18 May

Canadian Inflation Beats Expectations – May 18 2022

Latest News

Posted by: Matthew J. Charlton

MAY 18 2022

Canadian Inflation Shows No Signs Of Abating

Inflation at 6.8% is unmitigated bad news. The Bank of Canada looks flat-footed again, having forecast that Inflation would be at least a full percentage point lower by now. What’s worse, inflation looks likely to rise again this month given the surge in gasoline prices from April to May.

Today’s report raises the urgency for policymakers to withdraw stimulus from the economy quickly. Look for another 50 bp rate hike on June 1 and again in July. Markets are pricing in an overnight rate as high as 3% by the end of the year. It is currently at 1%. 

In April, Canadian consumer prices rose 6.8% y/y, up slightly from March’s 6.7% pace despite a slowdown in the pace of gasoline inflation. The April inflation rise was driven mainly by food and shelter prices. Excluding gasoline, the CPI rose 5.8% in April, after a 5.5% gain in March. This was the fastest pace since the introduction of the all-items excluding gasoline special aggregate in 1999.

Since late February, Russia’s invasion of Ukraine has boosted energy, commodity, and, most notably, food prices.

The Canadian economy’s strength has added to inflation pressure. The unemployment rate is at a record low. Average hourly wages rose 3.3% y/y last month. With prices rising faster than wages, Canadian families are experiencing reduced purchasing power.

In April, Canadians paid 9.7% more for food purchased from stores compared with April 2021. This rise, which exceeded 5% for the fifth month in a row, was the most significant increase since September 1981.

In April, shelter costs rose 7.4% y/y, the fastest pace since June 1983, following a 6.8% increase in March. Higher prices for energy sources used to heat homes, such as natural gas (+22.2%) and fuel oil and other fuels (+64.4%), contributed to the rise.

Reflecting the dynamic Canadian housing market, homeowners’ replacement cost (+13.0%) is related to the price of new homes and other owned accommodation expenses (+17.2%), which include commissions on the sale of real estate; both rose sharply in April.

The mortgage interest cost Index (+0.2%) increased on a m/m basis for the first time since April 2020.

Rent prices increased in April (+4.5%) compared with the same month in 2021. The rent hike was mostly driven by price increases in Canada’s most populous provinces: Ontario (+5.3%), Quebec (+4.3%) and British Columbia (+6.4%).

While monthly, Inflation slowed in April (0.6%) compared to March (1.4%), the surge in gasoline price in May portends continued high Inflation in next month’s CPI report.

Bottom Line

Bloomberg News reported this morning that “The inflation surge has made the Bank of Canada a target of criticism, with some politicians accusing Macklem of moving too slowly. Immediately after the inflation data was published, Conservative leadership candidate Pierre Poilievre released a statement reiterating he plans to fire Macklem should he ever win power.”  

The pressure is on for more rate hikes. Central banks all over the world are under similar pressure. Central bank tightening will slow demand, as we have seen already in the Canadian housing data for March and April. It does not address the supply disruptions that are the root cause of much of the inflation pressure.

Please note: The source of this article is from Sherry Cooper


Sign up to receive monthly Home, Lifestyle & Mortgage News here.

<Back to Blog

17 May

Canadian Home Sales Slow As Mortgage Rates Rise – May 17 2022

Latest News

Posted by: Matthew J. Charlton

MAY 17 2022

Canadian Housing Market Feels The Pinch of Higher Rates

Statistics released yesterday by the Canadian Real Estate Association (CREA) show that the slowdown that began in March in response to higher interest rates has broadened. In April, national home sales dropped by 12.6% on a month-over-month (m/m) basis. The decline placed the monthly activity at its lowest level since the summer of 2020 (see chart below).

While the national decline was led by the Greater Toronto Area (GTA) simply because of its size, sales were down in 80% of local markets, with most other large markets posting double-digit month-over-month declines in April. The exceptions were Victoria, Montreal and Halifax-Dartmouth, where sales edged up slightly.

The actual (not seasonally adjusted) number of transactions in April 2022 came in 25.7% below the record for that month set last year. As has been the case since last summer, it was still the third-highest April sales figure ever behind 2021 and 2016.

Jill Oudil, Chair of CREA, said, “Following a record-breaking couple of years, housing markets in many parts of Canada have cooled off pretty sharply over the last two months, in line with a jump in interest rates and buyer fatigue. For buyers, this slowdown could mean more time to consider options in the market. For sellers, it could necessitate a return to more traditional marketing strategies.”

“After 12 years of ‘higher interest rates are just around the corner,’ here they are,” said Shaun Cathcart, CREA’s Senior Economist. “But it’s less about what the Bank of Canada has done so far. It’s about a pretty steep pace of continued tightening that markets expect to play out over the balance of the year because that is already being factored into fixed mortgage rates. Of course, those have, for that very reason, been on the rise since the beginning of 2021, so why the big market reaction only now? It’s likely because typical discounted 5-year fixed rates have, in the space of a month, gone from the low 3% range to the low 4% range. The stress test is the higher of 5.25% or the contract rate plus 2%. For fixed borrowers, the stress test has just moved from 5.25% to the low 6% range – close to a 1% increase in a month! It won’t take much more movement by the Bank of Canada for this to start to affect the variable space as well”.

New Listings

The number of newly listed homes edged back by 2.2% on a month-over-month basis in April. The slight monthly decline resulted from a relatively even split between markets where listings rose and those where they fell. Notable declines were seen in the Lower Mainland and Calgary, while listings increased in Victoria and Edmonton.

With sales falling by more than new listings in April, the sales-to-new listings ratio eased back to 66.5% – its lowest level since June 2020. This reading is right on the border between what would constitute a seller’s and a balanced market. The long-term average for the national sales-to-new listings ratio is 55.2%.

More than half of local markets were balanced based on the sales-to-new listings ratio being between one standard deviation above or below the long-term average in April 2022. A little less than half were in seller’s market territory.

There were 2.2 months of inventory on a national basis at the end of April 2022, still historically very low but up from slightly lower readings in the previous eight months. The long-term average for this measure is a little over five months.

Home Prices

The non-seasonally adjusted Aggregate Composite MLS® HPI was still up by 23.8% on a year-over-year basis in April, although this was a marked slowdown from the near-30% record increase logged just two months earlier.

Bottom Line

The fever broke in the Canadian housing market last month. Nevertheless, despite the sizeable two-month slide in sales, activity is still almost 10% above pre-COVID levels and the raw April sales tally was still one of the highest on record.

Markets in Ontario are weakening most, significantly further outside the core of Toronto. Sales in the province slid 21% in April and are now in line with pre-pandemic activity levels. The market balance has gone from drum tight with “not enough supply” to one that resembles the 2017-19 correction period. Elsewhere, Vancouver and Montreal look better with relatively balanced markets, while others like Alberta and parts of Atlantic Canada remain pretty strong.

The Bank of Canada will likely hike interest rates by another 50 bps on June 1.

Please note: The source of this article is from Sherry Cooper


Sign up to receive monthly Home, Lifestyle & Mortgage News here.

<Back to Blog

10 May

April home sales slid in most metro areas, but prices held their ground…for now – May 10 2022

Latest News

Posted by: Matthew J. Charlton

MAY 10 2022

Housing data from April showed home sales were down in most major metro markets in the country, with Toronto sales leading the way, down over 41% year-over-year.

Average prices, meanwhile, were down on a monthly basis in the Greater Toronto Area, but continued to rise in most other urban markets outside of Ontario.

The GTA saw the largest retreat in prices, which were down 3.5% from March, but still up 15% year-over-year. Ottawa also saw prices dip 2.7% from March, but were up 13% from a year ago.

Elsewhere, Vancouver prices were still up 1% month-over-month, while Calgary saw a 1.6% increase and Montreal experienced a 2.5% rise in single-detached home prices.

While February is so far looking like a peak for national home prices, according to data from the Canadian Real Estate Association, prices are still up in cities outside of Ontario.

Here’s a look at the percentage change in average headline prices in April compared to February:

  • Greater Toronto Area: -6%
  • Greater Vancouver Area: +5%
  • Montreal Census Metro Area: +5%
  • City of Calgary: +5%
  • City of Ottawa: -1%

But, as real estate analyst Ben Rabidoux of Edge Realty Analytics points out, some of these figures might be misleading.

“House price indexes do a poor job of picking up sharp inflection points. Prices are already down from the February peak in major markets, but it will take several months before this shows up in HPI data,” he wrote in his latest newsletter.

“Price gains nationally are moderating, and may register declines later this year,” he added. “Market balance is weakening, but with months of inventory still just 1.8, it will take several more months of deteriorating trends before headline prices officially print negative.”

Here’s a look at the April statistics from some of the country’s largest regional real estate boards:

Greater Toronto Area

Sales: 8,008

  • -41.2% (YoY)
  • -27% month-over-month (MoM)

MLS Home Price Index: $1,254,436

  • +15% (YoY)
  • -3.5% (MoM)

New Listings: 18,413

  • -11.7% (YoY)
  • -8.1% (MoM)

“Despite slower sales, market conditions remained tight enough to support higher selling prices compared to last year. However, in line with TRREB’s forecast, there is evidence of buyers responding to increased choice in the marketplace, with the average and benchmark prices dipping month-over-month. It is anticipated that there will be enough competition between buyers to support continued price growth relative to 2021, but the annual pace of growth will moderate in the coming months,” said TRREB Chief Market Analyst Jason Mercer.

Source: Toronto Regional Real Estate Board (TRREB)


Sign up to receive monthly Home, Lifestyle & Mortgage News here.

<Back to Blog

9 May

Canadian Labour Market Tightens As Unemployment Rate Hits New Low – May 9 2022

Latest News

Posted by: Matthew J. Charlton

MAY 9 2022

Labour Market Bumps Up Against Capacity Constraints

Job vacancies abound in many sectors, yet employers have trouble finding workers to fill those jobs and retaining workers with so many options available. As the jobless rate falls to new record lows, net new employment has slowed. This is not dissimilar to the housing market, where supply is insufficient to meet demand. Home sales are slowing in response to very low inventories, which are now compounded by rising mortgage rates.

Statistics Canada released the April Labour Force Survey this morning, reporting a slowdown in job gains to 15,300, a mere fraction of the 72,500 jump last month and the whopping 337,000 surge in February. The April figure was way below the 40,000 rise anticipated by economists.

After reaching a record low of 5.3% in March, the unemployment rate edged down 0.1 percentage points to a series-low of 5.2% last month, compared to the 5.7% level posted before the pandemic. There is considerable excess demand for workers as the economy failed to produce any new growth in labour supply. In April, hours worked declined 1.9%, reflecting a jump in Covid-related absences and disability.

Increases in employment in professional, scientific and technical services and public administration were offset by construction and retail trade declines. These two sectors are reporting significant labour shortages. The federal government hopes to double the housing supply over the next decade, but to do so, homebuilders need many more construction workers.

More people worked in the Atlantic region and Alberta, while employment fell in Quebec. At the national level, employment gains among core-aged women aged 25 to 54 were offset by a decrease among core-age men.

Average hourly wages were up 3.3% (+$0.99 to $31.06) year over year, similar to the growth observed in March (+$1.03; +3.4%). Since consumer prices have risen 6.7% year-over-year, wages are not keeping up with inflation.

Many signs have pointed to an increasingly tight labour market in recent months. In addition to increases in full-time work, one aspect of this tightening has been a decrease in part-time workers reporting that they would prefer full-time employment. The involuntary part-time employment rate fell to 15.7% in April 2022, the lowest level on record. The involuntary part-time rate had been elevated over the first 18 months of the pandemic and peaked at 26.5% in August 2020, as many workers faced challenges securing full-time employment.

There are signs that wage inflation could accelerate in response to continued high job vacancy rates and tightening labour supply.

Bottom Line

Mounting inflation pressure point to another 50 basis point hike in the overnight rate when the Bank of Canada meets again on June 1. Governor Mackem has stated that a full half-point increase will be in play. That will take the policy rate up to 1.5%, compared to 1.75% immediately before the pandemic. The war in Ukraine has exacerbated supply disruptions and markedly increased key commodity prices. Canada’s economy remains strong–the strongest in the G-7–owing to the relatively large commodity sector. Markets expect the overnight rate to hit close to 3% by yearend. However, the Bank will adjust its plans based on incoming data. Preliminary evidence suggests that housing activity weakened in April due to rising mortgage rates and insufficient supply.

Please note: The source of this article is from Sherry Cooper


Sign up to receive monthly Home, Lifestyle & Mortgage News here.

