Slower GDP growth and easing inflation trends are likely to influence the Bank of Canada’s upcoming rate decision, offering key insights as we approach their October 23 meeting.

The Consumer Price Index (CPI) rose 1.6% year over year in September, the slowest pace since February 2021 and down from a 2.0% gain in August 2024. The main contributor to headline deceleration was lower year-over-year gasoline prices in September (-10.7%) compared with August (-5.1%). The all-items CPI, excluding gasoline, rose 2.2% in September, matching the increase in August for this measure.

Although the rate at which prices increase has slowed, price levels remain elevated. Compared with September 2021, the CPI rose 12.7% in September. Canadians continue to feel the impact of higher price levels for day-to-day basics such as rent (+21.0%) and food purchased from stores (+20.7%), which increased during that same 3-year period.

The CPI fell 0.4% in September after a 0.2% decline in August. Lower gasoline prices led to both the monthly and yearly movement in September. On a seasonally adjusted monthly basis, the CPI remained unchanged at 0.0%.

The central bank’s two core inflation measures remain sticky. Both measures were unchanged in September (see chart below). According to Bloomberg calculations, a three-month moving average of those measures fell to an annualized pace of 2.1% from 2.3% in August.

According to Bloomberg News, “After the release, traders in overnight swaps upped their bets that the Bank of Canada will opt for a larger rate cut at next week’s decision, putting the odds of a half-percentage-point reduction at about 75%. Previously, the odds were around 50%.” The Canadian dollar weakened further on the news relative to the greenback. The loonie has fallen for ten days, the longest streak since 2017. Canadian debt rallied across the yield curve, outperforming US Treasuries and pushing the two-year Canada benchmark yield to 3.03% and the 5-year bond yield to 2.92% by mid-day.

Tuesday’s data marks the first time since February 2021 that inflation is below the central bank’s 2% target and is the ninth straight month of headline rates running within its target range. With inflationary pressures continuing to ebb and policymakers focusing more on preserving economic growth, the data give the central bank options to reduce rates quicker after cutting borrowing costs at 25 basis points at the past three meetings.

Bottom Line

While the September employment data were stronger than expected, Q3 GDP growth is slated to be roughly 1.8%, well below the Bank of Canada’s 2.8% forecast. Today’s inflation report is the last important data point before the Bank meets again on October 23. Late last month, BoC Governor Tiff Macklem warned that growth may be below policymakers’ previous expectations in Q3.

Excluding shelter costs, the consumer price index rose 0.4% from a year ago compared to 0.5% in August. Mortgage interest costs and rent remained the most significant contributors to the annual inflation rate change. However, rent prices increased at a slower pace in September, rising 8.2% versus 8.9% in August. Tuition fees, priced annually in September, also grew slower, increasing 1.8% compared with 2.5% last year.

Regionally, inflation is now at or below 2% in every province, with prices rising slower in September than in August in all ten provinces. The central bank will release new economic forecasts in the Monetary Policy Report next week. Macklem has said,  “decisive monetary policy action and the unblocking of supply chains” means “uncertainty about costs and inflation are much lower today than two years ago”.

Dr. Sherry Cooper,

Chief Economist, Dominion Lending Centres

Image Credit: Andre Hunter Unsplash

Multiple meaningful changes are coming to make homeownership and adding revenue to your principal residence more affordable for Canadians like you. Whether you’re a first-time homebuyer, a current homeowner whose mortgage is coming up for renewal, or someone looking to add a legal secondary suite or laneway home, these updates will help you make the most of your investment. Here are the key changes to be aware of:

