Have you ever considered a reverse mortgage?  This product is becoming more popular these days and they are being used for a number of reasons including Income support, to manage debt, renovations to remain in your home, to provide a living inheritance or to help provide funds to assist a relative with a down payment.  

 

Top 8 Questions About Reverse Mortgages.

Written by Mich Sneddon, CPA, CA – Reverse Mortgage Pros

Having completed dozens of reverse mortgage deals, there are some questions that I find I get over and over again.
So today I thought I’d write a piece on the 8 most common reverse mortgage questions that people in Canada have regarding reverse mortgages.

1. if i have an existing mortgage on the property, can i get a reverse mortgage?

Not only is this the most common question regarding reverse mortgages, it is actually one of the most common uses for a reverse mortgage – to pay off the current mortgage and eliminate that payment and help with monthly cash flow. However, it is important to realize that you would need to qualify for enough to pay that existing mortgage in full.

For example: If you have $70,000 remaining on the mortgage, you would need to qualify for at least $70,000 to be eligible for a reverse mortgage. If you owe $70,000 and qualify for $100,000 in reverse mortgage funds, the $70,000 would be paid first and you would be left with the remaining $30,000.

The good news is that the reverse mortgage funds can also be used to pay any penalties or charges for paying out your mortgage as well. However, the existing mortgage must always be paid off using the reverse mortgage funds and you get to keep whatever is left. Essentially, you are swapping your mortgage with a reverse mortgage and keeping the excess cash.

2. can i pay the interest or make payments on the amount i receive?

Yes, you can make monthly interest payment if you choose and you can also pay up to 10% of the amount borrowed (1 payment per year) if you wish.

However, you also have the option to pay nothing at all until you sell the property or until you pass away. Most people choose this option but it is nice to know that you can pay the interest every month (essentially turn the reverse mortgage into the same thing as a Home Equity Line Of Credit).

3. how do you determine how much i qualify for? i thought i could get 55% of my home value?

This is a common question that we get. It is important to note that you can qualify for up to 55% of the value of the property and not everyone will get this amount. The words ‘up to’ are very important in this statement.

To determine how much you qualify for, four different factors are used: The ages of all applicants, the property value, the property location (postal code) and the property type.

Here is a quick example for all 4 factors: Someone aged 80 will qualify for more than someone aged 60; someone in a city will qualify for more than someone in the countryside; someone with a property value of $500,000 will qualify for more than someone whose value is $200,000 and someone who lives in a detached house will usually qualify for more than someone who lives in a Condo.

4. i’m 60 but my wife is 53, can we still qualify?

Unfortunately, no. Both applicants need to be 55 or over to qualify. Even if just one of you is on the title, because it is deemed a ‘matrimonial home’ (meaning that the husband and wife both have a legal right to the home, by nature of being married) both of you need to be 55 or over.

5. what is involved in the application?

Reverse mortgages aren’t as difficult a process to go through as a traditional mortgage. However, you aren’t going to simply be given the money either – remember you are still talking about large amounts of money here and the lender is a Schedule A bank.

Your credit score and income are not usually significant factors in the application – but the lender will still check these. In addition to this, proof of identity and other such paperwork is required.

An appraisal is always required and is the first step – so the lender can identify the market value of your home and therefore how much they can lend. However, it is possible to get a ‘quote’ before this.

6. what if i want to sell my home?

You can sell your house at any time if you have a reverse mortgage. The mortgage amount (plus any accrued interest and prepayment penalties, if any) would then be paid from the proceeds of the sale. The process would be exactly the same as if you had any other kind of mortgage or HELOC on the property.

7. will i still own my home?

Yes, you will remain on the title for as long as you or your spouse live in the property and you can never be forced out of your home because of a reverse mortgage. In fact, from this point of view a reverse mortgage is ‘safer’ than a traditional mortgage. Under a traditional mortgage, you could lose your home for not paying your monthly mortgage payments. Since no such payments exist for a reverse mortgage, there is no such risk.

8. if i sell my house, can i re-apply for another reverse mortgage on my new property?

Absolutely! As long as the property is your primary residence – but just remember that you would need to qualify for enough to pay any mortgage on the new property. Reverse mortgages can be used for purchases in this way.

If you have any questions, please contact your local Dominion Lending Centres mortgage expert.

Written by: Mich Sneddon, CPA, CA (Published by my DLC Marketing Team)

What did you think of the federal budget that Chrystia Freeland delivered yesterday?  Did you note the increase in the alternative minimum tax or the drop in the criminal rate of interest that can be charged?  What about Health Care spending or Green initiatives?  Click the link below to get details of these items and more as discussed by Chief Economist Dr. Sherry Cooper.

