain elevated. From February 2021 to February 2024, prices for food purchased from stores increased by 21.6%.

The Bank of Canada’s preferred core inflation measures, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trim slowed two ticks to 3.2% in February, and the median also declined two ticks to 3.1% from year-ago levels, as shown in the chart below.

Bottom Line

The next meeting of the Bank of Canada Governing Council is on April 10. Before then, we will see two more important data releases:

1. The Bank of Canada Business Outlook Survey and Canadian Survey of Consumer Expectation and;
2. The Labour Force Survey for March.

Neither of these reports will likely derail the central bank’s move to cut interest rates by the June 10 meeting. Indeed, they could begin to cut rates at the April meeting. This would no doubt trigger a whopping Spring housing market, which is likely to be strong. There is significant pent-up demand for housing, and the prospect of home price increases could well move buyers off the sidelines if a surge in new listings comes to fruition.

The Canadian economy is particularly interest rate sensitive because of the vast volumes of mortgages that will be renewed in the next two years. Mortgage delinquency rates are already rising, so a gradual decline in interest rates is welcome news.

As the chart below shows, the three-month rolling average growth rates for the CPI trim and median core measures averaged 2.2% in February–their lowest reading in three years.

According to the Royal Bank economists, “Building on the January CPI report that was already showing broad-based easing in price pressures in Canada, the February report today reaffirmed those trends. Different measures of core inflation decelerated, and the diffusion index that measures the scope of inflation pressures also improved. That measure, however, was still showing slightly broader price pressures than pre-pandemic “norms”, suggesting there’s still room for more improvement.”

With the economy’s slow growth trajectory, the central bank has every reason to begin cutting interest rates soon.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Image Credit: Sasan Hezarkhani, Unsplash

Today’s StatsCanada Labour Force Survey for February was a mixed bag and shows the dramatic effect of surging immigration. Canadian employment rose by a much stronger-than-expected 41,000, dominated by a 71,000 rise in full-time jobs.

The employment rate–the proportion of the population aged 15 and older who are employed–fell a tick to 61.5%. This is the fifth consecutive monthly decline, the most extended period of consecutive decreases since the six months ending in April 2009 during the global financial crisis. The Bank of Canada has emphasized the importance of the employment rate in recent commentary.

The employment rate in February 2024 was down 0.9 percentage points from the recent peak of 62.4% observed in February 2023. This downward trend is associated with the unprecedented ballooning of the working-age population.

The unemployment rate increased 0.1 percentage points to 5.8% in February, offsetting the decline in January. The unemployment rate has held relatively steady in recent months, at 5.8% for three of the past four months. This follows an upward trend from April 2023 to November 2023, when the rate increased from 5.1% to 5.8%. The labour force participation rate—the proportion of the population aged 15 and older who were employed or looking for work—held steady at 65.3% in February.

The labour force jumped 76,000 last month and is up more than 550,000 in the past year, while the adult population has surged by more than 1 million people (+3.2%), compared with a job increase of 368,000. Even very strong job growth is not keeping up with the torrid influx of new workers, dampening wage inflation.

Most of the new jobs were in the service sector, led by employment in accommodation and food services following a decline in the prior month. Also rebounding was employment in professional, scientific, and technical services. On a year-over-year basis, employment in this industry was up 85,000 (+4.6%), the second-largest year-over-year increase among industries, after transportation and warehousing (+104,000; +10.6%).

In February, average hourly wages were up 5.0% year-over-year, following an increase of 5.3% in January. This is still above the Bank of Canada’s comfort zone, although policymakers suggested that wage inflation appeared to have peaked in this week’s policy statement.

Bottom Line

We will see one more Labour Force Survey on April 5th before the Bank of Canada meets again on April 10th. The all-important CPI inflation data will be released on March 19th.

Today’s report, while strong, suggests that the surge in the working-age population and the decline in job vacancies could continue to temper wage inflation. The Bank of Canada will need more proof before it releases the brakes and lowers interest rates.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Image Credit: Rose Butler, Unsplash

Today, the Bank of Canada held the overnight rate at 5% for the fifth consecutive meeting and pledged to continue normalizing the Bank’s balance sheet. Policymakers remain concerned about risks to the outlook for inflation. The latest data show that CPI inflation fell to 2.9% in January, but year-over-year and three-month measures of core inflation were in the 3% to 3.5% range. The Governing Council projects that inflation will remain around 3% over the first half of this year but also suggests that wage pressure may be diminishing. The likelihood is that inflation will slow more rapidly, allowing for a rate cut by mid-year. 

The Bank also noted that Q4 GDP growth came in stronger than expected at 1.0% but was well below potential growth, confirming excess supply in the economy.

Employment continues to rise more slowly than population growth. During the press conference, Governor Macklem said it was too early to consider lowering rates as more time is needed to ensure inflation falls towards the 2% target.

Bottom Line

The Bank of Canada expects that progress on inflation will be ‘gradual and uneven.’ “Today’s decision reflects the governing council’s assessment that a policy rate of 5% remains appropriate. It’s still too early to consider lowering the policy interest rate,” Macklem said in the prepared text of his opening statement. The Bank is pushing back on the idea that rate cuts are imminent.

High interest rates are dampening discretionary spending for households renewing mortgages at much higher monthly payments. As the economy slows in the first half of this year, the BoC will signal a shift towards easing. This could happen at the next meeting on April 10, when policymakers update their economic projections. This could prepare markets for a June rate cut.

“We don’t want to keep monetary policy this restrictive longer than we have to,” Macklem said. “But nor do we want to jeopardize the progress we’ve made in bringing down inflation.”

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca