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Bank of Canada maintains key interest rate

In today’s scheduled press release, the Bank of Canada announced that they will be maintaining the overnight benchmark rate at 0.25%. It is projected that interest rates will not rise until the second half of 2022. In a statement accompanied by the release of its quarterly Monetary Policy Report, the Bank rate remained steady at 0.5% with the deposit rate also left unchanged at 0.25%. The Bank also announced a further tapering of its bond program, reducing its weekly purchases of government bonds to $2 billion – a decrease of one-third. In its statement, the Bank noted that while the global economy is recovering strongly from the COVID-19 pandemic, that recovery is still “highly uneven, and remains dependent on the course of the virus.” The Bank’s Monetary Policy Report indicated that growth should rebound strongly as the economy reopens after COVID-19’s third wave. Growth of around 6% is forecast this …
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What will happen next with Canada house prices?

Original Source:  Mortgage Broker News With the rate of homebuying in Canada cooling in recent weeks and house prices having declined nationally for two consecutive months, there’s been much conversation around the questions of whether bidding wars will die down and prices will continue moderating. While some believe that the federal government’s action on the mortgage stress test rate has had its desired effect – easing the trend of frenetic bidding far above list price – others in the mortgage industry have seen little evidence of that change in their markets. Tracy Valko (pictured), principal mortgage broker and owner of the Kitchener, ON-based Valko Financial, told Mortgage Broker News that the pace of bidding remained relentless in that region, continuing to expose what she said was a significant supply issue in the housing market. “What the government was looking to do in slowing down the market, and in trying to …
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Mortgage credit rising, but non-mortgage debt dropping like a rock.

Contrary to the common belief that debt among Canadians is rising during the pandemic, non-mortgage debt had significantly dropped during 2020. Have a look at the graphs below, provided by Statistics Canada. Household Debt in Canada decreased to 167.70 percent of gross income in 2021 from 169.87 percent in 2020. Source: Statistics Canada Household Saving Rate in Canada increased to 13.10 percent in the first quarter of 2021 from 12.70 percent in the fourth quarter of 2020. Source: Statistics Canada From the provided statistics, two main points were uncovered: Canadian Household Savings Rate is 13.10% vs <5% prior to the pandemic, a significant increase. The debt to Income ratio is a universal calculation that measures a countries overall consumer’s financial health.  At 167% it’s much lower than the approximately 173% we saw prior to the pandemic. So yes Canadians are taking out more mortgages.  This is true. But they’re also saving …
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Stress Test Rule Changes Confirmed

Breaking Mortgage News The current rule for mortgage approvals is that you must qualify as if the interest rate is 4.79% or your contract rate plus 2%, whichever is higher. This is known as the stress test rate. Its purpose is to determine if someone can still afford their home even if rates were to rise. Effective June 1st, 2021, the stress test rate is being raised to 5.25% on both insured and uninsured mortgages. It is estimated that this increase will decrease homebuyers’ purchasing power by around four to five percent. Unfortunately, as of June 1st, most pre-approvals under the previous stress test will no longer be accepted and you must qualify at the new rate. If you currently have a pre-approval with Valko Financial, please call our office at (519) 745-8019 to review the amount that you are qualified for. We are still committed to arranging mortgage financing for the purchase of your …
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Weak April Jobs Report Reflects Canadian Lockdown

Original Source:  Dr. Sherry Cooper, DLC   Canada’s Jobs Recovery Impaired by Third-Wave Virus Restrictions   This morning, Statistics Canada released the April 2021 Labour Force Survey showing a major deterioration in the jobs market following the third-wave Covid containment measures. Employment fell by 207,100 (-1.1%) in April, and the unemployment rate rose 0.6 percentage points to 8.1%.Employment declined in both full-time (-129,000; -0.8%) and part-time (-78,000; -2.3%) work. The number of employed people working less than half their usual hours increased by 288,000 (+27.2%). The number of Canadians working from home grew by 100,000 to 5.1 million. Total hours worked fell 2.7% in April, driven by declines in educational services, accommodation and food services, and retail trade. The labour underutilization rate, which captures the full range of available people who want to work, rose 2.3 percentage points to 17.0% in April. The number of Canadians unemployed for 27 weeks or more–the long-term unemployed–increased to 486,000. This group might well be the most scarred by the pandemic in terms of their job prospects and …
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OSFI Proposes Rule Changes to The Stress Test

