18 Mar

Canadian Home Sales Stop Falling In February As Prices Hold Steady

Real Estate

Posted by: Yen Chi (Frank) Feng

The Canadian Real Estate Association announced today that national home sales dipped 3.1% m/m in February while home prices were flat, ending a five-month price decline that began last fall.

It was noteworthy that prices remained unchanged from January to February, given that they dropped 1.3 from December to January. The MLS Home Price Index tends to be relatively stable, so a shift in pricing behaviour this large is quite unusual. It has happened only three other times in the past two decades. All three times were in the past four years when demand was poised to rise sharply: May 2020, right after the initial COVID slump; January 2022, before interest rates were increased; and April 2023, when people thought the Bank of Canada would continue to pause. The rebound in home sales in 2023 led the central bank to hike interest rates two more times. 

There is significant pent-up demand for housing owing to strong population growth and first-time homebuyers’ fears that prices will rise sharply once the Bank of Canada cuts interest rates.

New Listings

The number of newly listed homes edged up 1.6% m/m in February. Depending on how many owners prepare to list their properties for sale this spring, gains may rise in the months ahead.

“After two years of mostly quiet resale housing activity, there’s a feeling that things are about to pick up,” said Larry Cerqua, Chair of CREA. “At this point, it’s hard to know whether buyers are going to wait for a signal from the Bank of Canada or whether they’re just waiting for the spring listings to hit the market.

With sales edging down and new listings inching up in February, the national sales-to-new listings ratio eased a bit to 55.6%. The long-term average is 55%. A sales-to-new listings ratio between 45% and 65% is generally consistent with balanced housing market conditions, with readings above and below this range indicating sellers’ and buyers’ markets, respectively.

At the end of February 2024, there were 3.8 months of inventory nationwide, up slightly from 3.7 months at the end of January. The long-term average is about five months of inventory.

Bottom Line

With pent-up demand for housing rising with every rent increase, the spring housing season is likely to be robust, even before the central bank cuts interest rates. We believe the BoC will begin reducing the policy rate in June. Tomorrow, we will get the CPI data for February. The US CPI data for February, released last week, were disappointing as gasoline prices increased headline inflation and core measures remained well above 3%. 

 

Source: Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

9 Mar

Canadian Employment Gains Strong in February

Economics Insights

Posted by: Yen Chi (Frank) Feng

Today’s StatsCanada Labour Force Survey for February was a mixed bag and shows the dramatic effect of surging immigration. Canadian employment rose by a much stronger-than-expected 41,000, dominated by a 71,000 rise in full-time jobs. 

The employment rate–the proportion of the population aged 15 and older who are employed–fell a tick to 61.5%. This is the fifth consecutive monthly decline, the most extended period of consecutive decreases since the six months ending in April 2009 during the global financial crisis. The Bank of Canada has emphasized the importance of the employment rate in recent commentary. 

The employment rate in February 2024 was down 0.9 percentage points from the recent peak of 62.4% observed in February 2023. This downward trend is associated with the unprecedented ballooning of the working-age population.

The unemployment rate increased 0.1 percentage points to 5.8% in February, offsetting the decline in January. The unemployment rate has held relatively steady in recent months, at 5.8% for three of the past four months. This follows an upward trend from April 2023 to November 2023, when the rate increased from 5.1% to 5.8%. The labour force participation rate—the proportion of the population aged 15 and older who were employed or looking for work—held steady at 65.3% in February.

The labour force jumped 76,000 last month and is up more than 550,000 in the past year, while the adult population has surged by more than 1 million people (+3.2%), compared with a job increase of 368,000. Even very strong job growth is not keeping up with the torrid influx of new workers, dampening wage inflation. 

Most of the new jobs were in the service sector, led by employment in accommodation and food services following a decline in the prior month. Also rebounding was employment in professional, scientific, and technical services. On a year-over-year basis, employment in this industry was up 85,000 (+4.6%), the second-largest year-over-year increase among industries, after transportation and warehousing (+104,000; +10.6%).

In February, average hourly wages were up 5.0% year-over-year, following an increase of 5.3% in January. This is still above the Bank of Canada’s comfort zone, although policymakers suggested that wage inflation appeared to have peaked in this week’s policy statement.

Bottom Line

We will see one more Labour Force Survey on April 5th before the Bank of Canada meets again on April 10th. The all-important CPI inflation data will be released on March 19th. 

Today’s report, while strong, suggests that the surge in the working-age population and the decline in job vacancies could continue to temper wage inflation. The Bank of Canada will need more proof before it releases the brakes and lowers interest rates. 

 

Source: Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

1 Mar

Amortization Options

Mortgage Tips

Posted by: Yen Chi (Frank) Feng

 

Your mortgage amortization period is the number of years it will take you to pay off your mortgage. Depending on your choice of amortization period, it will affect how quickly you become mortgage-free as well as how much interest you pay over the lifetime of your mortgage (a longer lifetime equals more interest, whereas a shorter lifetime equals less interest but also bigger payments).

Amortization Benchmarks
Let’s start by looking at the mortgage industry benchmark amortization period. This is typically a 25-year period and is the standard that is used by the majority of lenders when it comes to discussing mortgage products. It is also typically the basis for standard mortgage calculators. While this is the standard, it is not the only option when it comes to your mortgage amortization. Mortgage amortizations can be as short as 5 years and as long as 35 years!

Benefits of a Shorter Amortization
Opting for a shorter amortization period will result in paying less interest overall during the life of your mortgage. Choosing this amortization schedule means you will also become mortgage-free faster and have access to your home equity sooner! However, if you choose to pay off your mortgage over a shorter time frame, you will have higher payments per month. If your income is irregular, you are at the maximum end of your monthly budget or this is your first home, you may not benefit from a shorter amortization and having more cash flow tied up in your monthly mortgage payments.

Benefits of a Longer Amortization
When it comes to choosing a longer amortization period, there are still advantages. The first is that you have smaller monthly mortgage payments, which can make home ownership less daunting for first-time buyers as well as free up additional monthly cash flow for other bills or endeavors. A longer amortization also has its advantages when it comes to buying a home as choosing a longer amortization period can often get you into your dream home sooner, due to utilizing standard mortgage payments versus accelerated. In some cases, with your payments happening over a larger period, you may also qualify for a slightly higher value mortgage than a shorter amortization depending on your situation.

Let’s Chat!
We would be happy to help with the decision for the amortization that best suits your unique requirements and ensures you have adequate cash flow. However, it is important to mention that you are not stuck with the amortization schedule you choose at the time you get your mortgage. You can shorten or lengthen your amortization, as well as consider making extra payments on your mortgage (if you set up pre-payment options), at a later date.

Ideally, you are re-evaluating your mortgage at renewal time (every 3, 5, or 10 years depending on your mortgage product). During renewal is a great time to review your amortization and payment schedules or make changes if they are no longer working for you.

If you have any questions or are looking to get started on purchasing a home, don’t hesitate to reach out to me today!

1 Mar

Still No Recession In Canada Thanks to Huge Influx of Immigrants

Economics Insights

Posted by: Yen Chi (Frank) Feng

 

Real gross domestic product (GDP) rose a moderate 1.0% (seasonally adjusted annual rate), a tad better than expected and the Q3 contraction of -1.2% was revised to -0.5%. This leaves growth for 2023 at a moderate 1.1%. Monthly data, also released today by Statistics Canada, showed that December came in flat, well below the robust flash estimate, while the January preliminary estimate was a strong +0.4% (subject, of course, to revision). The January uptick was driven by the return of Quebec public servants and a mild winter. 

The fourth quarter growth was fuelled by higher oil exports and was moderated by a significant decline in business investment. Housing investment declined again in Q4–a sixth decline in the last seven quarters. Despite increased activity in Q4 new residential construction and renovations, it was more than offset by a large drop in home ownership transfer costs, reflecting the weakening resale market across Canada. Single-family units and apartments led the rise in new construction, as all provinces and territories, except Prince Edward Island, post a rise in housing starts. 

Investment in non-residential structures fell sharply, as did spending on machinery and equipment, especially on aircraft and other transportation equipment. Even government spending declined.

 

 

Bottom Line

This is the last major economic release before the Bank of Canada meets again on March 6. The central bank will hold interest rates steady at next week’s meeting, and while some are suggesting the first rate cut this cycle will be as soon as the April confab, the consensus remains at June. With the uptick in growth in Q4, there is no urgency for the Bank to ease. 

Policymakers will wait for their favourite core inflation measures to fall within the 1%-to-3% target band. They know that GDP per capita is falling and that mortgage renewals at higher interest rates will dampen household discretionary income. That’s why a June rate cut is widely expected.

 

Source: Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres