20 Mar

Great News On The Inflation Front

General

Posted by: Karli Shih

 

 

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

13 Mar

Canadian Employment Gains Strong in February

General

Posted by: Karli Shih

 

 

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

6 Mar

Rates Held Steady But Cut Still Anticipated Mid-Year

General

Posted by: Karli Shih

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

29 Feb

Canadian Inflation Falls to 2.9%, Boosting Rate Cut Prospects

General

Posted by: Karli Shih

 

The Consumer Price Index (CPI) rose 2.9% year-over-year in January, down sharply from December’s 3.4% reading. The most significant contributor to the deceleration was a 4% decline in y/y gasoline prices, compared to a 1.4% rise the month before. Excluding gasoline, headline CPI slowed to 3.2% y/y, down from 3.5% in December.

Headline inflation of 2.9% marks the first time since June that inflation has moved into the Bank of Canada 1%-to-3% target band and only the second time to breach that band since March 2021.

Grocery price inflation also decelerated broadly in January to 3.4% y/y, down from 4.7% in December. Lower prices for airfares and travel tours also contributed to the headline deceleration. Prices for clothing and footwear were 1.3% lower than levels from a year ago, potentially reflecting the discounting of winter clothing after a milder-than-usual winter in much of the country.

The shelter component of inflation remains by far the largest contributor to annual inflation. The effect of past central bank rate hikes feeds into the CPI with a lag. The y/y growth in mortgage interest costs edged lower in January but still posted a 27.4% rise and accounted for about a quarter of the total annual inflation. Inflation, excluding mortgage costs, is now at 2.0%. Home rent prices continue to rise, but another component under shelter – homeowners’ replacement costs inched lower on slower house price growth.

On a monthly basis, the CPI was unchanged in January, following a 0.3% decline in December. On a seasonally adjusted monthly basis, the CPI fell 0.1% in January, the first decline since May 2020.

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 three ticks to 3.4%, and the median declined two ticks to 3.3% from year-ago levels.

Notably, the share of the CPI basket of goods and services growing at more than 5% has declined from the peak of 68% in May 2022 to 28% in January 2024.

Bottom Line

The next meeting of the Bank of Canada Governing Council is on March 6. While January’s inflation report was better than expected and shows that the breadth of inflation is narrowing, it is still well above the level consistent with the 2% inflation target.

Shelter inflation will remain sticky as higher mortgage rates over the course of last year filter into the index and the acute housing shortage boosts rents.

The Bank of Canada will remain cautious in the face of still-high wage gains and core inflation measures above 3%. I hold to my view that the Bank will begin cutting rates in June.

 

Dr. Sherry Cooper

Image Credit: Yvonne Assen, Unsplash

7 Feb

Estate Planning: Are Those You Care About Covered?

General

Posted by: Karli Shih

 

“New Year, new you” may be a cliché, but a new year really can get us thinking about where we are now and where we want to go. When it comes to your personal goals, a review of your finances and estate might be close to the top of your list. A little advance planning can go an incredibly long way to cover those you care about.

Your will outlines your assets and determines how they will be distributed, as well as who will oversee the process. Key components included in this document are:

  • Guardians and alternates in case backups are required
  • Up to date list of your significant assets and their location
  • Beneficiaries and how much each receives, including charities and other organizations
  • Alternates in case your named beneficiaries predecease you
  • Planning to limit probate fees via insurance policies, trusts, or RRSPs for example
  • Your executor who will carry out your wishes, or two or more co-executors can be named. Alternates are also listed
  • Regular reviews are important as things change, births, deaths or marriages in your circle may mean your plan will need to evolve too

Another important (and often overlooked!) aspect of estate planning involves naming someone to make decisions for you should you become unable to do so due to injury or illness, whether temporary or otherwise.

If you have a mortgage, you’ll want to consider Mortgage Life and Disability Insurance alongside your will.

Manulife Mortgage Protection Plan (MPP) is portable life and disability insurance that helps protect your loved ones and your home should something unexpected happen to you.  It protects your family’s future by paying out your mortgage should one of the mortgage holders pass away. It also covers your mortgage payments while the claim is being adjudicated, so there is no added stress for a loved one at an already difficult time.

MPP also covers your mortgage payments and property taxes if you are unable to work due to an illness or accident.  Disabilities from sickness and accidents are unfortunately relatively common and will affect 1 in 3 borrowers at some point in the duration of their mortgage.