• Higher insured mortgage availability: Starting December 15, 2024, the government is increasing the insured mortgage price cap from $1 million to $1.5 million. This makes higher-value homes available to buyers in more expensive markets with less than 20% down. This is especially helpful in cities like Toronto and Vancouver, where home prices often exceed $1 million. If you’ve been struggling to save up a large down payment, this change will help get you closer to owning a home.
• Extended 30-year amortizations: If you’re buying your first home or purchasing a new build, as of December 15th, 2024, you’ll have the option to stretch your mortgage payments over 30 years. This may allow you to qualify for a greater purchase price, or may make mortgage payments more manageable, allowing you to balance your monthly budget with other financial goals. More flexibility to afford other things like savings, travel, or education may be more easily within reach.
• Refinancing for secondary suites: Starting January 15, 2025, if you’re planning to add a legal secondary suite to your home (such as a basement apartment or a laneway house), you’ll be able to refinance your mortgage with an insured loan to help fund the construction from the equity in your home. With default loan insurance, the loan amount can be higher relative to the value of your home, allowing you to access more funds for renovations without needing a large down payment. Additionally, insured loans typically come with lower interest rates compared to conventional loans, which can result in significant savings over time. This could be beneficial if you want to build a rental suite to generate extra income or create more living space for family members. Not only does this increase the value of your home, but it also offers a smart financial strategy to support long-term goals.
• Renewing mortgages without a stress test: For those with uninsured mortgages approaching renewal, there’s more good news. The national banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), has announced that it will “no longer require borrowers with uninsured mortgages to undergo a stress test when switching providers.” More will be formally communicated November 21, 2024. This means conventional borrowers will be joining insured borrowers (those who purchased with less than 20% down) to be able to qualify to switch lenders more easily, providing greater flexibility in managing their mortgages and potentially securing better rates and terms.

These reforms should go a long way to making buying and owning a home easier for many, providing greater flexibility, and helping borrowers capitalize on their home investment. Whether you’re looking to buy, refinance, or expand, it’s a great time to take advantage of these new options. Reach out any time to discuss to see how these changes can benefit you directly. My number is above and I’m always happy to help.

Sources:

Department of Finance “Backgrounder” October 8, 2024

Department of Finance “News Release” September 24, 2024

BNN Bloomberg, The Canadian Press, “OSFI easing stress test requirements for uninsured mortgages when switching providers” September 25, 2025

Recent rate cuts may help you leverage better mortgage options and increase your savings.  In a third consecutive meeting, the Bank of Canada dropped the overnight rate to 2.25% on September 4^th, resulting in the Prime rate dropping to 6.45% with most lenders.

This means if you’re on an adjustable-rate mortgage, your payment will have decreased by roughly $15 per $100,000 of your balance. For variable rate borrowers whose payments remain the same, more of your payment will go toward the mortgage balance than interest, shortening the time it takes to repay your loan (the amortization).  Line of credit borrowers’ interest costs have dropped by .25% as well.

Should borrowers be selecting variable rates?

Should current fixed-rate borrowers refinance?

Fixed rates are based on the bond market but downward trends on the variable side add to downward pressure for fixed rates.

Variable rates are projected to drop by 1.75% over the next year based on CORRA forward rates as reported by MortgageLogic.news.

Choosing between the two comes with a number of considerations:

• There may only be a short window of time during which you can refinance a fixed-rate mortgage before higher penalties kick in.  If you’re considering exploring this option, please check in with me sooner rather than later to ensure you can capitalize on the opportunity.  If you secured a higher-rate fixed mortgage in the last couple of years, please contact me for a review.

• Payments are higher on variable rate mortgages vs fixed, and most major banks’ Variable Rate Mortgages (VRMs) set the payment at the outset and they don’t change as rates go up or down.  Most non-bank mortgage lenders offer Adjustable Rate Mortgages (ARMs)with payments that do decrease as the mortgage rates go down.

• Qualifying for a variable rate mortgage is more stringent.

• The savings on the variable rate have yet to be realized and are not expected all at once.

• The advantage of Prime rate drops affecting variable rate mortgages will depend on the forecasts being accurate.

• If rates keep dropping, a variable rate mortgage may offer the greatest flexibility.  As rates drop, the penalty to refinance is much lower than that of a fixed rate mortgage generally.  One can also lock into a fixed rate mortgage from a variable at any time.  Some lenders also allow you to lock into a fixed term with a shorter remaining period than others.  Waiting to lock in might allow you to wait for fixed rates to drop further before locking in.

If you’d like to review the market as these changes pertain to you, please reach out any time.  My number is above and I am always happy to help.

For those considering buying real estate, based on the news in the last 24 hours, you might think about making a purchase sooner rather than later.

Yesterday, Canada’s Consumer Price Index (CPI) unexpectedly fell to 1.95%, dipping below the Bank of Canada’s (BoC) inflation target.  The BoC had not anticipated hitting this target until next year, and the overnight rate is still 150 basis points above what’s considered neutral.  And today the United States Federal Reserve dropped rates by 50 basis points, something that won’t go unnoticed by the BoC as they contemplate their next moves.

What Does This Mean For You?

• Potential for Lower Mortgage Rates: The CPI drop suggests weaker inflation, which is why market expectations are for the BoC to lower interest rates to stimulate economic activity.

• Impact on Property Investment: Of course, if you’re looking to buy property, lower rates can be a great opportunity.  With rates potentially decreasing, you might be secure a more affordable mortgage, saving money over time, and you might qualify for more than you might have originally thought.  Evaluating your financing options and considering making a move in the real estate market right now might be a wise choice.

• Potential Impact on Property Values: As more buyers might jump back into the market due to lower mortgage rates, property values may start to rise. Increased demand from buyers looking to take advantage of favorable borrowing conditions could drive up prices, making it beneficial to buy now before values potentially climb.

What Should You Do?

Stay in touch to understand how these changes could impact your options. This unexpected CPI drop might present a timely opportunity for better financing conditions and potentially influence property values in your favour.  Reach out anytime to discuss, I’m always happy to help.

Statistics referenced from MortgageLogic.news Mortgage Memo: Sept 17

Today, the Bank of Canada cut the overnight policy rate by another 25 basis points to 4.25%. This is the third consecutive decrease since June. The Bank’s decision reflects two main developments. First, headline and core inflation have continued to ease as expected. Second, as inflation gets closer to the target, the central bank wants to see economic growth pick up to absorb the slack in the economy so inflation returns sustainably to the 2% target.

Overall, the economy’s weakness continues to pull inflation down. However, price pressures in shelter and some other services are holding inflation up. Since the July Monetary Policy Report, the upward forces from prices for shelter and some other services have eased slightly. At the same time, the downward pressure from excess supply in the economy remains.

Tiff Macklem said today, “If inflation continues to ease broadly in line with the central bank’s July forecast, it is reasonable to expect further cuts in the policy rate. We will continue to assess the opposing forces on inflation and take our monetary policy decisions one at a time.”

The economy grew by 2.1% in the second quarter, led by government spending and business investment. This was slightly stronger than forecast in July. Together with the first quarter’s growth of 1.8%, the economy grew by about 2% over the first half of 2024. That’s a healthy rebound from our near-zero growth in the second half of 2023. The Bank’s July projection has growth strengthening further in the second half of this year. Recent indicators suggest there is some downside risk to this pickup. In particular, preliminary indicators suggest that economic activity was soft through June and July, and employment growth has stalled in recent months.

That makes this Friday’s Labour Force Survey data for August particularly important. We expect economic activity to slow in the third quarter to rough 1.3%, keeping the Bank in an easing posture through next year.

The unemployment rate has risen over the last year to 6.4% in June and July. The rise is concentrated in youth and newcomers to Canada, who find it more challenging to get a job. Business layoffs remain moderate, but hiring has been weak. The slack in the labour market is expected to slow wage growth, which remains elevated relative to productivity.

Turning to price pressures, CPI inflation eased further to 2.5% in July, and the central bank’s preferred measures of core inflation also moved lower. With the share of CPI components growing above 3% around its historical norm, there is little evidence of broad-based price pressures. But shelter price inflation is still too high. Despite some early signs of easing, it remains the most significant contributor to overall inflation. Inflation remains elevated in some other services but has declined sharply in manufacturing and goods prices.

As outlined in the Bank of Canada’s Monetary Policy Report, inflation is expected to ease further in the months ahead. It may bump up later in the year as base-year effects unwind, and there is a risk that the upward forces on inflation could be more potent than expected. At the same time, with inflation getting closer to the target, the central bank must increasingly guard against the risk that the economy is too weak and inflation falls too much. Judging from comments made at today’s press conference, the BoC is at least as concerned about too much disinflation–taking the economy into a deflationary spiral.

