28 Dec

What’s next for home prices in Canada?


Posted by: Mike Hattim

Interest rates and borrowing costs may be surging – but Canadian home prices are continuing to rise at a rapid clip, according to new data.

The latest TeranetNational Bank composite index showed that average prices in the country’s 11 largest census metropolitan areas increased by 1.8% between June and July excluding adjustments – their second strongest monthly increase ever and the index’s fifth monthly jump in a row.

Halifax, Hamilton, Vancouver, and Toronto accounted for the largest proportional monthly growth, a sign that buyers are still eking out opportunity despite tight market conditions and steeper qualifying challenges.

Still, price gains are expected to moderate in the coming months, according to analysis from Royal Bank of Canada (RBC), as interest rates continue to impact affordability and a better supply-demand balance returns with more properties coming to market.

The rise in new listings was a particularly noteworthy trend in July’s housing market, RBC economists Robert Hogue and Rachel Battaglia said in a recent report, with sellers “stepping out of the sidelines in every region of the country.”

Hamilton saw new listings spike by 15.2%, with Kitchener-Waterloo posting a 21.2% surge, London jumping by 19.9% and Toronto, Calgary, and Ottawa all recording single-digit increases.

Nonetheless, those increases arrived “from exceptionally low levels at the start of the year,” Hogue and Battaglia noted, meaning that they “merely reset the bar closer to normal in most instances.”

Have chances of a housing market crash receded in Canada?

The prospect of a severe downturn in the Canadian economy has yet to materialize, and still-robust employment figures indicate that a housing market crash is not currently into the cards, according to the interim chief executive officer of the Appraisal Institute of Canada.

Keith Lancastle (pictured top) told Canadian Mortgage Professional that with the unemployment rate having ticked only slightly upwards in recent months, a full-scale meltdown did not appear likely.

“Even with the slowdown in the economy, we’re not seeing job losses,” he said. “And we know that job losses are typically the thing that starts to trigger people defaulting on mortgages and exiting the housing market. Canadians will go without a lot of things before we don’t pay our mortgage.

“We’ll cancel our Netflix and our Disney Plus before we go short on the mortgage; we’ll sell the car before we go short on the mortgage. So we have a slowdown, but so far the slowdown has not resulted in a significant increase in unemployment.”

Why home prices are unlikely to plummet

Resilient demand will also be boosted by high levels of immigration, Lancastle said, meaning that while activity may not surge, a sizeable reduction in home prices is unlikely to transpire.

“There are some forecasts that are talking about contraction in some of the major markets, but it seems to be in markets where there was a lot of gain during the pandemic,” he said.

“And in fact, in most of those markets, from what I’ve seen it looks like we’re still basically at pre-pandemic levels. If you see a big increase in unemployment, that would be a harbinger of a more pronounced retraction in terms of pricing – but I think the absence of that is probably a suggestion that we’re going to see at least a moderate contraction, if anything.”

It’s also important to apply nuance to particular regions, Lancastle said, with certain areas within those regions seeing higher activity than others – and the popularity of specific property types also rising and falling.

“You can’t even use Southern Ontario as a single market,” he said. “You’ve got the GTA [Greater Toronto Area], which is going to be different again to a place like Peterborough, which saw huge gains. Then you have to further say, ‘Well, where’s the contraction in the GTA? Was it in the condo market? Is it in single-family homes? Is it in the higher-priced stuff or is it in the mid-priced or more entry-level stuff?’

“That’s the biggest thing. You have to look at not only prices, but also the amount of transactions to truly understand [the market].”

Source CMP
By Fergal McAlinden

28 Dec

How soon is the Bank of Canada likely to slash rates?


Posted by: Mike Hattim

Taking all current indicators into account, an interest rate cut by the Bank of Canada is not likely to happen until at least early 2024, according to Avery Shenfeld, managing director and chief economist at CIBC Capital Markets.

This is because while the overall inflation trend might see a considerable decline over the next few months, other factors like food prices are likely to become more influential in the very near future.

Food prices are a major component in the central bank’s new core inflation measures, “which will keep those running above a 3% annualized rate for now and prevent the bank from trimming rates until early next year,” Shenfeld said in a recent analysis.

Spending behaviour in connection with food products has also seen noticeable shifts over the past few quarters, in turn potentially affecting demand and discretionary spending inflation.

“While policymakers can do little about it at the micro level, groceries play an important role in setting inflation expectations, which could still lead to a wage-price spiral,” Shenfeld said.

Pandemic-era pent-up demand continues to fuel this uncertainty.

“Statistics Canada stated within its latest retail sales report that some households were shifting from traditional grocery stores to favour lower cost bulk distributors,” Shenfeld explained. “These are all signs of a change in behaviour amid pressure on household finances from inflation and rising interest rates which could signal a reduced ability for companies to pass on cost increases in such rapid price hikes.”

Still, overall spending patterns might pave way for a return to normalcy in terms of household spending behaviour. Shenfeld said that rate cuts might take place as early as Q1 2024, coinciding with headline inflation easing ever close to the central bank’s 2% target.

“Unless concerns regarding the US economy escalate, or the unemployment rate rises in such a way that reduces the prospect of a wage-price spiral, we are not likely to see the bank cutting interest rates this year,” Shenfeld said. “Inflation relief may be a 2023 story when looking at true underlying trends, but rate relief may have to wait until 2024.”

Source CMP
By Ephraim Vecina


27 Dec

Canadian Housing Markets Bottoming


Posted by: Mike Hattim

Before we get into the details of the November housing market data released this morning by the Canadian Real Estate Association (CREA), big positive news for housing occurred yesterday. The US Federal Reserve gave its clearest signal yet that its historic policy tightening campaign is over by projecting more aggressive interest-rate cuts in 2024. This ignited one of the biggest post-meeting rallies in bonds and stocks in recent memory. Global shares spiked higher. Short-term Treasuries posted their best day since March, while world currencies surged against the US dollar and corporate bonds rallied. Canadian markets followed suit. If anything, Canada is far more interest-sensitive than the US, and our economy is far weaker.

As the charts below show, monthly mortgage payments relative to after-tax income are far higher in Canada than in the US, even more so given the tax deductibility of mortgage interest and property taxes south of the border. The US economy grew by a whopping 5.2% in the third quarter compared to a decline of 1.1% in Canada.  Therefore, the Bank of Canada will likely cut interest rates sooner and more aggressively than in the US, improving housing affordability.

The CREA data for November showed a bottoming housing market. Home sales recorded over Canadian MLS® Systems edged down by 0.9% from October to November 2023, the smallest decline since July.
New Listings

Sellers move to the sidelines as well. The number of newly listed homes fell 1.8% month-over-month in November. This followed a 2.2% decline in October.

With new listings down by more than sales in November, the national sales-to-new listings ratio tightened slightly to 49.8% compared to 49.4% in October. It was the first time this measure has increased since April. The long-term average for the national sales-to-new listings ratio is 55.1%.

There were 4.2 months of inventory nationally at the end of November 2023, up only slightly from 4.1 months at the end of October. As such, this measure also looks to be stabilizing and is still almost a full month below its long-term average of nearly five months of inventory.

The second chart below shows that we are definitely in a buyers’ market.

Home Prices

The Aggregate Composite MLS® Home Price Index (HPI) declined by 1.1% month-over-month in November 2023, reflecting softer market conditions since the end of the summer. Prices often react with a slight lag, so it will be interesting to see if month-over-month declines get smaller or stop getting larger in December in response to a stabilizing demand-supply balance.

While price declines remain mainly an Ontario phenomenon, home prices are now softening in the Fraser Valley, Winnipeg, and Halifax. Elsewhere in Canada, prices are mostly holding firm or, in some cases (Alberta, Saskatchewan, New Brunswick, Price Edward Island, Newfoundland and Labrador), continuing to climb. The Aggregate Composite MLS® HPI was up 0.6% on a year-over-year basis.

Bottom Line

The Bank of Canada policymakers will meet again on January 24th. While it will likely be several months before the Bank begins to cut the policy rate, market-driven interest rates have fallen sharply. Fixed mortgage rates have also come down but more moderately. I expect to start easing monetary policy in the spring, taking the overnight rate down by roughly 100 bps by yearend 2024. Housing activity will strengthen in 2024 and 2025, although the economy will be burdened by a substantial rise in monthly mortgage payments as many renewals or refinancings rise, peaking in 2026.

Dr. Sherry Cooper
27 Dec

Stronger-Than-Expected Canadian Inflation Will Keep The BoC On The Sidelines For Now


Posted by: Mike Hattim

Today’s inflation report was stronger than expected, unchanged from October’s 3.1% pace. While some had forecast a sub-3% reading, the November CPI data posted a welcome slowdown in food and shelter prices. Increases in recreation and clothing offset this–both are discretionary purchases. Cellular services and fuel oil prices declined on a year-over-year basis.

The CPI rose 0.1% from October to November, the same growth rate as in October. The steady pace of annual inflation resulted from the base effects in the energy sector. Gasoline prices fell to a lesser extent month over month in November (-3.5%) than in October (-6.4%). Base effects will also inflate next month’s year-over-year data as well.

Core prices aligned with the headline figures, as the Bank of Canada’s favourite core measures came in at roughly 3.5%. Even excluding food and energy, the core rose 3.5% y/y. The core data were more favourable at three-month trends, posting at about 2.5%.
Bottom Line

Today’s CPI data show why Governor Tiff Macklem is cautious about rate cuts, but judging from the past three months, core inflation is on a downward trend.

In a speech on Friday, Bank of Canada Governor Tiff Macklem said inflation could get “close” to the bank’s 2% target by late next year, though he also said it was “still too early to consider cutting our policy rate.”

The economy is slowing, labour markets have eased, and price pressures are slowing. The road to 2% inflation will be bumpy, but it remains likely that monetary tightening has peaked, and rate cuts will begin by the middle of next year.

Dr. Sherry Cooper
7 Dec

Bank of Canada probably finished with rate hikes, says CIBC’s Tal


Posted by: Mike Hattim

A “relatively dovish” statement by the Bank of Canada yesterday (December 6) suggested that the central bank’s rate-hiking path is at an end, according to CIBC deputy chief economist Benjamin Tal (pictured top).

The Bank left its policy rate unchanged for a third consecutive decision, with few surprised by a statement that arrived amid cooling inflation, rising unemployment and an expected economic contraction.

Once again, the Bank reiterated its willingness to raise its benchmark rate if required to continue bringing inflation lower – but that’s mainly an effort to dampen consumer expectations and keep the prospect of a rapid economic rebound in check, according to Tal.

“They have to keep mentioning that they will toy with the idea of raising again,” he told Canadian Mortgage Professional. “Otherwise, the market will react too aggressively, and they don’t want that. But overall, [the announcement was] not a big surprise whatsoever, and a relatively dovish statement – basically suggesting that the Bank is done.”

The central bank said it was “still concerned” about risks to the inflation outlook, a comment Tal said was designed to dispel the notion that its work on bringing down the consumer price index (CPI) was already done.

“I think the last thing they want is the long end of the 10-year rate, the five-year rate, to go down dramatically,” he said. “If they basically declare victory, you will see a situation in which the long end of the curve will go down [significantly], and that’s something that will sabotage what they’re trying to do. So they must keep us guessing.”

What’s the economic outlook after the latest Bank of Canada decision?

The Bank’s decision to leave rates unchanged in three successive announcements – and Governor Tiff Macklem’s unexpectedly dovish remarks on interest rates in recent weeks – have ramped up speculation about when it might be prepared to begin bringing its policy rate back down again.

Tal said it’s unlikely to touch rates until May or June, after which it will start cutting – with that trendsetting rate potentially set to fall by around 150 points by the end of the year.

Still, things are likely to remain challenging on the housing and mortgage fronts for the coming months, he added, with little prospect of an immediate upswing despite the Bank’s decision to pause.

“I think that the next few months will be difficult,” he said. “I think we’ll see more supply coming. We’ll see more new listings coming. Clearly, sales are down dramatically – so we’re entering a situation in which we are in a buyers’ market with no buyers, if you wish. The way I look at the situation: It will take a few more months before we start to stabilize.”

Canada’s housing market is “vulnerable” and facing a significant test, according to Tal – perhaps its most significant since the 1991 recession, which saw GDP tumble by 3.4% from peak to trough over eight quarters.

“Now, the current situation is not even close to the 1991 situation, but clearly it is a test,” he said. “And I think that with supply rising in the resale market and sales down, there will be more downward pressure on prices, especially in the condo space where we see supply rising of existing units.”

With interest rates having spiked over the past 20 months, scores of Canadian borrowers are facing much higher costs at renewal than the contract rate they originally took out.

That’s a reality that puts an even greater onus on the central bank to start bringing rates down next year, Tal said.

“If you’re renewing your mortgage now, an average extra payment is about 20%, 22%, so clearly it’s already starting,” he said. “I think that if the Bank does not cut during the course of 2024, the damage would be much more significant. We’d see delinquency rates rising fast.

“Now, there will be a shock, but I think that [with] the Bank of Canada cutting in 2024 and continuing in 2025, the shock would be manageable.”

2024 set to see muted economy amid continuing high rates

The gloomy outlook for the economy is expected to stretch into 2024 with a ”semi-recessionary” pace likely to prevail in the coming quarters, although there’s room for optimism beyond that.

“I don’t see any change – consumer spending is down, investment is down. The housing market is in recessionary territory, [and] per capita GDP is already down,” Tal said. ”I don’t see anything change anytime soon – but I think that the second half of the year will be much better.”

Another sign that things are progressing in the right direction for the Bank of Canada: the labour market, squeezed extremely tight for much of this year, is seeing a return to some degree of normality.

“If you look at the unemployment rate, it’s basically almost back to where it was – if you look at vacancy rates, back to the 2008 level,” Tal said. “So clearly, the labour market is normalizing – and that’s a good thing.”

Source CMP
By Fergal McAlinden

4 Dec

Will the Bank of Canada diverge from the US Fed on rate cuts?


Posted by: Mike Hattim

Decision makers at the Bank of Canada could be weighing up possible interest rate cuts in 2024 – but they’re sure to be keeping a close eye on developments south of the border as they consider a timeline for rates to come down.

Signs of a slowing economy, including easing core inflation and a gross domestic product (GDP) contraction in the third quarter, appear to suggest Canada’s central bank can now turn its attention away from possible further hikes and towards lower rates in the coming 12 months.

However, the US economy remains an important factor in the Bank’s decision-making process, according to Dominion Lending Centres chief economist Sherry Cooper (pictured top), particularly with the US “driving the bus” when it comes to long-term interest rates.

The recent marked decline in the Government of Canada five-year bond yield has been a direct result of a US bond rally – but Cooper also said the Canadian central bank won’t necessarily move in lockstep with the US Federal Reserve when it comes to rate decisions in 2024.

“In the US, house prices are rising quite significantly and the US economy is a lot stronger than the Canadian economy,” she told Canadian Mortgage Professional. “So it’s possible that the Bank of Canada will begin to lower interest rates prior to the Fed doing so.”

BoC still likely to push ahead with rate cuts

Earlier in the year, the Bank of Canada decided to hit pause on its benchmark rate while the Fed continued on the rate-hiking warpath.

The Bank hastily reversed that course over the summer, introducing back-to-back rate hikes to curb an unexpected housing market revival – but recent indicators suggest the economy has cooled sufficiently to justify pushing ahead with rate cuts in Canada, Cooper said.

“I think that the economy is now slow enough in Canada and inflation pressures are continuing to decline,” she said, “so there’s a very good chance that we’ll see the Bank of Canada begin to cut the policy rate as well ahead of the Fed, and probably in the first half next year.”