Mortgage insurance does insure a declining balance, but your payments can be reduced on request as your balance decreases as well.  Furthermore, MPP payments don’t increase as you age.

Unlike bank insurance, MPP is portable from lender to lender and property to property.  To ensure you have both coverage and the flexibility to transfer from lender to lender, a mortgage insurance product like MPP gives you that freedom to move.  Bank insurance policies are not portable across lenders, and switching insurers typically means increases to your payments.  As such, it’s best to begin with a portable insurance product, such as MPP.

Mortgage disability insurance will take care of your mortgage payments plus property taxes if you become disabled.

If you don’t already have sufficient coverage in place, reach out and I would be happy to show you how you can add MPP to your mortgage for free for the first two months of coverage while you compare other options.  There is no obligation to continue and no penalty to cancel at any time.

Coverage is subject to insurer approval, terms and conditions apply.

There are many facets planning for your future when you own property and finance it with a mortgage.  Regardless of property ownership, planning for the future ensures your estate and family will be provided for should the unexpected something happen.

As always, let me know if I can provide any further information, I’m always happy to help.

 

Adapted from DLC Marketing

Image Credit: Helena Lopes, Unsplash

31 Jan

Leap to Action With a Simple RSP-Mortgage Strategy in 2024

General

Posted by: Karli Shih

 

 

Given it’s a leap year, the deadline to contribute to your Registered Retirement Savings Plan (RSP) for 2023 is technically extended by one day as the deadline lands on February 29th, 2024.  For those who have both a mortgage and who contribute to Registered Retirement Savings Plans (RSPs), the two combined offer a simple strategy for retirement planning, debt management, and growing your property’s equity.

Leveraging the tax advantages of your RSP to reduce your taxable income through tax-deductible contributions is Step One. Step Two is using the resulting tax refund to make a lump-sum payment on your mortgage. Not only will this accelerate debt-free homeownership, but it can also save you thousands in interest payments over the life of your mortgage.

Aligning your RSP strategy with your mortgage payments can create a dual benefit. By consistently contributing to your RSP while making mortgage payments, you’re not only building home equity but also grows your retirement fund. Speaking with your financial planner and me on the mortgage side can help you formulate the plan that makes the most sense for you.  We are here to help you strike the best balance between debt reduction and wealth accumulation in alignment with your goals.  And if you don’t have a financial planner, I would be happy to make an introduction.

With the right RSP-mortgage strategy, you’ll be on the path to a more financially secure retirement while paying off your mortgage faster than you may have thought possible.

Feel free to reach out, I look forward to seeing how I can help.

26 Jan

The Bank of Canada Holds Rates Steady and Forecasts a Soft Landing

General

Posted by: Karli Shih

 

The Bank of Canada held the overnight rate at 5% for the fourth consecutive meeting but provided an outlook suggesting that monetary easing will begin by mid-year. The Bank forecasts a soft landing for the Canadian economy, with inflation falling to 2.5% by the end of this year. While some economists predict a recession, the Bank suggests that “growth will likely remain close to zero through the first quarter of 2024” and “strengthen gradually around the middle of 2024.” This would be a soft landing.

While inflation ended 2023 at 3.4%, owing mainly to high and sticky shelter costs, “the Bank expects inflation to remain close to 3% during the first half of this year before gradually easing, returning to the 2% target in 2025. While the slowdown in demand is reducing price pressures in a broader number of CPI components and corporate pricing behaviour continues to normalize, core measures of inflation are not showing sustained declines.”

The press release says that the “Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”  The Bank now believes the economy is in excess supply, inflation expectations and corporate pricing behaviour are moving in the right direction, and wage demands, at 5.4% year-over-year in the last reading–are still too high. Wages are a lagging indicator and with job vacancies returning to pre-pandemic levels, wage pressures are likely to dissipate as the year progresses.

The tone [is now] was much more optimistic, suggesting that policymakers are increasingly confident interest rates are restrictive enough to bring inflation back to the 2% target. Still, Bank officials want to see more progress on core inflation before it begins to ease. It said, “The Bank’s preferred measures of core inflation have been around 3½-4%, with the October data coming in towards the lower end of this range.”

The central bank focuses on “the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour” and remains resolute in restoring price stability.

