It was widely expected that the Bank of Canada would maintain its key policy rate at 5% for the third consecutive time. It will continue to sell government securities (quantitative tightening) to normalize its balance sheet. Market participants weighed and measured each word of the BoC press release and assessed that the Bank took a less hawkish stance.

This time, the release said, “Higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year. Exports and inventory adjustment subtracted from GDP growth in the third quarter, while government spending and new home construction provided a boost. The labour market continues to ease: job creation has been slower than labour force growth, job vacancies have declined further, and the unemployment rate has risen modestly. Even so, wages are still rising by 4-5%. Overall, these data and indicators for the fourth quarter suggest the economy is no longer in excess demand.”

At the prior meeting in late October, the Bank said that the labour market remained “on the tight side” but acknowledged today that it was loosening. Indeed, the October Monetary Policy Report suggested that the inflation rate would not hit its 2% target level until late 2025.

Today, the tone 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

Bond yields peaked in early October and have fallen by nearly 100 basis points. This has led to reductions in fixed mortgage rates; however, those cuts have been far less than historical experience would have suggested, given the rally in 5-year government bonds.

Cuts in variable mortgage rates await a reduction in the overnight policy rate, which triggers a commensurate decline in the prime rate, which is currently stuck at 7.2%. I expect the BoC to begin cutting the policy rate by the middle of next year, taking it down a full percentage point to 4% by year-end.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Image Credit: Sasan Hezarkhani Unsplash

The current economic landscape can be challenging for young Canadians to navigate as they face great uncertainty with heightened interest rates and inflation. It can be frustrating as they are just starting to build their career, considering buying a home or starting a family. If you are a parent, you may be thinking about how you can help your child during this period. The CHIP Reverse Mortgage by HomeEquity Bank is a sound financial solution that can help you support your loved ones by providing a tax-free gift.

The Gift of Early Inheritance 

As a parent, you may want to provide an early inheritance to see your adult children use the funds to improve their lives in a time of need. By giving an early inheritance, you can avoid probate fees (estate administration tax) and save money by bringing you to a lower tax bracket*. With an early inheritance, your children can pay for their wedding, start a business, pay off student loans, make a down payment on their home, and much more. Speak to your tax specialist for more details.

How the CHIP Reverse Mortgage Works

You may have heard of using a home equity line of credit (HELOC), or liquidating investments to gift an early inheritance. There are disadvantages associated with loss of investment earnings or taxes when selling investments. The CHIP Reverse Mortgage by HomeEquity Bank allows you to unlock up to 55% of the equity in your home without any of these challenges. With the CHIP Reverse Mortgage, your investments remain intact, and no monthly mortgage payments are required. Therefore, your income is not affected, and best of all, the money you get from the CHIP Reverse Mortgage is tax-free!

If you want to provide a tax-free gift to your children, contact me for details on how the CHIP Reverse Mortgage by HomeEquity Bank might be a help you.

*HomeEquity Bank requires all clients to receive independent legal advice to review the mortgage contract and ensure they fully understand the terms and conditions.

Adapted from HomeEquity Bank’s February 16, 2023 Publication

Image Credit:  Jon Tyson, Unsplash

Today’s inflation report showed a continued improvement, mainly due to falling year-over-year (y/y) gasoline prices. The October Consumer Price Index (CPI) rose 3.1% y/y, down from the 3.8% rise in September. There were no surprises here, so markets moved little on the news. Excluding gasoline, the CPI rose 3.6% in October, compared to 3.7% the month before.

The most significant contributors to inflation remain mortgage interest costs, food purchased at stores, and rent.

Canadians continued to feel the impact of rising rent prices, which grew faster (y/y) in October (+8.2%) than in September (+7.3%). The national increase reflected acceleration across most provinces. The most significant increases in rent prices were seen in Nova Scotia (+14.6%), Alberta (+9.9%), British Columbia (+9.1%) and Quebec (+9.1%).

Property taxes and other special charges, priced annually in October, rose 4.9% yearly, compared with a 3.6% increase in October 2022. The national increase in October 2023 was the largest since October 1992, with homeowners paying more in all but one province, as municipalities required larger budgets to cover rising costs. Property taxes in Manitoba (-0.3%) declined for the third consecutive year, mainly due to reduced provincial education tax.