The Office of the Superintendent of Financial Institutions (OSFI) recently proposed a mortgage rule change to help slow down the overheated housing market. The current rule for mortgage approvals is that you must qualify as if the interest rate is 4.79% OR the contract rate plus 2%, whichever is higher. This is referred to as the Stress Test. The OSFI is proposing that on uninsured mortgages (mortgages with 20% down or more), the stress test rate is increased to 5.25% OR the contract rate plus 2%, whichever is higher. Below is an example of how much income it would take to qualify for a $300,000 mortgage at no stress test, the current stress test, and the proposed changes. The OSFI is inviting industry stakeholders to submit feedback on the rule changes by May 7th, 2021. OSFI will reveal its final plan for the rule changes on May 24th, 2021, with an enactment date of June 1st, 2021. As a heart-centred team that advocates for fair …
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Housing Continued to Surge in February

Click here for the full article by Dr Sherry Cooper, Chief Economist at Dominion Lending Centres. Today the Canadian Real Estate Association (CREA) released statistics showing national home sales hit another all-time high in February 2021. Canadian home sales increased a whopping 6.6% month-on-month (m-o-m), building on the largest winter housing boom in history. On a year-over-year (y-o-y) basis, existing home sales surged an amazing 39.2%. As the chart below shows, February’s activity blew out all previous records for the month.  The seasonally adjusted activity was running at an annualized pace of 783,636 units in February. CREA’s revised forecast for 2021 is in the neighbourhood of 700,000 home sales. Strong demand notwithstanding, sales may be hard-pressed to maintain current activity levels in the traditionally busier spring months absent a surge of much-needed new supply. However, that could materialize as current COVID restrictions are increasingly eased and the weather starts to improve. The month-over-month …
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Bank of Canada maintains overnight rate at 0.25%

The Bank of Canada announced today that the overnight rate of 0.25% will hold. The Bank rate and deposit rate will hold at 0.50% and 0.25% respectively. The overnight rate is the interest rate at which major financial institutions borrow and lend money amongst themselves. The lower the overnight rate is, the less expensive it is for Canadian consumers to borrow money. Canada’s economy continues to recover from the coronavirus pandemic, exemplified by a GDP growth of 9.6% in the final quarter of 2020. GDP growth in the first quarter of 2021 is also expected to be positive, contradicting early forecasts in January. Consumers and businesses adapting to current restrictions and the continued surge of the housing market are key contributors to the recovery of the economy. While the economy has improved, there still remains economic slack given the uncertainty of the virus and the journey to economic growth. The …
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Strong Canadian Economic Growth in Q4 and January

This morning’s Stats Canada release showed that economic growth in the final quarter of last year was a surprisingly strong 9.6% (annualized). The surge in growth in January was even more interesting, estimated at a 0.5% (not annualized) pace. If these numbers pan out, it means that Canada did not suffer a contraction during the second wave and ensuing lockdown. The January figure is noteworthy in that retail sales plunged as nonessential stores were closed in key parts of the country as we faced surging numbers of COVID cases. The strength came from resources, housing and government spending and the mild weather likely helped. At its last meeting in January, the Bank of Canada (BoC) estimated that Q4 growth would come in at 4.8% (half the actual 9.6% pace) and that there would be a net contraction in Q1 of this year. The strength in Q4 emanated from very hot …
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Market Interest Rates are Rising Almost Everywhere

Longer-Term Yields are Rising Despite Central Bank Inaction While central banks hold overnight rates at record lows, anchoring short-term interest rates and the prime rate, mid-to-long-term government yields have been rising since early this month. As the chart below shows, the 5-year Government of Canada bond, upon which mortgage rates are generally tethered, are currently at 0.69%, up 27 basis points since January 29th. This is the highest 5-year yield since late-March 2020.  Canadian bond yields have increased more than in the US, perhaps due to the surge in commodity prices, most notably oil, which has climbed 16.9% in just the past month, taking the year-to-date gain to 27%.Growing government debt arising from fiscal measures to cushion the blow of the pandemic and stimulate the economy has set the stage for higher government bond yields in much of the developed world. Inflation concerns are mounting. In a rare move, yesterday Statistics Canada revised …
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