<Back to Blog

20 Apr

Canadian Inflation Spikes to 6.7% in March. – April 20 2022

Latest News

Posted by: Matthew J. Charlton

APRIL 20 2022

Holy Smokes! Canadian Inflation Is At 6.7%

StatsCanada today reported that consumer prices rose a whopping 6.7% year-over-year in March, a full percentage point above the 5.7% reading the month before. Market-driven interest rates shot-up on the news as the prospects increase for another half-point rise in the overnight rate when the Bank of Canada meets again on June 1.

There is no sugar-coating this. Bonds were walloped as the Government of Canada two-year yield shot up to 2.6%, the 5-year yield rose to 2.75%, and the 10-year yield spiked above 2.825% immediately following the data release. The 5-year yield (so crucial for setting the 5-year fixed mortgage rate) has nearly quadrupled over the past year.

Inflationary pressure remained widespread in March, as prices rose across all eight major components. Prices increased against the backdrop of sustained price pressure in Canadian housing markets, substantial supply constraints and geopolitical conflict, which has affected energy, commodity, and agriculture markets. Further, employment continued to strengthen in March, as the unemployment rate fell to a record low. In March, average hourly wages for employees rose 3.4% y/y, raising the risk of wage-price spiralling. 

Excluding gasoline, the Consumer Price Index (CPI) rose 5.5% year-over-year in March, the fastest pace since introducing the all-items excluding gasoline special aggregate in 1999, following a 4.7% gain in February.

The CPI rose 1.4% in March, following a 1.0% gain in February on a monthly basis. This was the largest increase since January 1991, when the goods and services tax was introduced. On a seasonally adjusted monthly basis, the CPI rose 0.9% in March, matching the most significant increase on record.

In March, gasoline prices rose 11.8% month over month, following a 6.9% increase in February. Global oil prices rose sharply in March because of supply uncertainty following Russia’s invasion of Ukraine. Higher crude oil prices pushed prices at the pump higher. Year-over-year consumers paid 39.8% more for gasoline in March.

Month over month, prices for fuel oil and other fuels rose 19.9%, the second-largest increase on record after February 2000. On a year-over-year basis, prices for fuel oil and other fuels rose 61.0% in March.

Food prices continued to surge, as did the prices of durable goods such as automobiles and furniture. It cost considerably more for restaurants, hotel rooms and flights. 

Goods inflation hit 9.2% in March, the highest since 1982. Services inflation rose to 4.3%, the highest since 2003.

Bottom Line

Bond markets sold-off all over the world today. The yield curves flattened as shorter-term yields rose more than their longer-dated counterparts, reflective of the view that central banks will accelerate their tightening.

Today’s CPI report shows inflation pressures were more elevated than the Bank of Canada expected just last week when they hiked the policy rate by 50 basis points. 

This could well mark the top of the surge in inflation, but the return to the 2% inflation target could be prolonged, particularly if inflation expectations become embedded. For this reason, Governor Macklem is likely to tighten aggressively once again on June 1, which will further dampen housing activity.

Please note: The source of this article is from Sherry Cooper


Sign up to receive monthly Home, Lifestyle & Mortgage News here.

<Back to Blog

19 Apr

Canadian Home Sales Begin to Slow in March – April 19 2022

Latest News

Posted by: Matthew J. Charlton

APRIL 19 2022

Canadian March Home Sales Posted Their Biggest Decline Since June

Statistics released today by the Canadian Real Estate Association (CREA) show that rising interest rates were already dampening housing activity well before the Bank of Canada’s jumbo spike in the key policy rate in mid-April. National home sales fell back by 5.4% on a month-over-month basis in March. The decline puts activity back in line with where it had been since last fall (see chart below).

New Listings

The number of newly listed homes fell back by 5.5% on a month-over-month basis in March, following a jump in February. The monthly decline was led by Greater Vancouver, the Fraser Valley, Calgary and the GTA.

With sales and new listings falling in equal measure in March, the sales-to-new listings ratio stayed at 75.3% compared to 75.2% in February. The long-term average for the national sales-to-new listings ratio is 55.1%.

About two-thirds of local markets were seller’s markets based on the sales-to-new listings ratio is more than one standard deviation above its long-term mean in March 2022. The other third of local markets were in balanced market territory.

There were 1.8 months of inventory on a national basis at the end of March 2022 — up from a record-low of just 1.6 months in the previous three months. The long-term average for this measure is more than five months.

