5 Jun

Economic Insights from Dr. Sherry Cooper


Posted by: Mike Hattim

Once again, the Canadian economy is running hotter than expected by the Bank of Canada. The economy continues to exhibit excess demand conditions. In particular, labour markets are very tight, the unemployment rate is near a record low, and wages are rising by more than 5%.

Consumer spending is still strong, and the housing market has bounced considerably. Home sales were up 11% in April, prices are rising again in many regions, especially the GTA and GVA, and new listings are so slim that it is now a sellers’ market. This should bring some potential sellers off the sidelines in May and June. However, demand is likely to remain well more than supply, given the influx of many immigrants and the constraints on the construction of new housing.

The April inflation data was stronger than expected at 4.4%, indicating that the mid-year forecast of 3% might well be overly optimistic. Some are already calling for a rate hike by the central bank this month or in July. While that might be premature, the Bank will consider at least one more increase in the overnight policy rate if the May data is robust.

This is at a time when homeowners are already feeling the pinch of the rapid rise in interest rates over the past year. Homeowners who bought in 2020 and 2022 and financed with variable-rate mortgages are already under pressure. And those with fixed-rate mortgages will refinance at substantially higher interest rates.

Already, many households have monthly payments that do not cover the interest on their loans, let alone the principal. Many lenders are allowing extended amortization. CMHC announced they would not extend the amortization of newly insured mortgages beyond 25 years.

One thing is sure. Do not expect monetary policy easing any time this year.

5 Jun

10 Money Saving Tips!


Posted by: Mike Hattim

When it comes to saving money, there are a lot of little things you can do that add up to make a big difference!

Here are 10 of my favourite money-saving tips to help get you started today:

  1. Automatic Savings are one of the most effective ways to save because you can’t spend what you can’t access! Instruct your employer to transfer a certain amount from your paycheck each pay period into an RRSP or savings account (or both) or set up automatic transfers in your banking account to coincide with your payday.
  2. Consolidating Debt will result in a single monthly payment and lower interest costs! Many people don’t realize just how much money they are wasting on interest each month, especially if you have multiple loans or credit cards. Consolidating debt can help you gain control and maximize spend on the principal amounts to pay off loans faster.
  3. Budget with Cash if you have trouble with overspending or find it too easy to use your card. After your bills are paid, take out the remaining cash (spending money) and only use that. Once the cash is gone, you’re out of money until next payday! Having physical cash in hand can also help you think twice when making purchases.
  4. Buying in Bulk is a great way to save a bit here and a bit there when doing your regular grocery shop or purchasing other items. Know you’ll need more? Stock up at once for bulk savings, which will help you in the long run!
  5. Before Buying there are two things you should always do. The first is to wait at least 24 hours and the second is to shop around! If you still want to buy something the next day, make sure you get the best price available!
  6. Plan Your Meals. Most of us don’t have time to make breakfast (let alone lunch!) before we fly out the door for work. But what if I told you that getting up an hour earlier could save you over $100 a week!? Just think about how much you spend going out for breakfast AND lunch each day? Groceries are a lot cheaper and you can even prep a few days worth of meals on Sunday while you get ready for the week.
  7. Think in Hours versus Dollars every time you are looking to make a purchase, especially large ones to help you understand the TIME value of money. A new $24 Blu-Ray = 1 hour of work. A brand-new mattress = 41.67 hours of work. Understanding the time that went into earning money for a purchase can help with reconsidering frivolous items, or encourage you to look for the best deal on necessary products.
  8. Utility Savings can help you save each month! Don’t blast your A/C with all the doors in your house open, don’t pump the heat without sealing cracks and consider things like installing water-saving toilets and running cold-water wash cycles to save energy (and money!) every day.
  9. Master DIY – While sometimes you can spend $120 to make a $20 item yourself, there are some things that do benefit from DIY, such installing dimmer switches, that can help save you money in the long run.
  10. Save Windfalls and Tax Refunds for a rainy day. A good rule of thumb is to put 50% of bonuses, tax refunds or other windfalls into your savings account and put the rest against loans owing. While you might want to go on a shopping spree or plan a vacation, paying off your debt NOW will free you up in the future.
5 Jun

First Home Savings Account (FHSA)


Posted by: Mike Hattim

The First Home Savings Account (FHSA) is specifically designed to help first-time homebuyers save for their down payment without having to pay taxes on the interest earned on their savings.

This means that the interest earned on the savings in the account is not taxed, nor are withdrawals from the account.

Plus, since your contributions to this account are not taxed, your money will have the opportunity to grow faster in an FHSA than a traditional savings account.

If you are interested in creating a FHSA, there are a few things to note:

  • This savings account is eligible to Canadian residents who are at least 18 years of age.
  • You are a first-time homebuyer – you and/or your spouse or common-law partner have not owned a home where you lived in the year in which you open the account or at any time in the previous four years.
  • Allows you to contribute tax-free for up to 15 years.
  • The maximum contribution is $8,000 annually, plus up to $8,000 of your unused contribution room*.
  • Maximum lifetime contribution limit is $40,000.
  • Setting up automatic contributions can help you stay on track.

*You can carry forward any unused FHSA contribution room from the prior years up to a maximum of $8,000 (subject to your lifetime contribution limit of $40,000). Therefore, if you contribute less than $8,000 in a given year, you can contribute the unused amount in a subsequent year in addition to the $8,000 annual contribution limit for that year.

Another thing to consider is combining the First Home Savings Account (FHSA) with the Home Buyers’ Plan (HBP) to help you purchase a qualifying home. The Home Buyers’ Plan (HBP) allows you to withdraw up to $35,000 from your RRSP to buy a home. Keep in mind, you will need to repay the amount you draw for the Home Buyers’ Plan within 15 years back to your RRSP, PRPP or SPP.

If you are interested in setting up an FHSA or learning more, please don’t hesitate to contact me today!

1 Jun

First Quarter Canadian GDP Was Stronger Than Expected Pushing the BoC Closer To Rate Hikes


Posted by: Mike Hattim

Good News Is Bad News For The Bank Of Canada
The Canadian economy continues to show marked resilience to high-interest rates. Statistics Canada released data this morning showing real GDP rose at an above-consensus 3.1% annual rate in the first quarter of this year. The estimate for April growth was also firm, a harbinger of continued strength in Q2. The combined drags of the public sector strike and the Alberta wildfires didn’t cause a significant downdraft.

First-quarter growth was driven by strong international trade and robust household spending. These factors were partly mitigated by slower inventory accumulation and declines in new housing construction and business investment in machinery and equipment.

After two quarters of minimal growth, household spending rose for goods (+1.5%) and services (+1.3%) in the first quarter of 2023. Expenditures on durable goods (+3.3%) were driven by motor vehicles, including new trucks, vans, and sport utility vehicles (+7.8%). Spending on semi-durables (+4.3%) was led by garments (+4.5%), while spending on non-durable goods (-0.2%) declined slightly.

Service spending picked up in the first quarter of 2023, led by food and non-alcoholic beverage services (+4.4%), and alcoholic beverage services (+6.5%). Meanwhile, travel was on the rise, with expenditures by Canadians abroad up 6.8% in the first quarter, compared with a 3.3% decrease in the previous quarter.

These data do not portend a household sector overly burdened by rising mortgage and credit card payments.

Coinciding with higher borrowing costs and slowing mortgage borrowing, housing investment fell 3.9% in the first quarter of 2023, the fourth consecutive quarterly decrease. The decline in investment was widespread—as new construction (-6.0%), renovations (-2.1%), and ownership transfer costs (-1.5%), which represents resale activity, were all down.

We know housing activity has picked up considerably since the first quarter, undoubtedly adding to Q2 growth. Also expansionary is the persistent rise in employee compensation, led by salary gains in professional and personal services, manufacturing and construction.