Bottom Line

This was a more upbeat Bank of Canada statement. There is a good chance that monetary tightening has done its job, and inflation will trend downward in the coming months. As we have seen, the road to 2% inflation is bumpy, but we are heading there probably sooner than the Bank expects. As predicted, they are staying the course for now, but multiple rate cuts are likely this year. The scheduled dates for announcing the policy rate are March 6, April 10, June 5 and July 24. The Bank of Canada will begin cutting the overnight rate somewhere in there.

 

For now, my bet is on the June meeting, but if I’m wrong, it will likely be sooner rather than later. Once they begin to take rates down, they will do so gradually, 25 basis points at a time, and over a series of meetings. We could well see rates fall by 100-to-150 bps this year. Risks to the outlook remain, as always.

I do not expect the overnight policy rate to fall as low as the pre-Covid level of 1.75% this cycle. Inflation averaged less than 2% in the five years before COVID-19, depressed by increasing globalization and technological advances. Those forces are now reversed.

18 Jan

Downsizing and An Alternative

General

Posted by: Karli Shih

 

 

 

Many Canadians consider downsizing during their retirement years. Once their children have left the nest, the choice seems obvious: relocate to a smaller residence or a more affordable town and capitalize on the price difference. For many retirees, the funds from the sale of their home can significantly impact their overall lifestyle and financial well-being.

However, there are costs of downsizing to be aware of when reviewing your options.

Downsizing in Canada: A Cost Analysis

The cost of moving is an important factor to consider when deciding whether to downsize. The following is a cost analysis for a typical downsizing scenario using an example of selling a home for $1,000,000 and buying a condo for $700,000.

The money from the sale of your home could have a meaningful impact on your retirement finances.  Theoretically, these transactions would free up $300,000 in equity while moving into a smaller home. But how much of would you get to keep? Below is an estimated list of associated downsizing costs:

The following are estimates and can vary by provider and region:

Fees Downsizing CHIP Reverse Mortgage
Real estate fees (est. 5%) $50,000 N/A
Legal Fees $1,200-$2,400 $300-$600
Land Transfer Tax (Varies depending on province and city) $8,975 N/A
Moving expenses (packing supplies, moving service, garbage removal, etc.) $3,000-$6,500 N/A
Furnishing and upgrades $8,000-$25,000 N/A
Home appraisal $500 $300-$600
Closing fee $500-,$1500 $1,795-$2,995
Total $72,175-$94,875 $2,395-$4,195

 

Downsizing costs could add up to between $72,175 – $94,875; and $300,000 of equity could be reduced to $205,125 after costs on the high end.

The following may also add to downsizing costs:

  • Home Improvements: Before selling, homes often need upgrades, from simple fixes to major renovations like kitchens or roofs. Also, many invest in staging their homes.
  • Belonging Decisions: Downsizing sometimes requires storage expenses for items that don’t fit in your new home.

An Alternative to Downsizing in Canada: The CHIP Reverse Mortgage 

The CHIP Reverse Mortgage by HomeEquity Bank offers an alternative to downsizing allowing you to potentially unlock up to 55% of your home’s equity.  These funds are tax-free and would allow you to staying in your home without leaving your community. Retirement finances can be improved, and funds can be directed to renovations or retrofitting your home for accessibility and livability as you get older. With no required monthly mortgage payments to make, the CHIP Reverse Mortgage is a popular solution.

Contact me to learn how a CHIP Reverse Mortgage can help you save on downsizing and potentially support your retirement.  I’m always happy to help.

Adapted from DLC Marketing

Image Credit: Nick Karvounis Unsplash

10 Jan

Cozy Up! Eight Steps to Winterize Your Home

General

Posted by: Karli Shih

 

We Canadians are no strangers to the chill of the winter season. Double-checking your list of home-winterizing to-do’s could help you save on bills, prevent future repair costs, and be more comfortable all winter long.  Here are eight items to keep on that cold-weather list to button up each winter:

1) Inspect Your Fireplace: There is no better time to have your fireplace inspected to ensure optimal efficiency and heat output. Whether you have a wood-burning, gas, or electrical fireplace, proper maintenance can go a long way on your heating bill.

2) Maintain Your Furnace: While you’re having your fireplace inspected, why not have them inspect your furnace?  When it’s time, replacements are often more efficient than those of the previous generation, which will likely help save on energy costs.  Either way, ensuring your furnace is in working order will guarantee top output and a cozy winter.

3) Clean The Gutters:  Cleaning your gutters from fall leaves and other debris will help ensure proper drainage for melting snow. To go the extra step, consider gutter guards. These can help keep out unwanted objects, and look tidier on gutters you may see from above, such as those lining decks.