While goods prices decelerated by -1.6% as prices at the pump fell, prices for services rose 4.6% last month, primarily driven by higher prices for travel tours, rent and property taxes.

While grocery prices remained elevated, they also continued their trend of slower year-over-year growth, with a 5.4% increase in October following a 5.8% gain in September. While deceleration continued to be broad-based, fresh vegetables (+5.0%) contributed the most to the slowdown.

Excluding food and energy, inflation fell to 2.7% in October, down a tick from the September reading. Two other inflation measures closely tracked by the Bank of Canada–the so-called trim and median core rates–also eased, averaging 3.6% from an upwardly revised 3.8% a month earlier.

Bottom Line

According to Bloomberg calculations, another critical measure, a three-month moving average of underlying price pressures, fell to an annualized pace of 2.96% from 3.67% a month earlier. It’s an important metric because Bank of Canada Governor Tiff Macklem has said policymakers are tracking it closely to understand inflation trends.

Today’s news shows that tighter monetary policy is working to bring down the inflation rate. In its Monetary Policy Report last month, the Bank of Canada expected the CPI to average 3.5% through mid-2024. Cutting its economic forecast, the Bank forecasted it would hit its 2% inflation target in the second half of 2025.

Given today’s data and the likely significant slowdown in Q3 GDP growth, released on November 30, and the Labour Force Survey for November the following day, policy rates have peaked. Governor Tiff Macklem will give a speech on the cost of high inflation in New Brunswick tomorrow, and the subsequent decision date for the Governing Council is December 6th. The Bank’s inflation-chopping rhetoric may be relatively hawkish, but the expectation of rate cuts could spur the spring housing market.

The economists at BMO have pointed out that “three provinces now have an inflation rate below 2%, while only three are above 3%, so much of the country is already seeing serious signs of stabilization. (Unfortunately, the two largest provinces have the fastest inflation rates—Quebec at 4.2% and Ontario at 3.3%).” There is no need for the Bank to raise rates again, and they could begin to cut interest rates in the second quarter of next year.  

Your mortgage renewal is an opportunity to optimize long term interest savings and address current cash flow.  Some of the items to explore as you evaluate your options include:

Fixed vs. Variable Rates:

• Assessing your risk tolerance: Fixed rates can provide stability, while variable rates fluctuate. However, fixed rates can come with their own inherent risk: penalties. Depending on the lender and the direction rates are trending, the penalty on fixed rate mortgages can vary widely.
• Reviewing the current economic climate: Rates are forecasted to come down, making variable rates more attractive again to those with a comfort with relying on those forecasts in making rate decisions.
• Variable rate payment options: Not all variable rate mortgages work the same way. Some have fixed payments, and some have payments fluctuating with the prime rate.  Both have implications as rates move and each should be considered against interest rate forecasts and personal perspectives when making a selection.
• Consider Term Length: Forecasts may influence how long of a term you select at renewal as well.

Adjusting Payments:

• Exploring flexible payment options: The ability to adjust your payment frequency or making lump sum payments should align with your financial goals, future opportunities and potential rate climate as it evolves.
• Considering budget changes: If your financial situation has evolved or will be in the future, adjusting your payments accordingly can be a strategic move. From adjusting payment frequency to changes in amortization, you may have multiple options to choose from to address your budget and future plans.

Consolidating Other Debt:

• Evaluating high-interest debt: Use the renewal as an opportunity to consolidate high-interest debts into your mortgage. This can simplify payments and potentially save on interest.

Selecting a New Lender or Staying With Your Current One:

• Weighing your options: Never settle for your lender’s first offer without exploring your options with me first ensuring you’ve received personalized advice tailored to your unique situation as interest rate forecasts shift.

Your mortgage renewal is not just an exercise in paperwork; it’s a chance to align your mortgage now with your financial goals. Considering these factors, interest rate forecasts, and your future plans can pay off both in the short and long term.  Reach out today with any questions you may have, I’m always happy to help.