One warning sign is the declining household savings rates and slower disposable income. Persistently high interest rates had a predominantly negative effect on net property income, as increases in interest income (+6.4%), mainly from deposits, did not keep pace with higher interest payments on mortgages (+14.7%) and consumer credit (+10.9%).

In contrast with lower disposable income, consumption expenditures (in nominal terms) rose 2.1% in the first quarter of 2023. This was faster than the 1.4% pace recorded in the fourth quarter of 2022, partly due to inflationary pressures. As a result, the household saving rate was 2.9% in the first quarter of 2023, down from 5.8% at the end of 2022. The household saving rate approached the pre-pandemic level, which averaged 2.1% in 2019.

Business incomes fell significantly in Q1, and judging from the stock market, corporate earnings news has also been disappointing across a wide array of sectors in the second quarter.

Bottom Line

The strength in today’s data and the higher-than-expected inflation number for April will cause the Bank of Canada to seriously consider raising the overnight rate by 25 bps to 4.75% when they meet again next week. I think they will hold off to see the May employment and inflation data before they pull the trigger.

Markets have already responded to the numbers. Short-term interest rates remain well above levels posted earlier this year, although that is mainly about the debt-ceiling issue in the U.S. The Bank’s statement will undoubtedly be rather hawkish.

Dr. Sherry Cooper
17 May

Canadian Inflation Rose More Than Expected in April, But Core Inflation Slowed


Posted by: Mike Hattim

There’s been an unexpected hiccup in the Bank of Canada’s ongoing battle against inflation. Year-over-year, price pressures escalated to 4.4% in April, an uptick from the previous month’s 4.3% and significantly exceeding the average economist’s prediction of 4.1%. This marks the first rise in overall inflation from the last June. Ironically, higher interest rates are intended to tackle inflation, but rising rent prices and mortgage interest costs contributed the most to the all-items CPI increase last month.

This sketches an unusual scenario for the Bank of Canada as it approaches its June 7th rate decision. The economy remains resilient, with Canadians grappling with escalated interest rates and continued price pressures. Spring 2023 increasingly looks like the turnaround point for Canada’s housing market after a year-long slump, and labour markets remained firm in April.

To be sure, inflation is down significantly from the 8.1% year-on-year peak experienced last June. The initial reduction in inflation was swift and relatively straightforward, but predictably, the following phase is proving to be considerably more challenging.

The CPI was up 0.7% in April, following a 0.5% gain in March. Gasoline prices (+6.3%) contributed the most to the headline month-over-month movement. Excluding gasoline, the monthly CPI rose 0.5%. On a seasonally adjusted monthly basis, the CPI rose 0.6%.

Gasoline prices rose 6.3% in April compared with March, the most significant monthly increase since October 2022 and contributing the most to the acceleration in the headline CPI. This increase followed an announcement from OPEC+ (countries from the Organization of Petroleum Exporting Countries Plus) to reduce oil output, pushing prices higher. The switch to summer blend and increased carbon levies also boosted prices.
Nevertheless, gas prices were 7.7% lower in April 2023 compared with April 2022, when prices were higher due in part to Russia’s invasion of Ukraine. Compared with 18 months earlier, gasoline prices were 10.0% higher in April 2023.

Shelter costs rose 4.9% year-over-year in April after a 5.4% increase in March. Canadians continued to pay more in mortgage interest cost in April (+28.5%) compared with April 2022, as more mortgages were initiated or renewed at higher interest rates. The higher interest rate environment may also contribute to rising rents in April 2023 (+6.1%) by stimulating higher rental demand.

The year-over-year increase in the homeowners’ replacement cost index slowed for the 12th consecutive month in April (+0.2%) compared with March (+1.7%), reflecting a general cooling of the housing market.

Year over year, prices for groceries rose at a slower rate in April (+9.1%) than in March (+9.7%), with the slowdown stemming from smaller price increases for fresh vegetables and coffee and tea.
Bottom Line

The uptick in April inflation, especially monthly, shows that the road to 2% inflation will be bumpy. Still, the Bank of Canada will be content that their measures of core inflation continue to trend downward (see chart below). The Bank will likely continue the pause in June, but if the May employment numbers continue strong, the Governing Council will indeed warn that they will remain ever vigilant. I do not expect rate cuts this year.