Home Prices

The Aggregate Composite MLS® HPI was up 1% on a month-over-month basis in March 2022 – a marked slowdown from the record 3.5% increase in February.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up by 27.1% on a year-over-year basis in March. The actual (not seasonally adjusted) national average home price was $796,000 in March 2022, up 11.2% from last year’s same month. 

Bottom Line

The March housing report is ancient history, as sharp increases in market-driven interest rates have changed the fundamentals. This report also precedes the 50 basis point hike in the overnight policy rate by the Bank of Canada. Anecdotal evidence thus far in April suggests that new listings have risen, and multiple bidding has nearly disappeared.

The rise in current fixed mortgage rates means that homebuyers must qualify for uninsured mortgages at the offered mortgage rate plus 200 bps–above the 5.25% qualifying rate in place since June 2021. This, no doubt will squeeze some buyers out of higher-priced markets. 

The federal budget introduced some initiatives to help first-time homebuyers and encourage housing construction–but these measures are hitting roadblocks. Labour shortages are plaguing the construction industry, and the feds do not control zoning and planning restrictions but at the local government level. The ban on foreign resident purchases will likely have only a small impact, so the fundamental issue of a housing shortage remains the biggest impediment to more affordable housing in Canada. 

Please note: The source of this article is from Sherry Cooper


Sign up to receive monthly Home, Lifestyle & Mortgage News here.

<Back to Blog

13 Apr

Out-Sized Jump In Bank of Canada Policy Rate – April 13 2022

Latest News

Posted by: Matthew J. Charlton

APRIL 13 2022

Bank of Canada Hikes Rates by 50 BPs, Signalling More To Come

The Governing Council of the Bank of Canada raised the overnight policy rate by a full 50 basis points for the first time in 22 years. This was a widely telegraphed action that will be followed by the US Federal Reserve next month. While the BoC was the first G-7 central bank to take such aggressive action, the Bank of New Zealand also hiked rates today by half a percentage point. Considering the surge in inflation and the strength of the Canadian economy, another jumbo rate hike may well be in the cards.

The Bank now realizes that inflation is coming, not just from supply disruptions but also from excessive demand. “In Canada, Growth is strong, and the economy is moving into excess demand. Labour markets are tight, and wage growth is back to its pre-pandemic pace and rising. Businesses increasingly report they are having difficulty meeting demand, and are able to pass on higher input costs by increasing prices.”

The Bank now says that “Growth looks to have been stronger in the first quarter than projected in January and is likely to pick up in the second quarter. Consumer spending is strengthening with the lifting of pandemic containment measures. Exports and business investment will continue to recover, supported by strong foreign demand and high commodity prices. Housing market activity, which has been exceptionally high, is expected to moderate”.

The Governing Council has, once again, revised up its inflation forecast. CPI inflation is now expected to average almost 6% in the first half of 2022 and remain well above the control range throughout this year. It is then expected to ease to about 2½% in the second half of 2023 and return to the 2% target in 2024. There is an increasing risk that expectations of elevated inflation could become entrenched.

With the economy moving into excess demand and inflation persisting well above target, the Governing Council judges that interest rates will need to rise further. The Bank is also ending reinvestment and will begin quantitative tightening (QT), effective April 25. Maturing Government of Canada bonds on the Bank’s balance sheet will no longer be replaced, and, as a result, the balance sheet size will decline over time. This will put further upward pressure on interest rates further out the yield curve. 

Bottom Line

Traders are betting that the overnight rate will approach 3.0% one year from today. In today’s Monetary Policy Report (MPR), the Bank revised upward its estimate of the neutral overnight rate to a range of 2.0% to 3.0%–up 25 bps from their estimate one year ago. This is the Bank’s estimate of the overnight rate that is consistent with the noninflationary potential growth rate of the economy.

The rise in interest rates has already shown signs of slowing the Canadian housing market. The MPR states that “Resales are expected to soften somewhat in the second quarter as borrowing rates rise. Low levels of both builders’ inventories and existing homes for sale should support new construction and renovations in the near term”.

Bond yields have risen in anticipation of the Bank of Canada’s move taking the five-year fixed mortgage rate up to between 3.5% and 4%. This could be a pivotal time, as mortgage borrowers must qualify for loans at the maximum of 5.25% or 2 percentage points above the offered contract rate. We are now beyond the  2 ppts threshold, which reduces the buying power of many.