Macklem said, “We are determined to bring inflation down to the 2% target and keep it there. We care as much about inflation being below the target as we do about it being above it. The economy functions well when inflation is around 2%.”

With continued easing in broad inflationary pressures, the Governing Council reduced the policy interest rate by 25 basis points. Excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up. The Governing Council is carefully assessing these opposing forces on inflation. “Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook. The Bank remains resolute in its commitment to restoring price stability for Canadians.”

Bottom Line

Monetary policy remains restrictive, as the chart above shows. While the target overnight rate is now 4.25%, core inflation is only roughly 2.4%. Real interest rates remain too high for the economy to reach its potential growth pace of about 2.5%. Weaker growth implies a continued rise in unemployment and excess supply in other sectors.

In separate news, the US released data showing that US job openings fell to their lowest level since January 2021, consistent with other signs of slowing demand for workers.

US job growth has been slowing, unemployment is rising, and job seekers are having greater difficulty finding work, fueling fears about a potential recession.

Federal Reserve policymakers have made it clear they don’t want to see further cooling in the labour market and are widely expected to start lowering interest rates at their next meeting in two weeks.

In other news, consistent with a global economic slowdown, oil prices have plunged to new 2024 lows. Weak oil prices are a harbinger of lower inflation, growth and mortgage rates.

Bonds rallied in the wake of the disappointing US data, taking the 5-year government of Canada bond yield down to a mere 2.89%, well below the 3.4% level posted when the Bank of Canada began cutting interest rates in June. This decline in market-driven interest rates reduces fixed-rate mortgage yields. Moreover, today’s cut in the overnight rate will be followed soon by a 25 basis point reduction in the prime rate to 6.45%, reducing floating rate mortgage yields as well.

The Bank of Canada has two more decision dates this year: October 23 and December 11. At those meetings, the Bank is widely expected to continue its quarter-point rate cuts, taking the overnight rate down to 4.0% at yearend and 2.75% next year.

Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

Image Credit: Jason Hafso Unsplash

As a mortgage consultant, I simplify the financing process by finding the best loan options for you.  Whether buying a new home, refinancing or exploring equity lines and reverse mortgages, I work with various lenders to meet your needs.  From managing renewals to consolidating debt and securing loans for personal and investment properties, I’m here to make your mortgage journey smooth and efficient.

Here are some of the ways I can help:

Securing Loans for Buying a Home, Rental Property, or Second Home: Assisting with obtaining loans for purchasing your main home, rental properties, or second homes.

Renewing Mortgages: Helping with renewing your mortgage at the end of each term, evaluating options, negotiating better rates and terms, and ensuring a smooth transition to a new mortgage. Assisting with switching lenders if needed to achieve better rates and terms.

Refinancing Your Mortgage: Guiding you through obtaining a new mortgage to replace an old one, potentially securing better rates, lowering payments, or accessing extra funds for renovations, emergency expenses, or helping others buy property.

Obtaining Home Equity Lines of Credit (HELOCs): Providing assistance in securing a flexible line of credit based on your home’s equity for various needs.

Accessing Reverse Mortgages: Helping seniors tap into their home’s value with reverse mortgages, allowing them to stay in their homes while obtaining additional funds.

Financing Construction Loans: Assisting with obtaining financing for building a new home or major property renovations.

Bridge Loans: Providing short-term loans to cover the gap between buying a new home and selling an old one.

Consolidating Debt: Helping combine existing debts into your mortgage to simplify payments and potentially reduce interest rates.

Whether you’re planning to buy a new home, refinance an existing mortgage, or explore other financing options, I’m here to assist.  The mortgage process involves many steps, but with the right guidance, it can be straightforward.  If you have any questions or need assistance with your mortgage needs, don’t hesitate to reach out.  I’m committed to providing clear and effective solutions to help you achieve your financial goals.  Let’s connect and I look forward to seeing how I might best help you.