Dr. Sherry Cooper
16 May

Vital Spring Housing Market Bodes Well For The Economy


Posted by: Mike Hattim

The Canadian Real Estate Association says home sales in April surged 11.3% month-over-month. The Spring rebound was on the heels of smaller back-to-back gains in the prior two months. Now that the Bank of Canada paused interest rate hikes and home prices in most regions have softened, homebuyers are scrambling for the minimal available housing supply.

Following the trend in recent months, the sales increase was broad-based but once again dominated by the B.C. Lower Mainland and the Greater Toronto Area (GTA). Toronto home sales, for example, rose by 27% m/m. That’s the most significant monthly increase over the past two decades, besides the rebound from the 2020 Covid lockdowns.

The benchmark price of a Toronto home rose 2.4% to C$1.11 million in April on a seasonally adjusted basis. The rise erased declines from earlier this year; prices are now up 0.5% year-to-date in the first four months of 2023.

New Listings

Housing inventory is not just low; it is extremely low, although more recent data suggest that new listings rose in the first week of May. The persistent lack of new listings is hurting home affordability.

The number of newly listed homes edged up 1.6% month-over-month in April; however, the bigger picture is that the new supply remains at a 20-year low. The number of new listings hitting the Toronto market trailed far behind the 27% increase in sales at just 2.8%. That helped shrink the supply of houses on the market, which had built up over the past year by 12.3% and left the city’s active-listings-to-sales ratio, a measure of how competitive the market is for buyers, tighter than the historical average.

And Toronto’s housing market isn’t the only one seeing tighter supply and rising prices. Vancouver, long one of the country’s most expensive markets, also saw its benchmark price rise 2.4% last month.

With national sales gains vastly outpacing new listings in April, the sales-to-new listings ratio jumped to 70.2%, up from 64.1% in March. The long-term average for this measure is 55.1%.

There were 3.3 months of inventory on a national basis at the end of April 2023, down half a month from 3.8 months at the end of March. The long-term average for this measure is about five months.

Home Prices

The Aggregate Composite MLS® Home Price Index (HPI) climbed 1.6% month-over-month in April 2023 – a significant increase for a single month. It was also broad-based. A monthly price rise from March to April was observed in most local markets.

The actual (not seasonally adjusted) national average home price was $716,000 in April 2023, down 3.9% from April 2022 but up $103,500 from January 2023, a gain owed to outsized sales rebounds in the GTA and B.C. Lower Mainland.

Bottom Line

A turnaround in the Canadian housing market is in train. While inventory remains extremely low, homes are not only selling but also selling fast. Short-term fixed-rate mortgages are popular with buyers. A significant change from before the Bank of Canada started raising rates.

While the Bank will likely hold rates steady for the remainder of this year, I do not expect Macklem to cut rates before then. All of this depends on inflation. We will get another read on inflation tomorrow.

The fact that labour markets are still strong and housing activity is picking up has got to make the Bank of Canada a wee bit nervous about inflation reaching the 2% target next year.

Another noticeable thing is the continued surge in the Canadian population, thanks to immigration, has worsened the housing shortage. The supply of new housing, especially affordable housing, is inadequate for the rapidly growing population. Moreover, a recent report by the C.D. Howe Institute’s Benjamin Dachis suggests there are major governmental impediments to providing adequate housing.

The Institute recommends:

  • Enable the non-political enforcement of municipal housing policies
  • Reform the fees on new development
  • ease restrictions on building up and out.
Dr. Sherry Cooper
9 May

High Interest Rates Have Not Slowed the Labour Market Sufficiently


Posted by: Mike Hattim

The Canadian labour market has done it again, blowing past expectations for the fifth straight month. In April, a whopping 41,400 new jobs were added, more than double what economists predicted. Since February, monthly employment growth has averaged 33,000, following cumulative increases of 219,000 in December 2022 and January 2023.

