The Bank of Canada remains staunch in its battle against inflation, utilizing its primary weapon—the overnight policy rate—which has escalated from 25 basis points to 500 bps since March 2022.

This historically low overnight rate was a direct consequence of the COVID-19 pandemic and implementing measures to cushion the economic impact of the lockdowns. These initiatives included reducing the policy rate from 1.75% to 0.25%, postponing mortgage payments, providing financial support to businesses for workforce maintenance, and compensating individuals for home quarantine. These measures, amongst others, reignited the economy upon the widespread availability of the vaccine.

The Canadian economy bounced back robustly once commercial activities resumed. Employment rates rocketed, and unemployment plummeted to all-time lows. However, the recovery faced a setback when Russia invaded Ukraine in February 2021, which caused supply constraints, and substantially increased energy and food. Despite the soaring inflation, central banks were initially hesitant to take action.

In hindsight, we now know the necessity for initiating interest rate hikes by mid-2021. Instead, this action was postponed until March 2022.

Furthermore, the Bank of Canada and other significant central banks inundated the financial system with surplus liquidity by purchasing government bonds. This quantitative easing tactic made capital not only more affordable but also readily available, sparking an unprecedented boom in the housing market.

Many exploited the record-low rates of 2020 and 2021 by opting for variable-rate loans due to their lower costs. At its zenith, variable-rate mortgages (VRMs) accounted for 57% of all loan originations. These loans are due for renewal in 2025 and 2026. However, most of these loans have reached their trigger points and are negatively amortizing, barring substantial lump-sum payments by borrowers.

For those who chose adjustable-rate loans, monthly payments increased with every Bank of Canada rate hike. Delinquency rates, for the time being, remain impressively low within the prime space, though they are beginning to rise among alternative lenders.

After reaching a zenith of 8.1% in June 2022, inflation has slowed to 2.8% in June of this year. Regardless, the Bank of Canada continued its trend of interest rate hikes following a brief hiatus in its last two meetings, with speculation of another hike in September. The Bank has provided a buffer period for itself by projecting a return to the 2% target inflation rate by mid-2025—a considerably more extended period than initially anticipated.

The recent rate hikes and moderated expectations appear prudent considering the Bank’s preference for mitigating inflation over preventing a recession. It is improbable that the Bank of Canada will reduce interest rates this year.

Although the policy rate is projected to decrease in the first half of 2024, it is not expected to return to the pre-COVID level of 1.75%. Negative real interest rates (the actual market rate minus the 2% inflation rate) are unlikely to occur, barring a global economic meltdown.

The biggest surprise recently has been the unexpected interest rate hike by the Bank of Canada. While the April inflation headline did tick up, and Q1 GDP data came in at a stronger-than-expected 3.2%, the April labour force data showed some easing in the jobs market.

The ratio of unemployment-to-job vacancies is now rising. Rather than signalling a rate hike before the announcement on June 7, the Bank chose to pre-empt any additional economic indicators.

Ironically, the May jobs data, released later that week, showed a rise in the unemployment rate to 5.2%, the first increase since before rate hikes began in March of last year. The Bank of Canada was particularly disturbed by the resurgence in home sales and prices in April. They argued that interest rates needed to be higher if the most interest-sensitive of all spending was rising.

That move by the central bank spooked the housing market, causing many to question their decisions to purchase. Expectations of any declines in the overnight policy rate this year vanished, and markets now expect at least one more hike this year.

Consumer spending does remain robust, as evidenced by the solid retail sales data for April. Moreover, many households have turned to credit cards to finance their spending—bolstered by inflation—and delinquency rates have risen.

Wage inflation remains strong, core inflation ticked up in April, and food inflation, though down from double-digit levels, is still far higher than a 2% inflation target would warrant.

The bank watchdog, OSFI, warned that the rising level of remaining amortizations of variable rate mortgages is a warning sign of continued risk for households that went into VRMs in droves when interest rates plunged in the first two years of the pandemic. New originations over that period were at rock-bottom rates, and variable mortgage rates were far below fixed. The situation has reversed today, and 3-to-4-year fixed mortgages dominate new mortgage originations.

Many VRM borrowers have hit their trigger points, where their monthly payments are no longer covering their interest costs—hence the negative amortizations of these loans at some Big Six Banks. OSFI is warning banks to address this immediately as renewals will mean at least a 30% rise in monthly payments if mortgage terms revert to 25- or even 30 years. OSFI has also increased the mandatory level of Tier One common equity relative to risk-weighted assets by 50 basis points. Currently, all the large Canadian banks fulfill this requirement.

Another significant milestone last month dramatically impacted the Canadian housing market. International migration to Canada spiked in 2022, taking population growth to 2.7%, the highest in the developed world and the strongest since the top of the Baby Boom in 1957. As of mid-June, Statistics Canada announced that the population is 40 million. The housing shortage is mounting, and housing starts are falling. Despite higher interest rates, demand for housing for rent or purchase has never been more robust.

While the federal government announced last year that they want to double housing construction to improve affordability over the next decade, Trudeau’s goal appears unachievable. This will continue to put upward pressure on rents and home prices over the longer term.

Before banks or lending institutions can consider loaning money for a property, they need to know the current market value of that property.

The job of an appraiser is to check the general condition of your home and determine a comparable market value based on other homes in your area. This is required for any buy or sell situation.

To help make the appraisal as smooth as possible and ensure you are getting top market value, check out the tips below:

1. Clean Up: The appraiser is basing the value of your property on how good it looks. A good rule of thumb is to treat the appraisal like an open house! Stage it as you would a home for sale, clean and declutter every room, vacuum, and scrub – even consider adding a fresh coat of paint – to ensure your home is as presentable and appealing as possible. Where applicable remove personal stigma items such as alcohol or drug paraphernalia, any controversial pictures or flags, etc.
2. Curb Appeal: First impressions can have a huge impact when it comes to an appraisal. Spending some time ensuring the outside of your property from your driveway entrance to front step is clean and welcoming can make a world of difference. Cut grass, water plants, maybe add flowers or hanging baskets to make things feel inviting and stage the yard with some lawn furniture to make it look like its own space.
3. Visibility: The appraiser must be able to see every room of the home, no exceptions. YES, ever singly room including outbuildings, garage, closets, basement… Refusal to allow an appraiser to see any room can cause issues and potentially kill your deal. If there are any issues with any spaces of your home, be sure to take care of them in advance to allow the appraiser full access. NOTE: If there are tenants in your home, ensure you give them appropriate amount of notice for access. YES, every single room, outbuilding, closet, garage needs access. Otherwise, the appraiser will have to return at added expense to you.
4. Upgrades and Features: Ensuring the appraiser is aware of any upgrades and features can go a long way. Make a list and include everything from plumbing and electrical to new floors, new appliances, etc. This way they have a reference as to what has been updated and how recent or professional that work was done. Knowing the age of the roof and HVAC items like water tank is important. Also, ensure the breaker box is MIN 100amps as most lenders cannot finance a home with amps under 100; older homes from the 1930 area are generally only 60amps. The same goes for knob and tube versus breaker set-ups. Upgrading is important and will add value.
5. Be Prudent About Upgrades: While the bathroom and kitchen are popular areas, they are not necessarily the be-all-end-all for getting a higher home value. These renovations can be quite costly so it is a good idea to be prudent about how you spend your money and instead, focus on easy changes such as new paint, new light fixtures or plumbing and updated flooring to avoid breaking the bank while still having your home look fresh. Removing clutter, adding a new coat of paint and doing a deep clean will help make these spaces shine.
6. Know Your Neighbourhood: You already know where you live better than the appraiser. Taking a look at similar homes in your neighbourhood and noting what they sold for will give you a ballpark. If your appraisal comes in low, you will be prepared to discuss with the appraiser the examples from your area and why you believe you property is worth more. In addition, keep in mind that appraisal values are based on recent sales data; if there have been zero sales in the area recently and time allows it, hold off on getting an appraisal done until some sales have been evident to ensure you’re getting the most value.
7. Be Polite: The appraiser is there to get in and get out so let them have the run of the house while they are there. Do not follow them around and avoid asking them too many questions or making too many comments and simply be prepared should they have questions. Once they have completed the review of your home, that is a good time to bring up any comments you might have. Remember, the actual onsite inspection usually is only 15 minutes through the house but typically, the bulk of work for appraisals is at the desk, reviewing sales and other forms of research to create the appraisal report.
8. Know The Costs: Every appraiser charges differently. If the lender allows for ordering appraisals direct, then I can shop around and fetch you the best price.

