Bank of Canada Reduces Policy Rate by 25 Basis Points to 4.25%

General Alessandro Lauro 4 Sep

The Bank of Canada has announced a reduction in its target for the overnight rate by 25 basis points, bringing it down to 4.25%.  This decision aligns with the Bank’s ongoing strategy of balance sheet normalization.

Global Economic Overview

The global economy saw a 2.5% expansion in the second quarter, which is consistent with the projections made in the Bank’s July Monetary Policy Report (MPR). In the United States, economic growth exceeded expectations, driven primarily by consumer spending, despite a slowdown in the labor market. The Euro-area experienced growth fueled by tourism and services, although manufacturing remained sluggish. Inflation in both regions is gradually easing. In China, subdued domestic demand has tempered economic growth. Meanwhile, global financial conditions have continued to ease since July, leading to lower bond yields. The Canadian dollar has seen modest appreciation, mainly due to a weaker US dollar, and oil prices have fallen below the levels anticipated in July’s MPR.

Canadian Economic Outlook

Canada’s economy grew by 2.1% in the second quarter, with government spending and business investment as key drivers. This growth slightly exceeded July’s forecasts, although preliminary data suggests a slowdown in economic activity during June and July. The labor market has remained relatively stagnant, with little change in employment in recent months. However, wage growth continues to outpace productivity levels.

Inflation in Canada further declined to 2.5% in July, with the Bank’s core inflation measures averaging around 2.5%. While high shelter price inflation remains the largest contributor to overall inflation, it is beginning to decelerate. However, inflation persists at elevated levels in certain service sectors.

Why Now is the Perfect Time to Contact a Mortgage Agent

With the Bank of Canada lowering its policy interest rate, this is an opportune moment for prospective homebuyers and homeowners considering refinancing to connect with a mortgage agent. Lower interest rates can translate into more favorable mortgage terms, potentially reducing monthly payments and long-term interest costs. A mortgage agent can provide personalized advice on how to take advantage of these rate cuts, explore various mortgage products, and guide you through the process to secure the best possible deal.

Whether you’re a first-time homebuyer looking to enter the market or a current homeowner considering refinancing, a mortgage agent can help you navigate the complexities of the mortgage landscape in a changing economic environment. With the policy rate at 4.25%, now is an excellent time to assess your options and make informed decisions about your mortgage.

Looking Ahead

As inflationary pressures continue to ease, the Bank of Canada remains vigilant in its commitment to maintaining price stability for Canadians. Future monetary policy decisions will be influenced by incoming data and the Bank’s assessment of its impact on inflation. For individuals and businesses alike, staying informed and consulting with financial professionals, such as mortgage agents, will be key to capitalizing on the evolving economic landscape.

Canadian Home Sales Face a Slowdown in July Despite Falling Mortgage Rates

General Alessandro Lauro 19 Aug

Despite recent declines in mortgage rates, Canadian real estate activity has not yet seen a significant boost, according to the latest data.

National Home Sales Sluggish

In July, national home sales dropped by 0.7% compared to June, according to the Canadian Real Estate Association (CREA). Although activity is still 4.8% higher than it was a year ago, sales remain about 9% below pre-pandemic levels.

Inventory on the Rise

Slower sales have resulted in an increase in available inventory, with 183,450 properties listed for sale at the end of July. This is a 22.7% increase compared to the same time last year, though it is still 10% below the historical average.

The ratio of sales to new listings eased slightly to 52.7% from 53.5% in June, which has put some downward pressure on average home prices in certain markets. The non-seasonally adjusted national average home price in July was $667,317, down 4% from June and remaining largely unchanged from last year.

Market Stability Across the Country

The MLS Home Price Index (HPI), which adjusts for seasonal variations, inched up by 0.2% month-over-month but is still 3.9% lower than a year ago.

BMO’s Robert Kavcic described the Canadian housing market as “stable” as it moves through the summer months. Sales volumes have held steady, the flow of listings is solid but not overwhelming, and prices remain stable across most markets.

Regionally, Alberta’s market remains relatively tight, though there has been some softening. Sellers’ markets continue to dominate in the Prairies and Atlantic Canada, driven by affordability and strong inward migration.

In contrast, Vancouver and Montreal markets are largely balanced and have shown strong price performance over the past year. Ontario, however, is showing signs of weakness, with several areas experiencing buyers’ markets.

Outlook for the Rest of the Year

Although sales were subdued in July, there is optimism that activity will pick up in the latter half of the year as interest rates are expected to continue their downward trend.

TD’s Rishi Sondhi referred to July’s performance as a “speed bump” on the road to stronger sales and prices in the second half of the year, fueled by a resilient economy, robust population growth, and falling rates. He noted that August’s data would be crucial in assessing the impact of ongoing rate declines.

CREA chair James Mabey also suggested that the market is being set for a more active period ahead. He noted that many markets now offer more choices for buyers than in recent years, but warned that the window for a relaxed house-hunting experience might be closing.

BMO’s Kavcic pointed out that the ongoing subdued sales were anticipated, given that the recent Bank of Canada rate cuts have so far only benefited a small number of borrowers. He explained that since only 12.9% of new mortgage borrowers in the first quarter opted for variable-rate mortgages, the initial phase of rate cuts did not provide widespread relief.

Looking ahead, Kavcic suggested that if mortgage rates continue to decline, potentially reaching around 4% by next spring, the housing market could become more dynamic. For now, however, the market remains stable.

How to Prepare for Your Mortgage Renewal: Tips for Managing Higher Payments

General Alessandro Lauro 14 Aug

As millions of Canadian homeowners face mortgage renewals in the near future, many are feeling the pressure of higher payments due to persistently high interest rates.

Advice for Homeowners Facing Mortgage Renewals According to the Canada Mortgage and Housing Corporation (CMHC), around 2.2 million mortgages are set to renew in 2024, representing over 45% of all mortgages in Canada. While those with variable-rate mortgages have already felt the impact of rising rates, fixed-rate mortgage holders will soon experience a significant increase in their payments. This has caused considerable anxiety among homeowners, with 76% of those facing renewal in the next year expressing concern, a 10% rise from last year, according to Mortgage Professionals Canada.

Katy Mackenzie, a mortgage expert with TMG The Mortgage Group, notes that those who locked in historically low rates are now confronting much higher ones. Unfortunately, no one is likely to avoid the effects of this shift.

If the prospect of higher payments feels overwhelming, there are several strategies you can use to ease the financial strain:

1. Start Planning Early David van Noppen, a mortgage agent and owner of More Than Enough Financial, emphasizes the importance of early preparation. Beginning the renewal process well in advance can provide more options, such as gradually increasing your payments a few months before renewal. This can help you adjust to the higher payments more smoothly.

Mackenzie advises reaching out to your lender as soon as possible if you anticipate difficulty with the higher payments. Starting the conversation early allows you to negotiate a payment plan that works for both you and the lender, reducing financial stress.

2. Communicate with Your Lender If you’re struggling to manage your payments or foresee difficulties ahead, it’s essential to contact your lender promptly. Both Mackenzie and van Noppen stress that lenders are more understanding when you proactively address potential payment issues. Depending on your situation, lenders might offer options like payment deferral, loan restructuring, or re-amortization.

3. Consider a Mortgage Broker With rising interest rates making mortgages more expensive, van Noppen has observed that more homeowners are shopping around for the best deals. While some attempt to find deals on their own, the expertise of a mortgage broker can be invaluable. Over a third of Canadians now use a mortgage broker, with the percentage even higher among first-time buyers and recent purchasers. A broker can help you navigate the complexities of the mortgage market and secure the best deal for your situation.

4. Explore Mortgage Relief Options If you find yourself at risk of default, it’s crucial to know the mortgage relief options available to you. Under the Canadian Mortgage Charter, you may be eligible for measures such as:

  • Prepaying and re-borrowing: If you’ve made extra payments, you may be able to borrow back the amount you prepaid.
  • Skipping a payment: Some financial institutions allow you to skip a certain number of payments each year.
  • Credit insurance claims: If you lose your job, become critically ill, or are disabled, you may qualify for a credit insurance claim that covers some or all of your mortgage payments.
  • Mortgage payment deferral: This option allows you to pause your payments for a set period, though you’ll need to repay the deferred amount later.

5. Adjust Your Budget If you’re struggling to cover your higher mortgage payments, start by analyzing your cash flow to identify areas where you can cut expenses. Van Noppen suggests cutting out unnecessary luxuries like extra subscriptions or dining out. If you still can’t make ends meet, you may need to consider generating additional income or making more significant lifestyle changes.

6. Consider Selling or Downsizing If you can’t find enough money to cover your mortgage payments after cutting expenses, it may be time to consider selling your home and downsizing to a more affordable property. This could involve moving to a smaller home or relocating to a less expensive area.

7. Use Your Home Equity If you’ve paid off part or all of your mortgage, tapping into your home equity can provide the cash you need. Options include:

  • Cash-out refinancing: This involves replacing your current mortgage with a larger one, with the difference paid to you in cash.
  • Home equity line of credit (HELOC): A HELOC allows you to borrow against your home equity, offering flexibility in managing your finances. However, van Noppen cautions that this option should be used carefully to avoid accumulating unmanageable debt.

8. Seek Financial Counseling If you’re struggling with higher mortgage rates and financial stress, consider seeking financial counseling. A financial counselor can help you manage your money more effectively and create a plan to stay on track. Van Noppen also highlights the value of having someone to hold you accountable, which can increase your financial awareness and help you make informed decisions.

Ignoring financial problems won’t make them go away. Taking proactive steps now can help you navigate the challenges of mortgage renewal with greater confidence.

🌍💸 Global Markets in Turmoil! 💸🌍

General Alessandro Lauro 12 Aug

These changes are largely driven by growing concerns about economic stability amidst global financial pressures. In particular, Japan’s unexpected policy shift and U.S. recession fears play a key role.

Moreover, Japan’s decision to raise its short-term policy rate disrupted the yen carry trade. This, in turn, caused a ripple effect in global markets, impacting Canadian bond yields.

Additionally, the U.S. Federal Reserve’s high interest rates have raised fears of an impending recession. Weak employment data and disappointing tech earnings have further amplified these concerns.

Consequently, Canadian bond yields have dropped to two-year lows, prompting further fixed mortgage rate cuts. This adds additional pressure on Canadian households with variable rate mortgages.

Furthermore, the Bank of Canada is increasingly focused on downside risks to the economy. Consumer spending and the labor market are now areas of particular concern.

With higher mortgage renewal rates expected in 2025 and 2026, household budgets could face significant strain. As a result, this might reduce discretionary spending and slow economic recovery.

Thus, the Bank of Canada must balance these risks while avoiding a resurgence of inflation. Therefore, a cautious approach to rate cuts is now more important than ever.

For consumers and investors, staying informed is crucial as the financial landscape continues to shift. Ultimately, strategic decisions must be made in response to these evolving conditions.

 

sited buy: https://www.canadianmortgagetrends.com/2024/08/the-big-banks-are-slashing-their-interest-rate-forecasts/

Why Interest Rates Might Fall in Canada: A Detailed Explanation

General Alessandro Lauro 5 Aug

1. Economic Slowdown:

When the Canadian economy isn’t growing as expected, signs might include lower GDP growth, reduced consumer spending, and decreased business investments. In such a scenario, the Bank of Canada might lower interest rates to stimulate economic activity. Lower rates make borrowing cheaper for consumers and businesses, encouraging them to spend and invest more, which can help boost the economy.

2. Lower Inflation:

The Bank of Canada targets a specific inflation rate, usually around 2%. If inflation falls below this target, it means prices are not rising fast enough, which can indicate weak demand in the economy. To counteract this, the central bank may cut interest rates. Lower borrowing costs can increase spending and investment, which can help push prices up to the desired level.

3. Global Economic Issues:

Global economic conditions can significantly impact Canada. For instance, a recession in major trading partners like the United States or Europe can reduce demand for Canadian exports. Additionally, geopolitical tensions can create uncertainty and disrupt trade. To mitigate the impact of these external factors, the Bank of Canada might lower interest rates, making borrowing cheaper domestically to support the economy.

4. Cooling Housing Market:

A slowdown in the housing market, characterized by fewer home sales and declining prices, can be concerning. The Bank of Canada might reduce interest rates to make mortgages more affordable. Cheaper mortgages can stimulate demand for homes, supporting the housing market and, by extension, the broader economy.

5. Weak Job Market:

Signs of a weak labor market include rising unemployment and stagnating wages. If people are losing jobs or not seeing wage growth, they are likely to spend less, which can hurt the economy. Lowering interest rates can help by making it cheaper for businesses to borrow and invest, potentially leading to more hiring and better wage growth.

6. Other Countries Cutting Rates:

When major central banks, such as the Federal Reserve in the U.S., cut their interest rates, it can influence the Bank of Canada to do the same. Lower rates in other countries can strengthen the Canadian dollar, making exports more expensive and less competitive. To prevent this, Canada might lower its interest rates to maintain a favorable exchange rate and support its export sector.

7. Financial Market Volatility:

Periods of high volatility or uncertainty in financial markets can make investors cautious, leading to reduced investment and spending. By lowering interest rates, the Bank of Canada can help stabilize financial markets. Cheaper borrowing costs can encourage investment and spending, providing a boost to the economy and calming the markets.

Stay tuned for more insights into the mortgage market and economic trends! 📈💡

#CanadaEconomy #InterestRates #MortgageMarket #Finance #EconomicTrends

Overview of the New Capital Gains Tax in Canada

General Alessandro Lauro 30 Jul

New Capital Gains Tax in Canada: Easy-to-Read Overview

Starting June 25, 2024, Canada will change its capital gains tax policy. The inclusion rate will rise from 50% to 66.67% for individuals with annual capital gains over $250,000. For corporations and most trusts, this new rate will apply to all capital gains without any threshold​ (Canada.ca)​​ (Global News)​.

Who Will Be Affected?

High-Income Individuals: People earning more than $250,000 in capital gains yearly will see higher taxable income. For example, someone in Ontario with a $300,000 gain will pay tax on $158,333 instead of $150,000​ (Global News)​.

Corporations and Trusts: All capital gains for these entities will be taxed at the higher rate. This will impact their financial strategies and may lead to higher tax bills​ (Global News)​.

Entrepreneurs: The policy includes measures to encourage investment in high-growth sectors. The Canadian Entrepreneurs’ Incentive will reduce the inclusion rate to one-third for a lifetime maximum of $2 million in eligible capital gains. It will also increase the Lifetime Capital Gains Exemption to $1.25 million​ (Canada.ca)​.

Misconceptions

Principal Residence: There is no change to the exemption for the principal residence. Homeowners will still be exempt from capital gains tax when selling their primary home, provided it meets CRA criteria​ (WOWA)​.

Impact on Average Canadians: The new tax rate will affect a tiny percentage of Canadians, about 0.13%. Most people do not realize over $250,000 in capital gains annually. The average investor, with most investments in tax-sheltered accounts like RRSPs or TFSAs, will not be affected​ (Global News)​.

Fairness Concerns: Some think the changes unfairly target the middle class. However, the policy aims to make the tax system fairer. Wealthy individuals will pay rates more comparable to regular income earners. This addresses the discrepancy where capital gains were taxed at a lower rate than ordinary income​ (Canada.ca)​.

Impact and Revenue Generation

The government expects these changes to generate $19.4 billion in new revenue over five years. This money will help fund social programs and initiatives, including nearly 4 million new homes. The policy aims to support younger generations and invest in long-term economic growth​ (Canada.ca)​.

By adjusting the capital gains inclusion rate, the government seeks to create a more equitable tax system. The changes also encourage entrepreneurship and innovation through targeted incentives.

First-Time Homebuyers Increasingly Rely on Gifted Down Payments

General Alessandro Lauro 29 Jul

First-Time Homebuyers Increasingly Rely on Gifted Down Payments

In recent years, first-time homebuyers in Canada have increasingly turned to gifted down payments from family members to enter the housing market. This trend has been fueled by a combination of soaring home prices, stagnant wages, and stricter mortgage lending rules, making it more difficult for young buyers to save enough for a traditional down payment on their own.

The Trend

A recent report from Canadian Mortgage Trends highlights how financial gifts from parents or other relatives have become a crucial factor for many first-time buyers. The financial assistance often makes the difference between being able to purchase a home or continuing to rent. This reliance on familial support underscores the broader challenges facing new entrants to the housing market.

Reasons Behind the Shift

  1. High Home Prices: The Canadian real estate market has seen substantial price increases over the past decade, particularly in major urban areas like Toronto and Vancouver. These escalating prices have outpaced wage growth, making it nearly impossible for many young professionals to save for a down payment without external help​ (Canadian Mortgage Trends)​​ (Canadian Mortgage Trends)​.
  2. Stricter Mortgage Rules: In response to concerns about housing market stability and household debt, the Canadian government and financial institutions have implemented stricter mortgage qualification rules. These include stress tests that require borrowers to prove they can afford higher interest rates, making it harder to qualify for a mortgage based solely on personal savings​ (Canadian Mortgage Trends)​.
  3. Economic Pressures: Economic uncertainties, including potential recessions and rising unemployment rates, have also contributed to the difficulty of saving for a home. As a result, young buyers are increasingly looking to their families for support to bridge the financial gap​ (Canadian Mortgage Trends)​.

Implications for the Market

The growing dependence on gifted down payments has several implications for the housing market and broader economy:

  • Increased Intergenerational Wealth Transfer: There is a significant transfer of wealth occurring from older to younger generations. This trend is reshaping family dynamics and financial planning, as parents often tap into their savings or home equity to provide these gifts.
  • Market Stability Concerns: While gifted down payments can help sustain demand in the housing market, there are concerns about long-term stability. If housing prices continue to rise and economic conditions remain challenging, more buyers may find themselves over-leveraged, potentially leading to higher default rates​ (Canadian Mortgage Trends)​.
  • Policy Considerations: Policymakers are taking note of these trends, with some advocating for measures to make housing more affordable and accessible. This includes potential reforms to mortgage lending rules and initiatives aimed at increasing housing supply​ (Canadian Mortgage Trends)​.

Conclusion

The reliance on gifted down payments by first-time homebuyers reflects the broader affordability challenges in Canada’s housing market. While familial support provides an essential lifeline for many aspiring homeowners, it also highlights the need for broader systemic changes to ensure sustainable and equitable access to homeownership in the future.

Curious about the 30-year amortization? Here’s why it’s a game-changer for Ontario clients! 🏡

General Alessandro Lauro 28 Jul

Curious about the 30-year amortization? Here’s why it’s a game-changer for Ontario clients! 🏡

By spreading your mortgage payments over 30 years, you significantly lower your monthly payments. This means more cash in your pocket each month for savings, investments, or enjoying life. 💸

With lower monthly payments, you can also qualify for a higher mortgage amount. This opens up opportunities to purchase a better home or in a more desirable location. 📈

While it’s true you’ll pay more interest over the life of the loan, the benefits can outweigh the costs if managed properly. The key is using the extra cash flow wisely—whether it’s paying down other debts, investing in growth opportunities, or creating an emergency fund. 🌟

The 30-year amortization is especially beneficial for first-time buyers or those needing more financial flexibility. It provides the breathing room needed to balance homeownership with other financial goals. 🏠

Remember, the 30-year amortization is a tool. Use it right, and it can lead to greater financial stability and the home of your dreams. 🚀

Perfect for Ontario clients seeking smart and strategic financial solutions. 🍁

Ready to see how a 30-year amortization can work for you? 🌟

📉 Toronto’s Condo Market Faces Major Challenges 📉

General Alessandro Lauro 27 Jul

A recent report from CIBC and Urbanation reveals, majority of new condo investors in the Greater Toronto Area are losing money every month.

🔹 Key Findings:

82% of investors with mortgages on newly completed condos are cash-flow negative in the first half of 2024.
This is up from 77% last year and significantly higher than 40% in 2020.
Investors who closed on condos in 2023 are losing an average of $597 per month, compared to $223 for those who closed in 2022.
About 30% of those who closed last year are losing over $1,000 per month.

📊 Market Impact:

Rising costs and higher interest rates are driving this trend.
New condo sales have hit a 27-year low.
Despite the pressure on investors, condo prices have only slightly decreased, with unsold unit prices down 2.6% in the past year.

🏢 Expert Insight:

Benjamin Tal of CIBC and Shaun Hildebrand of Urbanation say, the GTA housing market is facing its toughest challenge since the 1991 recession.

Stay informed and prepared as the market continues to evolve.

CONTROVERSIAL INSIGHT: ARE YOU OVERPAYING ON YOUR MORTGAGE BECAUSE YOU DIDNT REFINANCE ?

General Alessandro Lauro 27 Jul

Ever wondered if you’re overpaying on your mortgage? 🤔

With the recent BoC rate cut, now might be the perfect time to consider refinancing. 🚀

Did you know that over 60% of homeowners are paying more than they need to because of outdated mortgage rates? 😱

Meet Sarah, a homeowner who saved $500/month by refinancing. Before: $2,000/month. After: $1,500/month. 💰
Imagine what you could do with those savings!
Think about it.

Don’t let outdated rates drain your wallet. 💸
Curious? Use our refinancing calculator on my site to learn more. 🔍

Time to take control of your finances!