The employment rate—the share of the population aged 15 and older—held steady at 62.4% for the third consecutive month in April. This is particularly noteworthy given the population grew by more than a million people in 2022 and is slated to snowball this year, thanks to immigration.

However, there is a catch. All the job growth in April was in part-time positions, while full-time jobs decreased by 6,200. But even with this slight hiccup, the labour market is still going strong, which means the Bank of Canada will likely continue its wait-and-see approach, even as we all wonder when the first rate cut will happen.

The jobless rate held steady at a near-record low of 5.0%, unchanged since December 2022. This remained near the record low of 4.9% observed in June and July 2022. Compared with April 2022, the unemployment rate was down 0.3 percentage points in April 2023.

Wage Inflation Remains High

Of great concern to the Bank of Canada, average hourly wages rose by 5.2% on a yearly basis in a further sign of the labour market’s resilience, with wage growth now above the annual rate of inflation, which was 4.3% in March. It is not that wage inflation caused the surge in the Consumer Price Index last year, but continued vigorous wage hikes become impended in wage-price spiralling as higher costs give businesses cover to rate prices.

Bottom Line

The BoC, despite this report, isn’t likely to budge from its current policy stance. As more and more immigrants enter the workforce, the traditional markers of a strong jobs report are evolving. Even though the unemployment rate remains steady at 5%, it may indicate that we’ve hit a new equilibrium point. That’s why this seemingly “surprising” report doesn’t hold the same weight as it would have in the past.

In addition, the BoC can quickly point out the narrowness of sector hiring and the trend of full-time employment declining while part-time jobs rise. After today’s release, the BoC’s decision to stay on the sidelines is a wise move. But it also means that the Bank will not be in a hurry to cut rates this year.

Dr. Sherry Cooper
1 May

Economic Insights from Dr. Sherry Cooper


Posted by: Mike Hattim

It has been just over a year since the Bank of Canada started hiking interest rates. While the economy has remained surprisingly resilient, the housing market has weakened sharply.

The Bank has remained on the sidelines for the past two Governing Council announcement dates, and home sales have edged upward in very tight markets.

There is a rapidly growing housing shortage. As population growth remains strong and immigration targets rise, new home construction cannot keep up with demand. Demand for rental properties is surging, and rents have risen sharply for new tenants.

Another factor that could slow the economy this year is the rise in monthly housing payments. For those with adjustable-rate mortgages, monthly payments have already risen sharply. Most of those with variable-rate loans with a fixed monthly cost has hit their trigger point, and the amount no longer covers any of the principle. Most banks have allowed negative amortization but will require borrowers to return to original 20-year amortizations upon renewal. This could be quite a shock to consumers over the next few years.

The Office for the Superintendent of Financial Institutions is very concerned about the risk associated with these loans. We will be hearing soon from OSFI regarding more restrictions on mortgage lending.

The great news is that inflation is falling quickly, down to only 4.3% in March. The central bank expects inflation to fall to about 3% by the end of this year. So, barring unforeseen inflation pressures, the Bank could pause for the rest of this year. Rate cuts, however, are unlikely until 2024.

The Canadian economy will likely slow as the year progresses. The most likely scenario is a mild recession later this year. As we move into 2024, interest rates will slowly decrease to about 2.5% for the overnight policy rate. The economy will rebound, and the Bank of Canada expects to hit its 2% target on inflation. That might be hard to achieve, given rapidly rising wages and continued inflation expectations.

1 May

Your Gardening To-Do List!


Posted by: Mike Hattim

If you are looking to have a garden that is the envy of the neighbourhood, May is a great time to get started on your gardening to-do list.

I have put together some helpful tips and ideas for how to get started so your garden shines all summer long!