Please note: The source of this article is from Sherry Cooper


Sign up to receive monthly Home, Lifestyle & Mortgage News here.

<Back to Blog

11 Apr

Another Strong Canadian Jobs Report – We Are At Full Employment – April 11 2022

Latest News

Posted by: Matthew J. Charlton

APRIL 11 2022

Labour Market Tightens Further

Statistics Canada released the March Labour Force Survey recently, reporting a 72,500 jobs gain from the whopping 337,000 surge in February. Employment increased in both the goods- and services-producing sectors. Gains were concentrated in Ontario and Quebec. The unemployment rate fell to 5.3%, its lowest monthly rate since the data series was released in 1976, compared to 5.5% in February.

This adds more fuel to the notion that the Bank of Canada is behind the curve and will likely raise the overnight policy rate by 50 basis points this week. Indeed, Canada’s 2-year government note yield spiked on the news to 2.46%, up 2.38% at last week’s close.

Swap markets are now predicting a 75% probability of a half-point hike next week and an overnight rate of 3% a year from now. The overnight rate was 1.75% in February 2020, just before the pandemic began. Since then, inflation has surged from just over 2% to 5.7% in February. The March inflation data will be released on April 20, and it is widely expected to rise further. Indeed, the gauge of global food prices inflation is currently at a record high, exacerbated by the disruptions associated with the Ukraine war.

Adding to inflationary pressure is the rise in Canadian wage rates coming from the excess demand for labour. Total hours worked rose 1.3% in March. Average hourly wages increased 3.4% on a year-over-year basis, up from 3.1% in February. Illustrating the imbalances between labour supply and demand, employment gains since September (+463,000; +2.4%) have outpaced growth in the size of the population aged 15 and older (+236,000; +0.8%) during the same period.

Bottom Line

This Labour Force Survey was conducted in mid-March, after the February 24th start of the Ukrainian War. Since then, many commodity prices have surged, especially oil, gasoline, aluminum, wheat and fertilizer. This has boosted inflation worldwide, dampening consumer and business confidence and reducing family purchasing power. The Bank of Canada’s recent Business Outlook Survey shows that businesses expect inflation to continue for two years.

The newly released Bank of Canada Survey of Consumer Expectations shows record-high short-term inflation expectations. Despite more significant concerns about inflation, longer-term expectations have remained stable and are below pre-pandemic levels. This suggests that long-term inflation expectations remain well-anchored, and those survey respondents believe the current rise in inflation will not last.

This view is predicated on the Bank of Canada tightening monetary policy significantly. All messaging from the Bank confirms that it will provide this by raising the overnight rate to around 3% over the next year and by quantitative tightening, reducing its holdings of Government of Canada bonds.

Anecdotal evidence suggests that housing markets have already responded to rising mortgage rates. Supply has increased, and multiple-bidding activity has weakened.

Please note: The source of this article is from Sherry Cooper


Sign up to receive monthly Home, Lifestyle & Mortgage News here.

<Back to Blog

8 Apr

Housing A Major Theme of the Federal Budget – April 8 2022

Latest News

Posted by: Matthew J. Charlton

APRIL 8 2022

Affordable Housing Is A Key Theme In Federal Budget 2022

Yesterday’s budget announced a $10 billion package of proposals intended to reduce the cost of housing in Canada (see section below). The fundamental problem is insufficient supply to meet the demands of a rapidly growing population base. Thanks to the federal government’s policy to rapidly increase immigration since 2015, new household formation has risen far faster than housing completions, both for rent and purchase. This excess demand has markedly pushed home prices to levels beyond average-income Canadians’ means.

The measures announced in yesterday’s budget to increase housing construction, though welcome, are underwhelming. The Feds can control the construction of lower-cost housing through CMHC. Still, most home building is under the auspices of the municipal governments, where the red tape, zoning restrictions and delays abound. The federal government increased funds to help local governments address these issues, but NIMBY thinking still prevents increased housing density in many neighbourhoods. 

The headline policy announcement for a two-year ban on foreign residential property purchases may sound reasonable. Still, according to Phil Soper, chief executive of Royal LePage, “It will have a negligible impact on home prices. We know from the pandemic period, when home prices escalated with virtually no foreign money, that our problem is made-in-Canada.”

According to the Financial Post, Soper added that measures like the tax-free savings account for young Canadians would be encouraged to help them achieve their dreams of homeownership in a typical real estate market. However, in a low-supply environment with pandemic-fuelled price gains, these measures would only add more demand without addressing the supply issue. Only a few first-time buyers would be able to take advantage of it. 

The Home Buyers’ Bill of Rights that would end blind bidding and assures the right to a home inspection and transparent historical sales prices on title searches is also long overdue. 

The First-Time Home Buyer Incentive has been extended to March 2025. This program has been a bust. Buyers do not want to share the equity in their homes with CMHC. The Feds are taking another kick at the can, “exploring options to make the program more flexible and responsive to the needs of first-time homebuyers, including single-led households.” To date, the limits on the program have made them useless in high-priced markets such as the GTA and the GVA. 


Budget 2022 Measures To Improve Housing Affordability

Tax-Free Home Savings Account

  • Introduce the Tax-Free First Home Savings Account that would give prospective first-time home buyers the ability to save up to $40,000. Like an RRSP, contributions would be tax-deductible, and withdrawals to purchase a first home—including investment income—would be non-taxable, like a TFSA. 

New Housing Accelerator Fund

  • With the target of creating 100,000 net new housing units over five years, proposes to provide $4 billion over five years, starting in 2022-23, to launch a new Housing Accelerator Fund that is flexible to the needs and realities of cities and communities, while providing them support such as an annual per-door incentive or up-front funding for investments in municipal housing planning and delivery processes that will speed up housing development

New Affordable Housing

  • To ensure that more affordable housing can be built quickly, Budget 2022 proposes to provide $1.5 billion over two years, starting in 2022-23, to extend the Rapid Housing Initiative. This new funding is expected to create at least 6,000 new affordable housing units, with at least 25% of funding going towards women-focused housing projects.

An Extended and More Flexible First-Time Home Buyer Incentive

  • Extension of the First-Time Home Buyer Incentive–which allows eligible first-time homebuyers to lower their borrowing costs by sharing the cost of buying a home with the government–to March 31, 2025. Explore options to make the program more flexible and responsive to the needs of first-time homebuyers, including single-led households.

A Ban on Foreign Investment in Canadian Housing

  • Proposes restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada for a two-year period.

Property Flippers Pay Their Fair Share

  • Introduce new rules so that any person who sells a property they have held for less than 12 months would be subject to full taxation on their profits as business income, applying to residential properties sold on or after January 1, 2023. Exemptions would apply to Canadians who sell their home due to certain life circumstances, such as a death, disability, the birth of a child, a new job, or a divorce.

Rent-to-Own Projects

  • Provide $200 million in dedicated support under the existing Affordable Housing Innovation Fund. This will include $100 million to support non-profits, co-ops, developers, and rent-to-own companies building new rent-to-own units.

Home Buyers’ Bill of Rights

  • Bring forward a national plan to end blind bidding. Among other things, the Home Buyers’ Bill of Rights could also include ensuring a legal right to a home inspection and ensuring transparency on the history of sales prices on title searches.

Multigenerational Home Renovation Tax Credit

  • Provide up to $7,500 in support for constructing a secondary suite for a senior or an adult with a disability, starting in 2023.

Doubling the First-Time Home Buyers’ Tax Credit 

  • Double the First-Time Home Buyers’ Tax Credit amount to $10,000, providing up to $1,500 in direct support to home buyers, applying to homes purchased on or after January 1, 2022.

Co-Operative Housing Development

  • Reallocate funding of $500 million to a new Co-Operative Housing Development Program to expand co-op housing in Canada. Provide an additional $1 billion in loans to be reallocated from the Rental Construction Financing Initiative to support co-op housing projects.

There is also a laundry list of other programs to create additional affordable housing for Indigenous Peoples, Northern Communities, and vulnerable Canadians. Enhanced tax credits for renovations to allow seniors or disabled family members to move in; and for seniors to improve accessibility in their homes. As well, money is provided for long-term efforts to end homelessness. 

To combat money laundering, the government said it would extend anti-money laundering and anti-terrorist financing requirements to all mortgage-lending businesses within the next year.
 
For greener housing initiatives, the government is planning to provide $150 million over five years starting this year to drive building code reform to focus on building low-carbon construction projects and $200 million over the same timeline for building retrofits large development projects.


Bottom Line

Nothing the federal government has done in yesterday’s budget will make much of a difference in the housing market. What does make a difference is the spike in interest rates that is already in train. Fixed mortgage rates are up to around 4%, and variable mortgage rates have begun their ascent. There is still a record gap between the two, but the Bank of Canada will likely hike the policy rate by 50 bps next week. The Bank will probably hike interest rates at every meeting for the remainder of the year and continue into the first half of next year.

It is also noteworthy what Budget 2022 did not do. It did not address REITs or investment activity by domestic non-flipping purchasers. Some were expecting a rise in minimum downpayment on investor purchases or restrictions on using HELOCs for their funding. 

Budget 2022 did not raise the cap of $1 million on insurable mortgages. It did not reinstate 30-year amortization, a favourite of the NDP. And, it did not follow the BC provincial government in allowing a “cooling-off” period after a bid has been accepted, technically giving would-be buyers more time to secure financing.

Please note: The source of this article is from Sherry Cooper


Sign up to receive monthly Home, Lifestyle & Mortgage News here.

<Back to Blog

16 Mar

Canadian CPI Inflation Rises to 5.7% – March 16 2022

Latest News

Posted by: Matthew J. Charlton

MARCH 16 2022

Inflation Pressures Accelerating

StatsCanada today reported that consumer prices rose 5.7% year-over-year in February, up again from the prior month’s 5.1% rise. This was the largest gain since August 1991 (+6.0%).

This was no surprise, as the Ukraine War has stepped up inflation pressure worldwide. The US CPI rose a whopping 7.9% last month (see chart below).

Price increases were broad-based in February, pinching the pocketbooks of Canadians. Consumers paid higher prices for gasoline and groceries in February 2022 compared with the same month a year earlier. Shelter costs continued to trend higher, rising at the fastest year-over-year pace since August 1983.

Excluding gasoline, the Consumer Price Index (CPI) rose 4.7% year over year in February, surpassing the gain in January (+4.3%) when the index increased at the fastest pace since its introduction in 1999.

On a monthly basis, the CPI rose 1.0% in February, the most significant increase since February 2013, following a 0.9% increase in January. On a seasonally adjusted monthly basis, the CPI rose 0.6%.

Gasoline Prices Surge Amid Geopolitical Conflict
Canadian motorists paid 32.3% more at the pump compared with February 2021.

Monthly gasoline prices increased 6.9% amid geopolitical conflict in Eastern Europe and the Middle East, as uncertainty surrounding the global oil supply put upward pressure on prices.

Similarly, prices for fuel oil and other fuels increased 8.5% month-over-month following higher international energy prices.

Grocery Prices Shot Up Again
Prices for food purchased from stores (+7.4%) rose faster in February than in January (+6.5%). This is the most significant yearly increase since May 2009. Higher input prices and heightened transportation costs continued to contribute to inflationary pressure in February.

Price growth for meat (+11.7%), including fresh or frozen beef (+16.8%) and chicken (+10.4%), was higher year over year in February than in January (+10.1%).

Shelter Costs Rise At Fastest Pace Since 1983
In February, shelter costs rose 6.6% year over year, the fastest pace since August 1983. Higher costs for both owned accommodation (+6.2%) and rented accommodation (+4.2%) increased.

Homeowners’ replacement cost (+13.2%), which is related to the price of new homes, and other owned accommodation expenses (+14.3%), which includes commissions on the sale of real estate, remained elevated year over year. In contrast, mortgage interest cost (-6.0%) moderated the shelter index on a year-over-year basis.

According to the Canadian Mortgage and Housing Corporation, improved economic and demographic conditions over the past year, including youth employment recovery and resumption of international migration to Canada, supported rental demand. This, in part, contributed to higher rent (+4.2%) prices year over year in February.

Bottom Line

Inflation has exceeded the Bank of Canada’s 1%-to-3% target band for 11 consecutive months. Other central banks have already begun to hike overnight rates from their effective lower bound introduced in March 2020.

Today, the U.S. Federal Reserve hiked the overnight policy target for the first time since 2018 by 25 basis points and signalled that it expects to hike rates six times more this year.

The global geopolitical tensions and rising risk of a drawn-out conflict exacerbate inflation and supply bottlenecks, delaying a return to sub-3% inflation.

Please note: The source of this article is from Sherry Cooper


Sign up to receive monthly Home, Lifestyle & Mortgage News here.

<Back to Blog