20 Oct

Canadian Inflation Rises Once Again – October 20 2021

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Posted by: Matthew J. Charlton

OCTOBER 20 2021

Prices are Rising Everywhere – Transitory Can Last A Long Time

Today’s release of the September Consumer Price Index (CPI) for Canada showed year-over-year (y/y) inflation rising from 4.1% in August to 4.4%, its highest level since February 2003. Excluding gasoline, the CPI rose 3.5% y/y last month.

The monthly CPI rose 0.2% in September, at the same pace as in the prior month. Month-over-month CPI growth has been positive for nine consecutive months.

Today’s inflation is a global phenomenon–prices are rising everywhere, primarily due to the interplay between global supply disruptions and extreme weather conditions. Inflation in the US is the highest in the G7 (see chart below). The economy there rebounded earlier than elsewhere in the wake of easier Covid restrictions and more significant markups.

Central banks generally agree that the surge in inflation above the 2% target levels is transitory, but all now recognize that transitory can last a long time. Bank of Canada Governor Tiff Macklem acknowledged that supply chain disruptions are “dragging on” and said last week high inflation readings could “take a little longer to come back down.”

Prices rose y/y in every major category in September, with transportation prices (+9.1%) contributing the most to the all-items increase. Higher shelter (+4.8%) and food prices (+3.9%) also contributed to the growth in the all-items CPI for September.

Prices at the gas pump rose 32.8% compared with September last year. The contributors to the year-over-year gain include lower price levels in 2020 and reduced crude output by major oil-producing countries compared with pre-pandemic levels.

Gasoline prices fell 0.1% month over month in September, as uncertainty about global oil demand continued following the spread of the COVID-19 Delta variant (see charts below).

Bottom Line

Today’s CPI release was the last significant economic indicator before the Bank of Canada meeting next Wednesday, October 27. While no one expects the Bank of Canada to hike overnight rates next week, market-driven interest rates are up sharply (see charts below). Fixed mortgage rates are edging higher with the rise in 5-year Government of Canada bond yields. The right-hand chart below shows the yield curve today compared to one year ago. The curve is hinged at the steady 25 basis point overnight rate set by the BoC, but the chart shows that the yield curve has steepened sharply with the rise in market-determined longer-term interest rates.

Moreover, several market pundits on Bay Street call for the Bank of Canada to hike the overnight rate sooner than the Bank’s guidance suggests–the second half of next year. Traders are now betting that the Bank will begin to hike rates early next year. The overnight swaps market is currently pricing in three hikes in Canada by the end of 2022, which would bring the policy rate to 1.0%. Remember, they can be wrong. Given the global nature of the inflation pressures, it’s hard to imagine what tighter monetary policy in Canada could do to reduce these price pressures. The only thing it would accomplish is to slow economic activity in Canada vis-a-vis the rest of the world, particularly if the US Federal Reserve sticks to its plan to wait until 2023 to start hiking rates.

It is expected that the Bank will taper its bond-buying program once again to $1 billion, from the current pace of $2 billion.

The Bank will release its economic forecast next week in the Monetary Policy Report. It will need to raise Q3 inflation to 4.1% from its prior forecast of 3.9%.

 

Please Note: The source of this article is from SherryCooper.com/category/articles/ 

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8 Oct

Great News On The Canadian Job Front – October 8 2021

Latest News

Posted by: Matthew J. Charlton

OCTOBER 8 2021

Blockbuster September Jobs Report–Further Fuel For Rising Interest Rates

Statistics Canada released the September Labour Force Survey this morning, providing some unmitigated good news on the jobs front. Employment rose by 157,000 (+0.8%) in September, the fourth consecutive monthly increase. The unemployment rate fell by 0.2 percentage points to 6.9%.

Employment gains in September were concentrated in full-time work and among people in the core working-age group of 25 to 54. Increases were spread across multiple industries and provinces.

Employment gains in the month were split between the public-sector (+78,000; +1.9%) and the private-sector (+98,000; +0.8%).

Employment increased in six provinces in September: Ontario, Quebec, Alberta, Manitoba, New Brunswick and Saskatchewan.

Service-sector increases (+142,000) were led by public administration (+37,000), information, culture and recreation (+33,000) and professional, scientific and technical services (+30,000).

Employment in accommodation and food services fell for the first time in five months (-27,000).

While employment in manufacturing (+22,000) and natural resources (+6,600) increased, there was little overall change in the goods-producing sector.

The gains in September brought employment back to the same level as in February 2020, just before the onset of the pandemic. However, the employment rate—that is, the proportion of the population aged 15 and older employed—was 60.9% in September, 0.9 percentage points lower than in February 2020, due to population growth of 1.4% over the past 19 months.

The number of employed people working less than half their usual hours was little changed in September and remained 218,000 higher (+26.8%) than in February 2020. Total hours worked were up 1.1% in September but were 1.5% below their pre-pandemic level.

Among 15-to-69-year-olds who worked at least half their usual hours, the proportion working from home was little changed in September at 23.8%. The ratio who worked from home was lowest in Saskatchewan (12.3%) and Newfoundland and Labrador (12.8%), and highest in Ontario (28.7%). Overall, at the national level, the proportion of workers who worked from home was higher in urban areas (25.2%) than in rural areas (15.9%).

In September 2021, 4.1 million Canadians who worked at least half their usual hours worked from home, similar to the level recorded in September 2020.

The unemployment rate declined for the fourth consecutive month in September, falling 0.2 percentage points to 6.9%, the lowest rate since the onset of the pandemic. The unemployment rate peaked at 13.7% in May 2020 and has trended downward since, with some short-term increases during the late fall of 2020 and spring of 2021, coinciding with the tightening of public health restrictions. In the months leading up to the pandemic, the unemployment rate had hovered around historic lows and was 5.7% in February 2020.

The adjusted unemployment rate—which includes those who wanted a job but did not look for one—was 8.9% in September, down 0.2 percentage points from one month earlier.