The Bank of Canada diverging from the Fed in the spring was flagged as a potential cause for concern by some observers who emphasized its potential to harm the Canadian dollar against the greenback.

Still, the prospect of the Canadian central bank forging its own path on interest rates in 2024 is likely an unproblematic one, Cooper said, with little chance of drastic rate cuts that might spook markets or pummel the loonie.

“There isn’t a big risk, because the Canadian economy has weakened and is weaker than the US – and our economy is far more interest-sensitive than the US economy because people can’t lock in mortgage rates for 30 years,” she said.

“Those are two fundamental factors that would argue for the Bank of Canada lowering rates more aggressively than the Fed. Having said that, though, I do not believe that they’ll take rates down to pre-COVID levels. That is very unlikely.”

Hopes rise for ‘soft landing’ on both sides of the border

The US economy has also slowed in recent weeks, with lower consumer spending, employment figures and cooling inflation all suggesting it’s beginning to lose steam.

While economic growth for the third quarter in the US was revised upwards to an annual rate of 5.2%, Q4 is expected to see further moderation – and treasury secretary Janet Yellen indicated last Thursday (November 30) that she believes significant further monetary tightening is not required to get inflation back on track.

That raised hopes that the US could be set to achieve a much-vaunted “soft landing,” by which the Fed would cool the economy enough to bring inflation back close to its 2% target without risking a sharp downturn.

Canada, too, could be on course to avoid a steep recession. The economy contracted by 1.1% in Q3 compared with the previous year, according to datareleased by Statistics Canada last week – but it avoided the technical definition of a recession thanks to revised April-to-June figures that showed growth of 1.4%, compared with the originally announced 0.3% drop.

Source CMP
By Fergal McAlinden

4 Dec

New Year Resolutions for Your Home


Posted by: Mike Hattim

The New Year is approaching! While we are in the spirit of goal planning and setting our intentions for the coming months, don’t forget about your home!

There are several things you can do to make your home and finances work for you in 2024:

Review Your Home Budget (or make one!): Money can be a stressful subject, but creating a home budget and keeping it updated whether annually, bi-annually, or monthly can truly help you get a handle on your cash flow and what you are spending on. An annual review of your budget at minimum to account for changes in wages, loan payments, expenses and more is a great way to get 2024 off to a balanced start! This is also a good opportunity to think about future renovations, vacations or expenses so you can start a savings fund to meet your goals!

Embrace Minimalism: Heading into January is a great time to take stock of your home and life. For many people, embracing minimalism has allowed them to declutter their minds and increase clarity to focus on what matters in life. Clearing out old furniture, clothes, or anything that doesn’t bring you peace, is a great way to live in the moment and align your home.

Cut Your Carbon Footprint: Your home is a great place to cut energy! Everything from switching off the lights when you leave a room to dialing down your air conditioner and heating, to installing LED bulbs and energy-saving showerheads or toilets, can help you save in the long run and ensure your home is more energy-efficient for the New Year!

Get Growing: Got a green thumb or simply looking for a new hobby? Consider starting a garden at home! Whether you place large planters in your backyard, some pots on the patio, or grow some herbs in your kitchen, this can be a great way to nurture your mind and body! Plus, it adds a little extra life to your home!

Improve Your Work/Life Balance: If you are still working at home and haven’t yet nailed down a dedicated space for your office, 2024 is your year! Having a separate space for your work versus your life can help you with decluttering your brain and maximizing your time and focus both on the clock and off.

Make the Most of Your Mortgage Renewal: As discussed in our last issue, your mortgage renewal is a great opportunity to make your home put in the work for you! With lots of renewals coming up in 2024, now is the time to start thinking ahead! Choose to consolidate debt, utilize home equity, get a better rate, and more at renewal time.

Contribute to Your RRSP: Don’t forget — February 29, 2024, is the last day to make RRSP contributions for the 2023 tax year! Before your RRSP deadline, there are a few things to consider to help you get a jump start in planning for the future and increasing your peace of mind: should you invest in an RRSP or focus on paying down your mortgage? Is a debt consolidation mortgage right for you? Should you consider the Home Buyers’ Plan to help fund your down payment on your first home?