Image Credit: Fabio Bracht Unsplash

Inflation in Canada decelerated once again in July to its slowest pace in three years, assuring the central bank will cut rates for the third consecutive meeting on September 4. The US is also widely expected to begin easing monetary policy at its September confab.

The annual inflation rate in Canada fell to 2.5% in July from 2.7% in June, matching market expectations. The deceleration in headline inflation was broad-based, stemming from lower prices for travel tours, passenger vehicles and electricity. This confirmed the Bank of Canada’s expectation that inflation would fall to 2.5% in the second half of this year.

The CPI rose 0.4% in July after falling 0.1% in June. Gasoline prices increased month over month in July (+2.4%), putting upward pressure on the monthly CPI figure. The CPI rose 0.3% in July on a seasonally adjusted monthly basis.

The Bank of Canada’s preferred measures of core inflation, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trimmed edged down to 2.7% last month from 2.9% in June. The CPI median fell two ticks to 2.4%.

The central bank’s two core inflation measures decreased, averaging a 2.55% yearly pace, from a downwardly revised 2.7% a month earlier. The third chart below shows the 3- and 6-month moving averages for the average of median and trim CPI measured as an annualized percentage change. The 3- and 6-month moving averages fell in July, with the 6-month figure just above the central bank’s target of 2%.

Bottom Line

This week’s inflation reading is good news for the Bank of Canada, giving them leeway to cut interest rates next week. July marks the seventh consecutive month that the headline yearly inflation rate has been within the BoC’s target range, bringing the annual pace of price pressures back to its weakest levels since 2021.

This week’s inflation data will give the central bank confidence that the May rise in inflation was temporary. Annual inflation will reach the Bank’s 2% target by some time next year. This opens the way for the Bank to cut the overnight rate on September 4 by 25 bps to 4.25%.

In July, mortgage interest costs and rent remained the most significant contributors to the annual inflation rate change. Mortgage interest costs were up 21% in July compared with 22.3% in June, while rents rose 8.5% compared with 8.8%. Excluding shelter costs, the consumer price index rose 1.2% from a year ago versus 1.3% in June.

Labour markets have eased since the Bank’s last decision date. Canada shed 2,800 jobs in July, and the unemployment rate was steady at 6.4%, its highest level in over two years. Bank officials have expressed their concern that a further decline in the job market may delay a recovery in household spending, putting downward pressure on growth.

Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres

Image Credit: Ryan (no last name) Unsplash

With the next Bank of Canada decision approaching, some borrowers question whether to wait for a potential drop in the prime rate before evaluating their mortgage renewal options.  Similarly, those buying properties might also contemplate if they should delay their decision on which rate type to select.  While thinking that a lower prime rate will automatically lead to better mortgage offers may seem intuitive, the reality is more complex.

The Key to Variable Rate Pricing: The Variable Rate Discount

Variable rate mortgage rates are comprised of two main factors: the prime rate, and the discount the lender offers off that rate.  The variable rate discount is the pricing component that determines how much less you’ll pay compared to the prime rate.

If a lender offers a 5-year variable mortgage with a discount of -0.70% off the prime rate (currently 6.7%), the effective rate would be 6.0%.  This discount remains constant throughout the 5-year term of the mortgage, so the rate will always “float” at 0.70% below whatever the prime rate is.

Lenders Can Change Variable Discount Offers At Any Time

If a given lender has too many fixed-rate mortgages on their books they may deepen variable discounts to attract more borrowers to take variable rates, and vice versa.  And in stable markets, banks may offer deeper discounts as well.

Fixed Rates and the Variable Rate Discount: Independent of Prime Movements

Both fixed rates and variable rate discounts are influenced by lenders’ cost of funds, credit risk, competition, housing and financial markets, and broader economic conditions.  Just as the variable rate discount is not directly tied to prime rate movements, neither are fixed mortgage rates.  Though both may trend in the same direction as the prime rate over time, a variety of factors are at play, which may or may not coincide with changes in the prime rate.

Bottom Line

Bank of Canada rate decisions do influence fixed and variable rate pricing, but not typically in a synchronized way. Rather than trying to time decision-making with Bank of Canada announcements, there’s likely more value in making rate decisions by evaluating current options and forecasted trends as they align with your financial goals.  Please reach out at any time should you wish to discuss your mortgage, I am always happy to help.