Long-term unemployment—the number of people continuously unemployed for 27 weeks or more—was little changed in September. There were 389,000 long-term unemployed, more than double the number in February 2020.

The ability of the long-term unemployed to transition to employment may be influenced by several factors, including their level of education and current labour market conditions. For example, those with no post-secondary education face a labour market where employment in occupations not requiring post-secondary education was 287,000 lower in September 2021 than in September 2019 (not seasonally adjusted).

Bottom Line

The Bank of Canada has repeatedly suggested that it would not begin to tighten monetary policy until the economy returned to full capacity utilization, which they estimate will not be until at least the second half of next year. Employment will need to surpass pre-pandemic levels before complete recovery is declared because the population had grown since the start of the crisis 19 months ago.

Substantial job losses remain in the hardest-hit sectors. The chart below shows the employment change in percentage terms by sector compared with February 2020.

Sectors where remote work has been widespread–such as professional, scientific and technical services, public administration, finance, insurance and real estate–have seen a net gain in employment. However, in high-touch sectors that were deemed nonessential, the jobs recovery has been far more constrained. This is especially true in agriculture, accommodation and food services, and recreation. Ironically, these sectors have high job vacancy rates as many formerly employed here are reluctant to return. Enhanced benefits and compensation in these sectors will help.

Just this week, the BoC Governor Tiff Macklem reiterated that widespread inflation pressures are likely to remain at least until the end of this year. Most are reflective of global supply chain disruptions as well as extreme weather events. Just how long these will last is uncertain, but tighter monetary policy would have little impact on this type of inflation.

Nevertheless, bond markets have sold off worldwide in response to inflation fears and the annual US debt-ceiling antics. The final chart below shows the steepening of the Canadian yield curve since one year ago. The 5-year bond yield has risen sharply over that period, from 0.378% to a current level today of 1.205%. It is no surprise that 5-year fixed mortgage rates are rising. 

Please Note: The source of this article is from SherryCooper.com/category/articles/ 

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1 Oct

Credit score tips, Why invest in a home inspection, Seasonal home preparation tips and More! – October 2021

Monthly Newsletter

Posted by: Matthew J. Charlton

OCTOBER 2021

Hello!

In this issue:


Get Better Credit With The 5 C’s

Buying your first home is an incredible step in life, but it is not without its hurdles! One of which is demonstrating that you are creditworthy, which all comes down to your ability to manage credit. This is how lenders and credit agencies determine the interest rate you pay. A higher credit rating could mean a lower interest rate and save you thousands of dollars over the life of your mortgage.

There are several attributes that lenders consider before granting credit, and these are commonly referred to as the “Five C’s” and consist of: Character, Capacity, Capital, Collateral and Conditions. Let’s take a closer look at each:

Character: The first C focused on YOU and your personal habits, which comes down to whether or not it is in your nature to pay debts on time. The determining factors for your credit character include the following:

  • Whether you habitually pay your bills on time
  • Whether you have any delinquent accounts
  • Your total outstanding debt
  • How you use your available credit:
    • Quick Tip: Using all or most of your available credit is not advised. It is better to increase your credit limit versus utilizing more than 70% of what is available each month. For instance, if you have a limit of $1000 on your credit card, you should never go over $700.
    • If you need to increase your score faster, a good place to start is using less than 30% of your credit limit.
    • If you need to use more, pay off your credit cards early so you do not go above 30% of your credit limit.

Capacity: The second component relating to your credit rating is your capacity. This refers to your ability to pay back the loan and factors in your cash flow versus your debt outstanding, as well as your employment history.

  • How long have you been with your current employer?
  • If you are self-employed, for how long?

Don’t be confused as capacity is not what YOU think you can afford; it is what the LENDER has determined that you can afford depending on your debt service ratio. This ratio is used by lenders to take your total monthly debt payments divided by your gross monthly income to determine whether or not you are able to pay back the loan.

Capital: Capital is the amount of money that a borrower puts towards a potential loan. In the case of mortgages, the starting capital is your down payment. A larger contribution often results in better rates and, in some cases, better mortgage terms. For instance, a mortgage with a down payment of 20% does not require default insurance, which is an added cost. When considering this component, it is a good idea to look at how much you have saved and where your down payment funds will be coming from. Is it a savings account? RRSPs? Or maybe it is a gift from an immediate family member.

Collateral: Collateral is what is pledged against a loan for security of repayment. In the case of auto loans, the loan is typically secured by the vehicle itself as the vehicle would be repossessed and re-sold in the event that the loan is defaulted on. In the case of mortgages, lenders typically consider the value of the property you are purchasing and other assets. They want to see a positive net worth; a negative net worth may result in being denied for a mortgage. Overall, loans with collateral backing are typically more secure and generally result in lower interest rates and better terms.

Conditions: The conditions of the loan can also influence the lender’s desire to provide financing. Conditions can include: interest rate, terms, length of loan and amount of principle needed. Typically lenders are more likely to approve specific-loans, such as a car loan or home improvement loan or mortgage as these have a specific purpose, as opposed to a signature loan.

There is no better time than now to recognize the importance of your credit score and check if you are on track with the Five C’s and your debt habits. A misstep in any one of these areas could be detrimental to your efforts to get a mortgage. If you are not sure or want more information, please don’t hesitate to reach out to me today to determine your current credit score and if there are areas for improvement to help you get a better interest rate and mortgage.


Why Invest in a Home Inspection

While home inspections might not be the most exciting part of your home buying journey, they are extremely important and can save you money and a major headache in the long run.

In a competitive housing market, there can sometimes be pressure to make an offer right away without conditions. However, no matter how competitive a market may be, you should never skip out on things designed for buyer protection – such as a home inspection.

You may have a good eye for décor and love the layout of your potential new home, but what is under the surface is typically where headaches can lie. We have all heard the expression “don’t judge a book by its cover” so why would you make the most important purchase in your life without checking it out?

In fact, there are five reasons that a home inspection might just be the best $300-$500 you ever spend:

  1. It Provides an “Out”: When buying a new house, it is always best to avoid taking chances. While a house may look great on the surface, hidden structural issues such as cracked foundation or roof damage can easily turn into expensive repairs. A home inspection can help reveal any large and/or hidden issues, which can often provide an ‘out’ for the buyer. If you find something that will cost a considerable amount to replace or repair you can go back to the seller’s agent and ask for a reduction in the price. A leaky roof may cost a few thousand to replace. Perhaps the seller would split the cost with you? It’s worth asking. If the price cannot be re-negotiated if issues come to light, then it is best to just walk away on the basis that the home will cost you too much in the long run.
  2. Confirms Safety and Structural Integrity: Another benefit of having a home inspection is not only to find issues, but also to confirm structural integrity. During an inspection, the inspector will review everything from the attic to the furthest reaches of the basement and will look for things like mold, holes in the chimney, saggy beams or improper wiring.
  3. Reveal Illegal Additions or Installations: Similarly to determining any safety and structural issues, home inspections can also reveal hidden additions or DIY installations that may cause trouble down the road. If the seller wired the house improperly or used substandard materials, it not only could cost you big in the future but it could even null and void your home insurance should something happen!
  4. Forecast Future Costs: A home is an ongoing expense, much like a car. Unless it is brand new, there will be regular maintenance and updates required to replace things when they become old and inefficient. For instance, water heaters typically last for 6-10 years, the life of a good roof is around 20 years, while furnaces can last up to 25 years. The home inspection report will include an estimate on the remaining life for each of these big-ticket items, which will give you a heads up on future expected costs and provide you time to save for their eventual replacement.
  5. Peace of Mind: Finally and perhaps most importantly, getting a home inspection is important for your own peace of mind. A home is a huge investment, and one that you will be paying off for 20 or 30 years. It is much easier to feel good about your investment after you have gone through a home inspection and you know that the house is safe and that you won’t run into any surprise problems down the road. While a home inspection isn’t free, peace of mind is priceless and a few hundred bucks is worth it!

If you’re not sure how to get started with your home inspection, please don’t hesitate to reach out to me directly for some help or a few referrals!


Fall Home Tips!

It is hard to believe it is October already! Even though Fall has already started, there are a few things you can do still to ensure your home is well-prepared for the season:

  • Inspect 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 a flooded interior and damaged exterior so don’t 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! Do a check on all exterior doors and windows to confirm if they are properly sealed. To do this, simply close a door or window on a strip of paper. If the paper slides easily, you need to update your weatherstripping.
  • Have Your Furnace Inspected: 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.
  • Fix Any Concrete/Asphalt Cracks: This one is easy to ignore thinking it will be fine, but it could easily turn into a bigger issue. When water gets into existing cracks during the colder months it will freeze and expand, causing the crack to become even larger.
  • Turn Off Outdoor Plumbing: Since your garden will not need attention until the Spring, it is a good idea to 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: It is a good idea annually to check that all smoke detectors and carbon monoxide devices are working. While you’re doing your Fall and Winter home preparations, this is a good time to test your existing gadgets.

Economic Insights with Dr. Sherry Cooper

Read recent insights here!


What Not To Say When The ‘Bank’ Calls

If there’s one thing we’ve learned as technology marches forward—from phone calls to email and text—it’s that fraudsters will always find inventive ways to keep up.

But even as we move to more sophisticated means of communication and security, there are still some basic things that posers do when it comes to bank fraud—and many are summed up in this short article and handy infographic.

For instance, fraudulent emails often arrive dressed in your bank’s brand colours and logo asking for account numbers and PINs or birthdates. It’s easy to think these queries are legit—you might even recall discussing this information with your bank at some point. But here’s the key difference: it was probably when you called them. Your bank would not reach out to you to verify these things.

Source: Bridgewater Bank

 

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15 Sep

Insufficient Housing Supply Boosted Home Prices Again In August – September 15 2021

Latest News

Posted by: Matthew J. Charlton

SEPTEMBER 15 2021

Home Prices Still Rising As Falling Sales Reflect Insufficient Supply

Today the Canadian Real Estate Association (CREA) released statistics showing national existing home sales fell a slight 0.5% nationally from July to August 2021–the fifth consecutive monthly decline. Over the same period, the number of newly listed properties edged up 0.8%, and the MLS Home Price Index rose 0.9% m/m bringing the year-over-year (y/y) rise to 21.3%. Transactions appear to be stabilizing at a more sustainable, but still strong level (see chart below).

Small declines in the GTA and Montreal were offset by gains in the Fraser Valley, Quebec City and Edmonton.

The actual (not seasonally adjusted) number of transactions in August 2021 was down 14% on a year-over-year basis from the record set for that month last August. That said, it was still the second-best month of August in history.

New Listings

The number of newly listed homes ticked 1.2% higher in August compared to July. As with sales activity, it was a fairly even split between markets that saw declines and gains. New supply declines in the GTA and Ottawa were offset by gains in Vancouver and Montreal among bigger Canadian markets.

With both sales and new listings relatively unchanged in August, the sales-to-new listings ratio remained a tight 72.4% compared to 73.6% in July. The long-term average for the national sales-to-new listings ratio is 54.7%.

Based on a comparison of sales-to-new listings ratio with long-term averages, a small majority of local markets remain in seller’s market territory. The remainder are in balanced territory.

There were 2.2 months of inventory on a national basis at the end of August 2021, down a bit from 2.3 months in July. This is extremely low – still indicative of a strong seller’s market at the national level and most local markets. The long-term average for this measure is more than twice where it stands today. It was also the first time since March that this measure of market balance tightened up.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.9% month-over-month in August 2021. In line with tighter market conditions, this was the first acceleration in month-over-month price growth since February. While the trend of re-accelerating prices was first observed earlier this summer in Ontario, the reversal at the national level in August was less of a regional story and more of a critical mass story. Synchronous trends across the country have been the defining feature of the housing story since COVID-19 first hit, and that still appears to be the case.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 21.3% on a year-over-year basis in August.

Looking across the country, year-over-year price growth is averaging around 20% in B.C., though it is lower in Vancouver, a bit lower in Victoria, and higher in other parts of the province. Year-over-year price gains are in the mid-to-high single digits in Alberta and Saskatchewan, while gains were a little over 10% in Manitoba.

Ontario saw year-over-year price growth still over 20% in August. However, as with B.C. big, medium and smaller city trends, gains are notably lower in the GTA, around the provincial average in Oakville-Milton, Hamilton-Burlington and Ottawa, and considerably higher in most smaller markets in the province.

The opposite is true in Quebec, where Greater Montreal’s year-over-year price growth, at a little over 20%, is almost double that of Quebec City. Price growth is running a little above 30% in New Brunswick (higher in Greater Moncton, a little lower in Fredericton and Saint John), while Newfoundland and Labrador is in the 10% range on a year-over-year basis (a bit lower in St. John’s).

Bottom Line

Local housing markets are cooling off as prospective buyers contend with a dearth of homes for sale. Though increasing vaccination rates have begun to bring a return to normal life in Canada, that’s left the country to contend with one of the developed world’s most severe housing shortages and little prospect of much new supply becoming available soon despite all of the election promises. As net new immigration resumes, this excess demand in housing will mount. The impediments to a rapid rise in housing supply, both for rent and purchase, are primarily in the planning and approvals process at the municipal levels. Federal election promises do not address these issues.

Please Note: The source of this article is from SherryCooper.com/category/articles/ 

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15 Sep

Canadian Inflation Pressures Mount in August, Even As They Eased In The US – September 15 2021

Latest News

Posted by: Matthew J. Charlton

SEPTEMBER 15 2021

Annual Inflation In August Rises to 4.1% in Canada–But Are We Close To The Peak?

Today’s release of the August Consumer Price Index (CPI) for Canada posted another uptick in the year-over-year (y/y) inflation rate, but hidden in the details was some support for the Bank of Canada’s position that the spike in inflation is transitory. The Bank has long suggested that the rise in prices will prove to be the result of base effects (y/y comparisons that are biased upward by the temporary decline in prices one year ago), supply disruptions, and the surge in pent-up demand accompanying the reopening of the global economy.

This morning’s Stats Canada release showed that consumer price inflation surged to a 4.1% y/y pace last month, above the 3.7% pace recorded in June, and the 3.1% pace in May. This is now the fifth consecutive month in which inflation is above the 1%-to-3% target band of the Bank of Canada.

The good news, however, is that the monthly rise in prices slowed on a (seasonally adjusted basis) in August to 0.4% compared to the 0.6% rise in July. As well, core measures of inflation preferred by the Bank of Canada, which exclude food and energy, are considerably lower than the all-items measures of the CPI. All three of the BoC’s core inflation measures rose on a y/y basis last month to an average level of 2.6% vs. the all-items level of 4.1%.

The major contributors to the surge in inflation didn’t change in August. Gasoline prices rose a whopping 32.5% y/y, owing to production cuts and disruptions in the wake of Hurricane Ida. This more than offset the decline in demand due to the rise in the Delta variant, causing a sharp slowdown in China and other hard-hit regions. The homeowners’ replacement cost index, related to the price of new and existing homes, rose to 14.3% in August–the largest annual increase since September 1987. Similarly, the other owned accommodation expenses index, which includes commission fees on the sale of real estate, rose 14.3% year over year in August. The easing of travel restrictions boosted demand for airfares and hotel accommodation when labour shortages and rising energy costs pressed these industries. Meat prices have also surged in the past year as restaurant demand spiked. Auto sector prices continued to rise sharply as the inventories of new vehicles, disrupted by the chip shortage, hit new record lows.

Bottom Line

As the first chart below shows, the US has posted the highest level of inflation in the G-7, as the economic rebound there has outpaced that of its counterparts where Covid restrictions were more pervasive. Yet, yesterday’s release of the US August CPI report showed a marked slowdown in inflation pressure, leading some to suggest that the transitory view of inflation has been validated.

One thing to watch, however, is wage rates. Job vacancies and labour shortages have pushed up wages in some sectors, especially in the hardest-hit low-wage hospitality and leisure sectors, including food services and accommodation. If price pressures become validated by enough wage inflation, we run the risk of inflation becoming embedded. Wage-price spiralling has not been a factor since the 1970s when labour unions were much stronger and labour had much more pricing power.

Financial markets appear to be sanguine about the prospect for inflation-induced rate hikes in the near term. Bond yields remain historically low. Next week, we will hear more from the Fed on this subject as the policy-making group releases its report on Wednesday, September 22.

Please Note: The source of this article is from SherryCooper.com/category/articles/ 

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10 Sep

Good News on the Canadian Jobs Front – September 10 2021

Latest News

Posted by: Matthew J. Charlton

September 10 2021

August Employment Report Showed Continuing Recovery

This morning, Statistics Canada provided us with some much-needed good news on the economic front following last week’s surprisingly dismal Q2 GDP report. Canada’s labour market continued its recovery in August, especially in the hardest-hit food services and accommodation sectors. The August Labour Force Survey (LFS) data reflect conditions during the week of August 15 to 21. By then, most regions of Canada had lifted many of the Covid-related restrictions. However, there were capacity restrictions in such indoor locations as restaurants, gyms, retail stores and entertainment venues. Also, for the first time since March 2020, border restrictions were lifted for fully vaccinated non-essential travellers from the US.

However, the reopening of the Canadian economy has been creaky, owing to supply constraints and difficulty in filling job vacancies in sectors that require high-contact interfaces, especially with the concern regarding a fourth wave of the delta variant. Nevertheless, today’s LFS indicated that employment grew last month by 90,200, the third consecutive monthly gain, further closing the pandemic gap. Employment is now within 156,000 (-0.8%) of its February level, the closest since the onset of the pandemic. Moreover, most of the net new jobs were in full-time work. Increases were mainly in the service sector, led by accommodation and food services.

The jobless rate fell from 7.5% in July to 7.1% in August. The unemployment rate peaked at 13.7% in May 2020 and has trended downward since, despite some short-term increases during the fall of 2020 and spring of 2021. In the months leading up to the pandemic, the unemployment rate had hovered around historic lows and was 5.7% in February 2020.

The adjusted unemployment rate—which includes discouraged workers–those who wanted a job but did not look for one—was 9.1% in August, down 0.4 percentage points from one month earlier.

Employment increased in Ontario, Alberta, Saskatchewan and Nova Scotia in August. All other provinces recorded little or no change. For the third consecutive month, British Columbia was the lone province with employment above its pre-pandemic level. Compared with February 2020, the employment gap was largest in Prince Edward Island (-3.4%) and New Brunswick (-2.7%). The table below shows the jobless rates by province.

Bottom Line

The Bank of Canada this week once again suggested that it would not begin to tighten monetary policy until the economy returned to full capacity utilization, which they estimate will not be until at least the second half of next year. Employment will need to surpass pre-pandemic levels before complete recovery is declared because the population had grown since the start of the crisis 18 months ago.

Although August was another solid month for the jobs market, there is a wide disparity across sectors of the job market in the degree to which they have recovered from the effects of the pandemic. The table below shows the employment change in percentage terms by sector compared with February 2020.

Sectors where remote work has been widespread–such as professional, scientific and technical services, public administration, finance, insurance and real estate–have seen a net gain in employment. However, in high-touch sectors that were deemed nonessential, the jobs recovery has been far more constrained. This is especially true in agriculture, accommodation and food services, and recreation.

Please Note: The source of this article is from SherryCooper.com/category/articles/ 

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1 Sep

Buying a Rental Property & 5 Approval Roadblocks – September 2021

Monthly Newsletter

Posted by: Matthew J. Charlton

SEPTEMBER 2021

Hello!

In this issue:

  • Buying a Rental Property
  • 5 Approval Roadblocks You Should Know

Buying a Rental Property

You might be surprised to learn that you don’t need to be one of the uber rich or make six figures to have a second property. You just need to have knowledge, determination and financial planning!

If you are purchasing a secondary property with the intention to rent, here are a few extra things to know:

  1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings; you cannot use a gift from someone else.
  2. Only a portion of the rental income can be used for qualifying and determining how much you can afford to borrow. Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income while subtracting your expenses. This can have a much higher impact on how much you can afford.
  3. Interest rates typically have a premium on them when the mortgage is for a rental property versus a mortgage for a home someone intends on living in. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.
  4. If you do eventually want to sell this property, do note that it will be subject to capital gains tax. Your accountant will be able to help you with that aspect if you do decide to sell in the future.

Prior to taking on a secondary property, you will need to have your down payment in order (whether from savings or home equity) based on the minimum requirements, and also have sufficient credit score to qualify. In addition to the down payment, you will also need to pass the stress-test and prove that you can financially carry your existing mortgage and the new application.

If you are looking to purchase a rental property, let’s talk before you start. I would love to help review your financial situation, current mortgage and equity, and help you make a plan. The keys to success are right around the corner with a little bit of expert advice!


5 Approval Roadblocks You Should Know

When buying a home, there is nothing worse than having your mortgage broker or lawyer call and say “there is a problem”. If you have found your dream home and negotiated a fair price, and you have supplied all the documentation to your broker, you probably assume everything is fine.

The reality is that your financing approval is based on the information the lender was provided at the time of the application. If there have been any changes to your financial situation, the lender is within their rights to cancel your mortgage approval. To ensure that you don’t encounter any last-minute roadblocks on your home buying journey, there are five major things you must avoid for a smooth transaction:

1. Changes to Your Employment
When submitting a request for financing, whether for a mortgage or car loan or to handle personal debt, one of the most important aspects the lender looks at is employment. If you were working at Company X for five years at $80,000 a year and change jobs before your upcoming mortgage is finalized, the lender will require proof from your new employer. If you change industries, they will need more proof that you are capable of keeping the job. Plus, for employment involving overtime or bonuses, the lender often requests a two-year average, which is not possible from a new position. Another employment change that could hurt your financing approval would be moving from an employee to a self-employed contractor. A good rule of thumb is to wait to make any major employment or life changes until after the deal has gone through.

2. Down Payment Source
As mortgage financing is based on the initial information provided, you will most likely need to do a final verification of the down payment source. If it is different from what the lender has approved, it could spell trouble for your financing approval. Even if you said that your down payment was coming from savings and, at the last minute, mom and dad offer you the funds as a gift, it could affect your approval. This is an acceptable source of down payment, but only if the lender knows about it in advance and has included this in their risk assessment.

3. Existing Debt
A week or two before your possession date, the lender will obtain a copy of your credit report and look for any changes to your debt load. Since mortgage approval is based on how much you owed on that particular date, it is important not to increase your debt before the deal is finalized. Buying a new car or items for the new home must be postponed until after possession; even if they are “do not pay for 12 months” campaigns because you will need to fulfil those payments, regardless of when they start.

4. Bad Credit
One of the biggest roadblocks to mortgage approvals is credit card payments. When you are in the process of getting financing or waiting to take possession of your home, it is important that your credit score remains positive. If your credit score falls due to late payments, this can cause major issues with your financing. Even if you have a high ratio mortgage in place which requires CMHC insurance, a lower credit score could mean a withdrawal of the insurance and removal of any financing approval.

5. Missing Identity Documents
Before a mortgage is finalized, the lawyer is required to verify your identity documents and see that they match the mortgage documents therefore it is important to use your legal name when you apply for a mortgage. Even if you go by your middle name or a nickname, all legal documents should match.

To help avoid last minute roadblocks and catastrophes with your mortgage application, be sure to keep in touch with me at all times during the mortgage process. If there are any changes from your initial mortgage application, it is important to advise them well in advance and to run those changes by me to ensure they will not affect your application. Get in touch!