4 Dec

Favourite Holiday Desserts


Posted by: Mike Hattim

The holidays are a wonderful time of year for the merriment, music, lights… and treats!

You’ll need to throw out the scale for this list of scrumptious holiday dessert ideas.

Gingerbread Cookies: Did you know? The oldest recorded gingerbread recipe, dating to the 16th century, is kept in the Germanic National Museum in Nuremberg! A tried-and-true classic for a reason, gingerbread is a particularly festive go-to! Whether you create gingerbread men or a gingerbread house – or a whole town (we won’t judge!) – you need the right recipe!


Nanaimo Bars: Over the years, this delicious treat has gone by many names… The first recipe originated in the 1952 edition of the Women’s Auxiliary Nanaimo Hospital Cookbook where it was simply named “chocolate square”. A similar recipe was later published in a 1953 edition of the Edith Adams’ Cookbook with the name “Nanaimo Bar”. The recipe clipping still hangs in the Nanaimo Museum! A no-bake dessert bar, this mouth-watering treat consists of three main layers: graham wafer crumb and shredded coconut for the bottom, a custard-flavored butter icing in the middle, and a chocolate ganache on top.


Peppermint Fudge: Originating in the 19th century, fudge is not necessarily new… but with so many additions to flavourings, it never gets old! This season, try one of our favourites – peppermint fudge! Easy to make and waiting to be enjoyed.


Peanut Brittle: Brittle is thought to be one of the first candies ever made… and there is a lot of confusion around how it came to be. Some claim it happened by accident as a New England woman was making taffy and accidentally added baking soda in 1890! Another theory dates brittle as far back as the Celts where it was enjoyed as a traditional Celtic dessert, making its way from Europe to America! Still today, peanut brittle continues to stand the test of time as a favored treat.


4 Dec

Economic Insights from Dr. Sherry Cooper


Posted by: Mike Hattim

As we move into yearend, we have every reason to believe that the economy has slowed and inflation, while still above target, has dropped significantly. But slower inflation does not mean falling prices in most markets. Yes, gasoline prices are down, and food inflation has slowed, but the purchasing power of households has not improved.

Consumer confidence is down as many households fear their mortgage renewals, where rising monthly payments will dig even deeper into their discretionary income.

Mortgage arrears are still at historical lows, but credit card and auto loan delinquencies are rising. Housing markets have slowed considerably, even as lenders cut their fixed mortgage loan rates. Declines in variable-rate loans generally await an easing in monetary policy by the Bank of Canada, which is still likely at least six months away.

The good news is that interest rates have likely peaked. So far, the economy is on a glide path for a ‘softish’ landing. I doubt we will see two consecutive quarters of negative growth. And, if we do, the central bank will respond sooner with rate cuts.

The fiscal authorities’ hands are tied. Many accuse Ottawa of increasing budgetary red ink too quickly over the past eight years, especially during the pandemic. Now that market-determined interest rates have risen sharply, the debt financing costs are spiking. The Liberals’ popularity is waning, and while business is calling for investment tax credits and everyone wants more affordable housing, the feds can only marginally affect these issues, given budgetary and political constraints.

The latest gimmick is to reduce short-term rentals by restricting Airbnb properties in some ways, but that will again have a meagre impact. Encouraging construction with GST elimination and cheaper credit is helpful. Still, even if they do lead to 30,000 new rental properties, that’s a drop in the bucket when planned permanent immigration is slated for 500,000 people per year.

The real rebound in economic activity is coming when the BoC signals it will cut the overnight policy rate. In the meantime, it is now a buyers’ market in many localities as home prices decline. The spring housing market could show a meaningful pickup in anticipation of lower rates and more housing supply. Motivated sellers will be out there, and buyers can pre-approve and take their time finding the right fit. The multiple-bidding wars are over. The housing market will lead the economy upward next year.