  1. Plant Annuals and Perennials: This is a great time to start planting annuals and perennials in your garden. Some good choices include: cosmos, marigold, nasturtium, sunflower, sweet alyssum, and zinnia. For the best results, it is ideal to pick an overcast day for initial planting to avoid heat shock and be sure to keep all new plants well-watered until they have settled.
  2. Start Summer Veggie Seeds: If you’re hoping to enjoy fresh veggies all summer, be sure to plant them now! Beans, corn, cucumbers and squash can all be sown directly in the soil (ideally when evening temperatures are around 10 degrees Celsius). Another great option is to plant tomatoes as they love the sun and are very hardy, but be sure to provide trellis support! Plant all veggies in a bed of compost (4” – 6” deep) to ensure a healthy start and remember to keep new sprouts moist to avoid heat damage.
  3. Spice it Up: Now that the frost has passed, it is also a great time to plant seasonal spices. Basil, dill, rosemary, marjoram, cilantro and fennel are great options for planting this time of year. They require a bright area with 6-8 hours of sunlight per day and well-drained soil to flourish. Even better? Plant them in a container in your windowsill or on your porch so you can easily access them if you need a snip of fresh herb!
  4. Lawn Mower Care: Lawn mowing season is just around the corner and now is the perfect time to tune up your lawn mower! Get your blades sharpened, change the oil, filter and update the spark plugs to keep you riding smooth all summer.
  5. Lawn Maintenance Routine: Establish a lawn maintenance routine that includes watering your grass and garden, as well as weeding unwanted and unruly foliage and applying fertilizer. A helpful tip is to water your plants in the late afternoon or early evening to cut down on evaporation. This also allows your garden several hours to take up the water into their systems, without battling the sun.
1 May

How to Pay Off Your Mortgage Faster


Posted by: Mike Hattim

When it comes to homeownership, many of us dream of the day we will be mortgage-free.

While most mortgages operate on a 25-year amortization schedule, there are some ways you can pay off your mortgage quicker!

  1. Review Your Payment Schedule: Taking a look at your payment schedule can be an easy way to start paying down your mortgage faster, such as moving to an accelerated bi-weekly payment schedule. While this will lead to slightly higher monthly payments, the overall result is approximately one extra payment on your mortgage per calendar year. This can reduce the total amortization by multiple years, which is an effective way to whittle down your amortization faster.
  2. Increase Your Mortgage Payments*: This is another fairly simple change you can execute today to start having more of an impact on your mortgage. Most lenders offer some sort of pre-payment privledge that allows you to increase your payment amount without penalty. This payment increase allowance can range from 10% to 20% payment increase from the original payment amount. If you earned a raise at work, or have come into some money, consider putting those funds right into your mortgage to help reduce your mortgage balance without you feeling like you are having to change your spending habits.
  3. Make Extra Payments*: For those of you who have pre-payment privileges on your mortgage, this is a great option for paying it down faster. The extra payment option allows you to do an annual lump-sum payment of 15-20% of the original loan amount to help clear out some of your loan! Some mortgages will allow you to increase your payment by this pre-payment privilege percentage amount as well. This is another great way to utilize any extra money you may have earned, such as from a bonus at work or an inheritance.
  4. Negotiate a Better Rate: Depending on whether you have a variable or a fixed mortgage, you may want to consider looking into getting a better rate to reduce your overall mortgage payments and money to interest. This is ideally done when your mortgage term is up for renewal and with rates starting to come back down, it could be a great opportunity to adjust your mortgage and save! This may be done with your existing lender OR moving to a new lender who is offering a lower rate (known as a switch and transfer).
  5. Refinance to a Shorter Amortization Period: Lastly, consider the term of your mortgage. If you’re mortgage is coming up for renewal, this is a great time to look at refinancing to a shorter amortization period. While this will lead to higher monthly payments, you will be paying less interest over the life of the loan. Knowing what you can afford and how quickly you want to be mortgage-free can help you determine the best new amortization schedule.

*These options are only available for some mortgage products. Check your mortgage package or reach out to me to ensure these options are available to you and avoid any potential penalties.

If you’re looking to pay your mortgage off quicker, don’t hesitate to reach out to me today! I can help review the above options and assist in choosing the most effective course of action for your situation.