 

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31 Aug

Canada’s Economy Unexpectedly Contracted in Q2 – August 31 2021

Latest News

Posted by: Matthew J. Charlton

AUGUST 31 2021

Housing Dampened Economy in Q2

This morning’s Stats Canada release showed that the economy unexpectedly contracted in the second quarter by 1.1%, down from the revised 5.5% gain in the first three months of the year. The Canadian dollar dipped on the news to $.7921 as questions of resiliency in the face of the delta variant mount. Economists in a Bloomberg survey were anticipating a 2.5% expansion. Adding to the disappointment, economic growth fell a further 0.4% in July, according to a preliminary estimate.

The weak GDP data reduces the odds of the Bank of Canada tapering their bond purchases at their policy meeting on September 8th. It also highlights the output gap–the degree to which the economy remains below full economic capacity–remains a big issue. The Bank has forecast the gap to close by the middle of 2022. While that remains uncertain, we continue to expect growth to rebound in the third quarter.

Increases in investment in business inventories, government final consumption expenditures, business investment in machinery and equipment, and investment in new home construction and renovation were not sufficient to offset the declines in exports (-4.0%) and homeownership transfer costs (-17.7%), which include all costs associated with the transfer of a residential asset from one owner to another.

Housing investment reshapes the economy

Since the third quarter of 2020, housing investment has emerged as the predominant contributor to economic activities and capital stock—with residential capital stock surpassing non-residential capital stock. Moreover, the average housing investment for the previous four quarters was 17% higher than the average over the last five years.

Housing Investment

Both new construction and renovations—the components of residential capital stock—have shown sustained growth since the third quarter of 2020. Because of the ability to work from home, savings from less travel and reduced participation in other activities, low mortgage rates and increases in home equity lines of credit, spending has continued to increase on new houses (+3.2%) and home renovations (+2.4%).After taking on $62.3 billion of residential mortgage debt in the last half of 2020, households added $84.2 billion more residential housing debt in the first half of 2021.

Supply chain disruptions continue to impact motor vehicles

Shortages of microchips and other inputs curtailed trade in motor vehicles and domestic consumption. Household purchases of new passenger cars (-7.2%) and trucks, vans and sport utility vehicles (-1.6%) decreased, while business investment in medium and heavy trucks, buses and other motor vehicles fell 34.2%. Longer plant shutdowns because of international supply chain disruptions have constrained imports of parts and led to significant decreases in exports. Low production of motor vehicles and parts resulted in an 18.9% drop in exports of passenger cars and light trucks and an 8.7% decline in tires, motor vehicle engines and parts exports. Inventories had another quarter of significant drawdowns in response to supply needs.

Double-digit household savings rate continues

The modest rise in household spending (+0.7%, in nominal terms) was outpaced by growth in disposable income (+2.2%), leaving households with more net savings than in the previous quarter. Household incomes were primarily bolstered by employees’ rising compensation and increasing transfers received from the government, which were partially offset by a 2.8% rise in personal income taxes.

Consequently, the savings rate reached 14.2%—the fifth consecutive quarter with a double-digit savings rate—as various pandemic-related restrictions and uncertainty continued to limit the scope of household consumption. The household savings rate is aggregated across all income brackets; in general, savings rates are greater in higher income brackets.

Bottom Line

Today’s release is, in some respects, ‘ancient history.’ It is still widely expected that the economy will rebound in the third quarter. With the surge in household savings and continued growth in personal disposable income, pent-up demand is likely to boost consumption for the remainder of this year. All eyes will be on the August employment report released Friday, September 10th. The Bank of Canada will likely continue to proceed cautiously. Another tapering of the bond-buying program will come under scrutiny, and forward guidance will continue to suggest no rate hikes until the second half of next year.

Please Note: The source of this article is from SherryCooper.com/category/articles/ 

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18 Aug

Canadian Inflation Hits Highest Reading in Two Decades – August 18 2021

Latest News

Posted by: Matthew J. Charlton

AUGUST 18 2021

Annual Inflation Hits 3.7% in Canada–A New Election Issue

This morning’s Stats Canada release showed that the July CPI surged to a 3.7% year-over-year pace, well above the 3.1% pace recorded in June. This is now the fourth consecutive month in which inflation is above the1% to 3% target band of the Bank of Canada. And given the flash election, opposition parties are already making hay. “The numbers released today make it clear that under Justin Trudeau, Canadians are experiencing a cost of living crisis,” Conservative Leader Erin O’Toole said in a statement. He went on to suggest that the Liberal government is stoking inflation with its debt-financed government spending programs.

While it is true that deficit spending has surged during the pandemic, the same is also true for nearly every country in the world. Moreover, accelerating inflation is a global phenomenon and most central banks believe it to be temporary. Certainly, Tiff Macklem is firmly of that view, as is the Fed Chair Jerome Powell.

Supply disruptions and base effects have largely caused the rise in inflation. Semiconductor production, for example, slumped during the 2020 lockdowns, and then couldn’t be ramped up fast enough when demand for cars and electronics returned, leading the prices of new and used autos to rise at a record pace. Prices for airfares and hotel stays also jumped. Companies found themselves short of workers as they reopened, leading some to offer bonuses or boost wages and subsequently raise prices for consumers.

Central bankers believe that the price pressures are transitory, representing temporary shocks associated with the reopening of the economy.  Lumber prices, for example, spiked when demand for new homes returned and have since normalized (see the chart below). To be sure, above-target inflation has heightened uncertainty. The central banks do not want to choke off the economic recovery through misplaced inflation fears. Many Canadians remain out of work, and long-term unemployment is still very high. Moreover, the recent surge of the delta variant proves that the recovery is uncertain.

Governor Tiff Macklem, whose latest forecasts show inflation creeping up to 3.9% in the third quarter before easing at the end of the year, has warned against overreacting to the  “temporary” spike.