4) Examine Your Roof: If you’re not snow-bound yet, while you’re prepping your gutters, examining the roof is a good idea. Shingles, flashing, and ventilation should all be checked and repaired where necessary.  Staining from water damage should especially be addressed.

5) Consider a Programmable Thermostat: According to experts, a one-degree drop in your home temperature can measure up to 1% on your heating bill. Smart thermostats are a great way to keep warm and optimize your energy savings. Ideally, you’ll want to set your thermostat to turn up in the morning, turn down when you go to work, and back up in the evening just before returning home to ensure a warm welcome.

6) Insulate Windows: Always be sure to check your windows for any gaps or water leakage and get them resealed as soon as possible. If you live in a particularly cold location, consider swapping out your windows to double-paned glass for an added layer of insulation. Another tip to keep the cold from seeping in is swapping out your curtains for a heavier, thermal-lined set which can do wonders.

7) Check Your Pipes: Checking pipe joints for leaks that could cause rot and damage will save you trouble in the future. Repair any cracks you find, especially those around electrical outlets and alarm system lines. You can also consider foam pipe insulation, which is fairly easy to install and could help prevent energy loss and potential water damage from frozen pipes.

8) Stock Up on Supplies: There are a few things you might want to consider stocking up on ahead of time for the winter season, such as flashlights and batteries, ice melt, extra pet food and canned goods, and an emergency storm kit that includes an extra flashlight, candles, portable radio, water, and snacks.

With a little preparation, you can keep your home in good shape and stay cozy all winter long.

As always, if you or someone you know needs mortgage information, feel free to reach out, I’m always happy to help.

Adapted from: DLC Marketing

Image Credit: Nachelle Nocom Unsplash

 

14 Dec

Why Look Around At Mortgage Renewal Time?

General

Posted by: Karli Shih

 

The end of your mortgage term brings opportunities you might not be aware of.  Yes, signing to renew your mortgage with your existing lender is easy, typically requiring just a signature.   And applying to switch your mortgage does entail 1) completing a new mortgage application and 2) providing all the required documents to verify your financial position.  But considering the potential benefits, it’s worth taking a look at what might be available to you and starting the conversation in advance.

Get a Better Rate

Are you aware that when you receive notice that your mortgage is coming up for renewal, this is the best time to shop around for a more favourable interest rate? At renewal time, it is easy to shop around or switch lenders for a preferable interest rate as it doesn’t break your mortgage. Interest rates are expected to come down as we move into the New Year.  Taking some time to reach out to me and shopping the market could help save you money, and help you make the most of the equity you may have in your property.

Consolidate Debt

Renewal time is also a great time to take a look at your existing debt and determine whether or not you want to consolidate it onto your mortgage. For some, this means consolidating your holiday credit card debt into your mortgage, for others it could be car loans, education, etc. Regardless of the type of debt, consolidating into your mortgage allows for one easy payment instead of juggling multiple loans. Plus, in most cases, the interest rate on your mortgage is less than you would be charged with credit card companies.

Start on that Renovation or Buy Another Property

Do you have projects around the house you’ve been thinking of completing? Renewal time is a great opportunity for you to look at utilizing some of your home equity to help with home renovations for that dream kitchen, updated bathroom, or you could even utilize it to purchase another property.

Change Your Rate Type, Add a Home Equity Line of Credit, Reduce Your Payments

Looking to change your existing mortgage ? Perhaps you’re finding that your variable-rate or adjustable-rate mortgages are fluctuating too much and you want to lock in.  Alternatively, maybe you’d like to switch to a variable rate as interest rates start to level out. You can also utilize your renewal time to take advantage of a different payment or amortization schedule to help pay off your mortgage faster, or alternatively, to reduce your payments.

Change Your Lender

Perhaps a different bank has a lower rate or a mortgage product with better terms for you. A mortgage renewal is a great time to switch to a different bank or credit union if your needs have changed.

Regardless of how you feel about your current mortgage and what changes you may want to make, if your mortgage is coming up for renewal within the next year, or if you simply have questions, please don’t hesitate to reach out.  I’d be happy to discuss your situation and review any changes that would be beneficial for you to reach your goals; from shopping for new rates or accessing the equity in your home to cover expenses or investments.  Together we can review your options now and set you on your path for future financial success.

 

Adapted from DLC Marketing

Image Credit: Nine Kopfer, Unsplash