Image: Joshua Hibbert on Unsplash

Though Fall has already started, there are a few things you can do still to ensure your home is well-prepared for the season:

• Examine Your Gutters: This time of year it is important to clean and inspect your gutters (replacing as needed) to ensure they are working properly as the rain and snow season hits. If they are clogged or damaged, it could result in flooding or exterior damage – so be sure not to wait.
• Check for Drafts: In the Fall and Winter, many homeowners are spending extra money heating their homes due to drafts, but it doesn’t have to be that way.  A quick check on exterior doors and windows to confirm if they are properly sealed is a good start. To do this, simply close a door or window on a strip of paper. If the paper slides easily, update your weatherstripping.
• Inspect Your Furnace: In Canada, we are no strangers to chilly evenings.  To ensure you are comfortable throughout the colder months, be sure to have your furnace inspected by an HVAC professional. They can check leaks, test efficiency, and change the filter. They can also conduct a carbon monoxide check to ensure air safety.
• Manage Your Thermostat: As tempting as it is to turn your heat all the way up in the winter, proper thermostat management will help you save costs in the long run. Using a thermostat with a timer can save you even more. Turn them on earlier so the room heats up in time for use and have it turned off 30 minutes before bed or before leaving the home.

• Fix Any Concrete/Asphalt Cracks: This one is easy to ignore but can turn into a bigger issue. When water gets into existing cracks during colder months, it freezes and expands, causing cracks to become even larger.

• Turn Off Outdoor Plumbing: Since your garden will not need attention until the Spring, shut off and drain all outdoor faucets and sprinkler systems. Depending on where you live, you might also want to cover them to prevent freezing during the Winter months.

• Change Your Batteries: For safety, check all smoke detectors and carbon monoxide devices at least a couple of times throughout the year. While doing other Fall home prep, this is an easy one to add to the list.

• Create a Storm Kit: A storm kit is a handy source of essential items in the event of losing power. Consider what you and your family might need, such as a flashlight with new batteries, candles, matches, a portable radio, water, and snacks. Keep your kit somewhere easy to access.

Whatever your plans this season, a quick check of your home will ensure you are well-prepared for cooler temperatures ahead.

Adapted from DLC Marketing

Image Credit: Hans Isaacson, Unsplash

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

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Financial independence is a critical skill for future success.  As parents, we have the opportunity to nurture our children’s healthy relationship with money.  Here are a few points to consider with respect to helping them in this area:

• Review Your Attitude Towards Money: What is your own attitude towards money?  Are you a penny pincher?  Frivolous spender?  Do you buy on impulse, or take a long time to make a purchase?  How much debt do you have?  Your financial habits will shape your children.  To ensure you are setting them up for their best financial future, parents need to consider what messages they are sending with their money habits.
• Give Your Children an Allowance: Providing a small allowance to your children (especially one in exchange for chores) is an age-old way of teaching your kids about money.
• Encourage them to babysit or mow lawns for extra money: Nothing can beat the feeling of independence your child will feel by making a little extra money and saving up for something important to them.
• Teach Your Child to Save: If you are giving your child $5 per week in allowance for chores, encourage them to put even just $1 per week into a piggy bank.  In six months, ask them to count how much money they have saved.  Talk to them about why saving is important and what they might do with that amount.
• Encourage Kids to Think Before They Buy: While it’s hard to get a 10-year-old excited about an RRSP, there are other ways to help them start thinking about planning ahead.  One is to encourage them to think about their purchases before they commit.  If they see an ad for a toy and they have to have it, teach them about how advertisements are designed to make you want something.  Ask them to wait a week.  Do they still want it?
• Involve Your Children in the Family Finances: Explain why and how much you pay for certain things and discuss affordable choices.  Opening and paying bills or planning vacations helps them be a part of the conversation and will work to instill a sense of financial responsibility as they grow up.
• Show your children that by starting early, compound interest can make saving substantially easy:

Required savings per month to save $1,000,000 by age 65 assuming a 10% return:

If you start at 20, you need to save $116 per month

If you start at 30, you need to save $307 per month

If you start at 40, you need to save $847 per month

If you start at 50, you need to save $2.623 per month

A lower rate of return and a higher savings amount will get there too.  The point is to show your children how leveraging compound interest early and staying consistent will get them there more easily than by starting later.

You are the best example to your children about money.  Don’t be afraid to share the ups and downs with them.  Be patient with your kids, and don’t give up.  The best thing you can do as a parent is to repeat your message, show them how you make financial decisions, and hope they make the right ones for themselves eventually too.

Adapted from DLC Marketing

Image Credit: Felix Koutchinski Unsplash

Savings Data Source: https://www.fool.com/the-ascent/buying-stocks/articles/how-much-do-you-need-to-save-per-month-to-retire-with-1-million/