Shelter Prices Rising Fastest

Prices rose faster year over year in six of the eight major components of Canadian inflation in July, with shelter prices contributing the most to the all-items increase. Conversely, prices for clothing and footwear and alcoholic beverages, tobacco products and recreational cannabis slowed on a year-over-year basis in July compared with June.

Year over year, gasoline prices rose less in July (+30.9%) than in June (+32.0%). A base-year effect continued to impact the gasoline index, as prices in July 2020 increased 4.4% on a month-over-month basis when many businesses and services reopened.

In July 2021, gasoline prices increased 3.5% month over month, as oil production by OPEC+ (countries from the Organization of Petroleum Exporting Countries Plus) remained below pre-pandemic levels though global demand increased.

The homeowners’ replacement cost index, which is related to the price of new homes, continued to trend upward, rising 13.8% year over year in July, the largest yearly increase since October 1987.

Similarly, the other owned accommodation expenses index, which includes commission fees on the sale of real estate, was up 13.4% year over year in July.

Year-over-year price growth for goods rose at a faster pace in July (+5.0%) than in June (+4.5%), with durable goods (+5.0%) accelerating the most. The purchase of passenger vehicles index contributed the most to the increase, rising 5.5% year over year in July. The gain was partially attributable to the global shortage of semiconductor chips.

Prices for upholstered furniture rose 13.4% year over year in July, largely due to lower supply and higher input costs.

Core Measures

The average of core inflation readings, a better gauge of underlying price pressures, rose to 2.47% in July, the highest since 2009.

Monthly, prices rose 0.6% versus a consensus estimate of 0.3%. Rising costs to own a home are one of the biggest contributors to the elevated inflation rate, following a surge in real-estate prices over the past year.

Bottom Line

Today’s inflation data likely did little to alter the Bank of Canada’s view that above-target inflation will be a transitory phenomenon. They are already ahead of most central banks in tapering the stimulus coming from quantitative easing. They do not expect to start increasing interest rates until the labour markets have returned to full employment, which they judge to occur in the second half of 2022. In the meantime, pent-up demand in Canada is huge as people tap into their involuntary savings during the lockdown to pay higher prices at restaurants, grocery stores and gas stations. Financial markets appear to be sanguine about the prospect for rate hikes, as bond yields have been trading in a very narrow range.

Please Note: The source of this article is from SherryCooper.com/category/articles/ 

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1 Aug

8 Party Tips, Alternative Financing & Canadian Home Sales Slow for Fourth Consecutive Month – August 2021

Monthly Newsletter

Posted by: Matthew J. Charlton

AUGUST 2021

Hello!

In this issue:

  • 8 Steps to the Perfect Summer Party!
  • Alternative Financing and What You Should Know
  • Economic Insights with Dr. Sherry Cooper

8 Steps to the Perfect Summer Party!

There’s something magical about summer and no matter where you live in Canada, backyard BBQ season is the perfect opportunity to spend a little time with family and friends. Nothing says party vibes more than food on the grill and summer drinks flowing. Whether you live in a country house, a suburban townhome or a city condo, gather your crew and these few essentials:

  1. Good Food: To have the most success with your backyard party, you must pre-plan! Take a few hours the night before and meal prep. This includes planning an easy menu with bite size snacks, easy salads and flavour packed options to keep your guests satisfied. And don’t forget to make sure the barbecue has plenty of propane!
  2. Cold Drinks: Depending on your guests, you can either have a cooler full of pop and water. If it is a more adult affair, add a little alcohol to the mix! Boozy lemonades or spiked ice teas are pretty easy to make and very fun to drink. Craft beer, ciders or chilled white wine are other fun options for a hot day!
  3. Did Someone Say Dessert? If you’re planning an all-day affair, you might want to keep some quick and easy desserts or snacks on hand for the evening. Homemade ice cream bars, fruit kabobs or a veggie platter, or even a couple bags of kettle chips can make great options for any peckish guests. And as the sun sets, you can break out the marshmallows and get your S’mores on in front of the fire!
  4. Decor & Ambiance: For suburban hosts, your backyard party would include a sitting area, maybe umbrellas to offer some shady spots and some water fun! But, if you find yourself in smaller city digs, that doesn’t mean your party still can’t be one for the ages. Consider throw pillows, paper patio lanterns and plastic glassware which are all affordable and easy to find to help create that perfect party space!
  5. Choosing Your Tunes: While music can set the ambiance, you need to know your guests. It’s not easy to pick a playlist that will appease all ears, but streaming services like Spotify and Apple iTunes have plenty of mixed playlists that should do the trick. Unwind to some of my handpicked favourites here!
  6. Entertainment: Backyard games such as a bocce ball set, Frisbee and even a football can keep the fun and competition going for hours! If you’re looking for a more chill hang, consider setting up a card table or some board games for those who want to partake.
  7. For the Kids: If your party involves kids, you’ll want to keep the food simple and easy to eat with hands, so burgers, hot dogs, chips and some watermelon are the way to go. You’ll also want to keep them occupied with simple games or more active options such as a soccer ball, mini trampoline or a sprinkler to run through and keep them cool. When daylight starts to fade, you can set up a backyard movie or camp-out with some tents to settle the night down. It never hurts to tire the young ones out so the grownups can have some chill time for themselves!
  8. Other Considerations: Depending on the temperature and time of day for your party, you might want to remind guests to bring sunscreen, hats and/or bug spray to make sure their visit is as comfortable as possible!

Alternative Financing and What You Should Know

When conventional lenders (such as banks or credit unions) deny mortgage financing, it can be easy to feel discouraged. However, it is important to remember that there is always an alternative!

If you’re seeking a mortgage, but your credit score is damaged in some way and big institutions won’t lend you the money, you’ll find yourself in what’s commonly referred to in the industry as the “Alternative-A” or “B” lending space.

Much like the A Lender space (big banks, credit unions, etc.), there are various companies which operate in the B lending space. Alternative lenders cater to individuals who lack a strong credit history, or a guaranteed income (recent immigrants, or the self employed, for instance). As a result, these lenders generally have lower entry qualifications, which are offset by higher interest rates.