Image Credit: Raffaele Parente Unsplash

Last week, the Bank of Canada decreased their rate by 0.25% to 4.5%, resulting in a drop in the Bank Prime Rate from 6.95% to 6.70%.

What does this mean for you?

If you’re on an adjustable-rate mortgage, your payment will decrease by roughly $15 per $100,000 of your balance. For variable rate borrowers whose payments remain the same, more of your payment will go toward the mortgage balance than interest, shortening the time it takes to repay your loan (the amortization).  Line of credit borrower’s interest costs have dropped by .25% as well.

First-time buyers will have a little more borrowing power in the marketplace now.

If you’re one of the 80% of mortgage holders looking to renew in 2024 or 2025, this reduction in interest rates could make things easier for you.

Waiting to buy?

A word of caution to those waiting for rates to decrease further before buying: rates and property values don’t typically move in the same direction. While rates are trending down, $500,000 today might buy you more than it will once rates drop further and property values start rising again.

Thinking of your renewal, even if it’s still a year or more away?

In today’s rate environment, many people have questions about mortgage renewals, even if they are still a few years away. Sometimes a quick chat can provide clarity and peace of mind.

Regardless of your situation, this is welcome news for Canadians across the country.

Feel free to give me a call to check in on your situation and explore potential options. I’m always happy to help!

Inflation unexpectedly slipped 0.1% (not seasonally adjusted) in June, following a 0.6% increase in May. This was the first decline in six months. The monthly decrease was driven by lower prices for travel tours (-11.1%) and gasoline (-3.1%).

The Consumer Price Index (CPI) rose 2.7% year over year in June, down from a 2.9% gain in May. The deceleration was mainly due to slower year-over-year growth in gasoline prices, which rose 0.4% in June following a 5.6% increase in May. Excluding gasoline, the CPI rose 2.8% in June.

Lower prices for durable goods (-1.8%) y/y also contributed to the slowdown in the all-items CPI in June, following a 0.8% decline in May. An increase in prices for food purchased from stores (+2.1%) moderated the deceleration, as well as a smaller decline for cellular services in June (-12.8%) compared with May (-19.4%).

The Bank of Canada’s preferred measures of core inflation, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trim was unchanged in June at 2.9%, above the market’s expectation of 2.8%. The CPI median fell two ticks to 2.6%.

The third chart below shows the 3- and 6-month moving averages for the average of median and trim CPI measured as an annualized percentage change. While the 3-month moving average has accelerated to about 3%, the 6–month measure has fallen to just over 2%.

Bottom Line

Today’s inflation reading is good news for the Bank of Canada, giving them leeway to cut interest rates next week. June marks the sixth consecutive month that the headline yearly inflation rate has been within the BoC’s target range, bringing the annual pace of price pressures back to its weakest levels since 2021.

Today’s inflation data will give the central bank confidence that the May rise in inflation was temporary. Annual inflation will reach the Bank’s 2% target by some time next year. This opens the way for the Bank to cut the overnight rate on July 24 by 25 bps to 4.5%.

According to Bloomberg News, traders in overnight swaps increased their bets that the Bank of Canada would cut rates next Wednesday, putting the odds at about 90% compared with 80% before the release.

Yesterday’s business and consumer outlook surveys point towards slowing growth in firms’ input and selling prices amid a weaker economic backdrop. Inflation expectations fell in June and are now in the BoC’s target range. Businesses are expecting weaker soft demand. The unemployment rate is trending higher, and the share of firms reporting labour shortages is near a record low. Companies’ expectations for wage increases over the next year have slowed. Overall, capacity constraints “have returned close to their historical average.”

The central bank flagged that consumer survey respondents still think domestic factors, including fiscal policy and elevated housing costs, are “contributing to high inflation.” Home-buying intentions are near historical averages, the bank said, and are supported by “strong plans” among newcomers to buy homes.

Another rate cut is coming next week, which will help to spur housing activity

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
Image Credit: Stockbyte on Canva