Don’t forget to contact me if you have any questions about your existing home or mortgage, or if you are looking to sell and relocate in the future!

Not all insurance products are created equal. It is important to understand all the different insurance products to ensure you have proper coverage.

Below are the main insurance product options you will encounter with homeownership, and what they mean:

Default Insurance: This insurance is mandatory for homes where the buyer puts less than 20% down. In fact, default insurance is the reason that lenders accept lower down payments, such as 5% minimum, and actually helps these buyers access comparable interest rates typically offered with larger down payments. This insurance typically requires a premium, which is based on the loan-to-value ratio (mortgage loan amount divided by the purchase price). This premium can be paid in a single lump sum, or it can be added to your mortgage and included in your monthly payments.

Home (Property & Fire) Insurance: Next, we have another mandatory insurance option, property and fire coverage (or, home insurance, as most people know it by). This MUST be in place before you close the mortgage! It is especially important to note that not all homes or properties are insurable, so you will want to review this sooner rather than later. Keep in mind, with this coverage you may not have protection in the event of a flood or earthquake. You may need to purchase additional coverage to be protected from a natural disaster, depending on your location.

Title Insurance: When it comes to lenders, this insurance is mandatory with every single lender in Canada requiring you to purchase title insurance on their behalf. In addition, you have the option of purchasing this for yourself as a homeowner. The benefit of title insurance is that it can protect you from existing liens on the property’s title, but the most common benefit is protection against title fraud. Title fraud typically involves someone using stolen personal information, or forged documents to transfer your home’s title to him or herself – without your knowledge. Similar to default insurance, title insurance is charged as a one-time fee or a premium with the cost based on the value of your property.

Strata Insurance: When it comes to a stratum, their insurance covers the building itself – meaning in the event of an incident (fire, flood, etc.) the building can be re-established. This however only covers common areas; it does not cover the contents of YOUR particular unit, which requires a homeowner’s insurance policy. Personal insurance can also help with the strata deductible. For example, in the event of a flood that originates from a unit, it will require fixes to the unit itself (under your personal policy) plus the building (covered by the strata policy). Depending on the type of claim or damage, owners are often relocated to a hotel while the unit is being repaired and the personal insurance would also cover being displaced.

To ensure that you remain up-to-date with your strata insurance policies, it is vital that homeowners living within a stratum to check with management for a copy of the most recent insurance policy. Always take your strata and individual policy to an insurance agent to ensure you are aware of your coverage and that your individual homeowner’s policy is working in your favor. Investment property owners especially need to check their existing deductible against the updated deductible and insurance policies to avoid any future issues.

Mortgage Protection Plan: This coverage is optional, but any mortgage professional will tell you is extremely important. The purpose of the mortgage protection plan is to protect you, and your family, should something happen. It acts as a disability and a life insurance policy in regards to your mortgage. Typically, when you get approval for a mortgage, it is based on family income. If one of the partners in the mortgage is no longer able to contribute due to disability or death, a mortgage protection plan gives you protection for your mortgage payments.

If you have any questions about mortgage insurance or what are the best options for you, please do not hesitate to reach out to me! I would be happy to take a look at your existing plan and discuss your needs to help you find the perfect coverage to suit you and your family.