Why is alternative lending necessary? 

  • CRA arrears
  • Income issues such as non-traditional income as with self-employed borrowers
  • Credit issues such as low credit score, credit arrears, current mortgage or even bankruptcies
  • Unexpected liens on title
  • Foreclosure situations
  • Unique financing needs/opportunities

Beyond B-lenders are another alternative, which are known as Private or Unregulated lenders. These could just be individuals with money who are looking to invest. They are not regulated by any agency, and their rates and fees could be quite high.

These lenders are not required to stress test mortgage applicants, but many will abide by lower qualification rates. As a result, getting approved for a loan through an alternative or uninsured lender can be much easier than going through a traditional bank or credit union. Again, it is vital to pay close attention to the deal an unregulated lender offers. Lower qualification rates tend to come with baggage in the form of high interest rates or penalties.

Considerations for Alternative Mortgages Due to the “B” Lender space, it is important to take a good look at the conditions for these mortgage products to ensure that you won’t get trapped with rates you can’t afford.

Before considering an alternative mortgage, there are a few things you should ask yourself:

  1. What issue is keeping me from qualifying for a mortgage today?
  2. How long will it take me to correct this issue and qualify for a mortgage?
  3. How much do I currently have available as a down payment?
  4. Am I willing to wait until I can qualify for a regular mortgage, or do I want/need to get into a certain home today?

If you are someone who is ready to go ahead with an alternative mortgage due to a bruised credit score, or you don’t want to wait until you’re able to qualify with a traditional lender, these are five questions you should ask when reviewing any alternative mortgage product:

  1. How high is the interest rate?
  2. What is the penalty for missed mortgage payments? How are they calculated? What is the cost to get out of the mortgage altogether?
  3. Is there a prepayment privilege? For example, are you able to avoid penalties if you give the lender a higher mortgage payment once a month?
  4. What is the cost of each monthly mortgage payment?
  5. What does it look like when it comes to renewal?

When it comes to the alternative lending space, things can get a bit murky. If you are struggling to obtain an A-Lender mortgage, I would be happy to discuss your options with you and help you source an alternative. Get in touch!


Economic Insights with Dr. Sherry Cooper

The Slowdown In Canadian Housing Continued in July

Today the Canadian Real Estate Association (CREA) released statistics showing national existing home sales fell 3.5% nationally from June to July 2021–the fourth consecutive monthly decline. Over the same period, the number of newly listed properties dropped 8.8%, and the MLS Home Price Index rose 0.6% and was up 22.2% year-over-year.

While sales are now down a cumulative 28% from the March peak, Canadian housing markets are still historically quite active (see Chart below). In July, the decline in sales activity was not as widespread geographically as in prior months, although sales were down in roughly two-thirds of all local markets. Edmonton and Calgary led the slowdown, but these cities didn’t experience falling sales until recently. In Montreal, in contrast, where sales began to moderate at the start of the year, activity edged up in July.

The actual (not seasonally adjusted) number of transactions in July 2021 was down 15.2% on a year-over-year basis from the record for that month set last July. July 2021 sales nonetheless still marked the second-best month of July on record.

“While the moderation of sales activity continues to capture most of the headlines these days, it’s record-low inventories that should be our focus,” said Cliff Stevenson, Chair of CREA. Most markets are in sellers’ market territory.

New Listings

The number of newly listed homes dropped by 8.8% in July compared to June, with declines led by Canada’s largest cities – the GTA, Montreal, Vancouver and Calgary. Across the country, new supply was down in about three-quarters of all markets in July.

This was enough to noticeably tighten the sales-to-new listings ratio despite sales activity also slowing on the month. The national sales-to-new listings ratio was 74% in July 2021, up from 69.9% in June. The long-term average for the national sales-to-new listings ratio is 54.7%.

Based on a comparison of sales-to-new listings ratio with long-term averages, the tightening of market conditions in July tipped a small majority of local markets back into seller’s market territory, reversing the trend of more balanced markets seen in June.

Another piece of evidence that conditions may be starting to stabilize was the number of months of inventory. There were 2.3 months of inventory on a national basis at the end of July 2021, unchanged from June. This is extremely low – still indicative of a strong seller’s market at the national level and most local markets. The long-term average for this measure is twice where it stands today.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.6% month-over-month in July 2021, continuing the trend of decelerating month-over-month growth that began in March. That deceleration has yet to show up in any noticeable way on the East Coast, where property is relatively more affordable.

Additionally, a more recent point worth noting (and watching) just in the last month has seen prices for certain property types in certain Ontario markets look like they might be re-accelerating. This could be in line with a re-tightening of market conditions in some areas.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 22.2% on a year-over-year basis in July. While still a substantial gain, it was, as expected, down from the record 24.4% year-over-year increase in June. The reason the year-over-year comparison has started to fall is that we are now more than a year removed from when prices really took off last year, so last year’s price levels are now catching up with this year’s, even though prices are currently still rising from month to month.

Looking across the country, year-over-year price growth averages around 20% in B.C., though it is lower in Vancouver and higher in other parts of the province. Year-over-year price gains in the 10% range were recorded in Alberta and Saskatchewan, while gains are closer to 15% in Manitoba. Ontario sees an average year-over-year rate of price growth in the 30% range. However, as with B.C., gains are notably lower in the GTA and considerably higher in most other parts of the province. The opposite is true in Quebec, where Montreal is in the 25% range, and Quebec City is in the 15% range. Price growth is running a little above 30% in New Brunswick, while Newfoundland and Labrador is in the 10% range.

Bottom Line

Sales activity will continue to gradually cool over the next year, but it will take higher interest rates to soften the housing market in a meaningful way. Local housing markets are cooling off as prospective buyers contend with a dearth of houses for sale. Though increasing vaccination rates have begun to bring a return to normal life in Canada, that’s left the country to contend with one of the developed world’s most severe housing shortages and little prospect of much new supply becoming available soon.

Please Note: The source of this article is from SherryCooper.com/category/articles/ 

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