Federal Budget 2023…Press the Snooze Button As promised, there would be nothing much in this year’s budget for fear of stimulating inflation. The federal government faces a challenging fiscal environment and a weakening economy. Ottawa promised it would err on the side of restraint. Instead, Finance Minister Chrystia Freeland announced a $43 billion increase in net new government spending over six years. The new expenditures focus on bolstering the rickety healthcare system, keeping up with the US on new clean-technology incentives, and helping low-income Canadians to deal with rising prices and a slower economy. Tax revenues are expected to slow with the weaker economy. The result is a much higher deficit each year through 2028 and no prospect of a balanced budget over the five-year horizon. The budget outlines significant increases to healthcare spending, including more cash for provincial governments announced earlier this year and a $13-billion dental-care plan that Trudeau’s Liberals promised in exchange for support in parliament from the New Democratic Party.Freeland is also announcing substantial new green incentive programs to compete with the Inflation Reduction Act signed into US law last year by President Joe Biden. The most significant new subsidy in the budget is an investment tax credit for clean electricity producers. Still, it also includes credits for carbon capture systems, hydrogen production, and clean-energy manufacturing. The budget promises $31.3 billion in new healthcare spending and $20.9 billion in new green incentive spending by 2028. On top of that is $4.5 billion in affordability measures, half of which is for an extension of a sales tax credit for low-income Canadians. The spending is partially offset by tax increases on financial institutions and wealthy Canadians and a pledge to reduce government spending on travel and outside consultants. Freeland is planning to raise billions of dollars from banks and insurance companies by changing the tax rules for dividends they get from Canadian firms. The new tax will apply to shares held as mark-to-market assets, not dividends paid from one subsidiary to another. Wealthy Canadians pay the alternative minimum or regular tax, whichever is higher. The government announced in the budget that it is increasing the alternative minimum rate to 20.5 percent from 15 percent starting in 2024. Ottawa is also imposing new limits on many exemptions, deductions and credits that apply under the system beginning in 2024. “We’re making sure the very wealthy and our biggest corporations pay their fair share of taxes, so we can afford to keep taxes low for middle-class families,” Finance Minister Chrystia Freeland said in the prepared text of her remarks.Canada’s debt-to-GDP ratio will worsen next year, despite the government’s reliance on this measure as a fiscal anchor. Debt-to-GDP will rise from 42.4% to 43.5% next year and is projected to decline very slowly over the next five year Canada’s debt-to-GDP ratio will worsen next year, despite the government’s reliance on ths measure as a fiscal anchor. Debt-to-GDP will rise from 42.4% to 43.5% next year and is projected to decline very slowly over the next five years. Not Much for Affordable Housing The budget included a laundry list of measures the federal government has taken to make housing more affordable for Canadians. Budget 2023 announces the government’s intention to support the reallocation of funding from the National Housing Co-Investment Fund’s repair stream to its new construction stream, as needed, to boost the construction of new affordable homes for the Canadians who need them most. But there was one initiative tucked away in a Backgrounder entitled “An Affordable Place to Call Home.” I am quoting this directly from the budget: A Code of Conduct to Protect Canadians with Existing Mortgages “Elevated interest rates have made it harder for some Canadians to make their mortgage payments, particularly for those with variable rate mortgages. That is why the federal government, through the Financial Consumer Agency of Canada, is publishing a guideline to protect Canadians with mortgages who are facing exceptional circumstances. Specifically, the government is taking steps to ensure that federally regulated financial institutions provide Canadians with fair and equitable access to relief measures that are appropriate for the circumstances they are facing, including by extending amortizations, adjusting payment schedules, or authorizing lump-sum payments. Existing mortgage regulations may also allow lenders to provide a temporary mortgage amortization extension—even past 25 years. This guideline will ensure that Canadians are treated fairly and have equitable access to relief, without facing unnecessary penalties, internal bank fees, or interest charges, which will help more Canadians afford the impact of elevated interest rates.” We will see what OSFI has to say about this, as the details are always of paramount importance. OSFI is scheduled to announce potential changes to banking regulation to reduce bank risk. We’ve heard a lot about banking risks in recent weeks. The budget also reduced the legal limit on interest rates.  The government intends to lower the criminal rate of interest from 47% (annual percentage rate) to 35%. According to the law firm Cassels, “’Interest’ is defined broadly under the Code and includes all charges and expenses in any form, including fees, fines, penalties, and commissions.” Bottom Line While this was not one of the more exciting budgets, it is important that our debt-to-GDP ratio is low in comparison to other G-7 countries. It is good news that Ottawa recognizes the financial burdens facing homeowners with VRMs. If the banks can extend remaining amortizations when borrowers renew, the pressure on their pocketbooks will be markedly lower.   Written by: Dr. Sherry Cooper, Chief Economist for Dominion Lending Centres

We have seen a pause in the successive Bank of Canada Interest rates hikes and inflation seems to be slowing coming down.  Is now the time to jump back into the housing market?  Are home prices finally hitting the bottom?  Storeys takes a look at whether the decline in home prices is losing steam and we are nearing the bottom.

Canadian home prices continued to tumble in February, according to new data, but there are signs that the bottom is near.

The Teranet-National Bank Composite House Price Index tracks observed or registered home prices across 11 CMAs: Victoria, Vancouver, Calgary, Edmonton, Winnipeg, Hamilton, Toronto, Ottawa-Gatineau, Montreal, Quebec City, and Halifax. All properties that have been sold at least twice are considered in the calculation of the index.

The latest index, released Friday, shows a 0.3% dip, before seasonal adjustments, between January and February. After adjusting for seasonal effects, the index was down 0.5%, marking the tenth consecutive monthly decline.

The index has been trending downwards for some time, but declines have progressively lost steam following a record-breaking drop of 3.1% in September. The decline observed in February was the most nominal yet. In fact, it was the slightest decline the index has seen since July 2022.

Prices depreciating at a slower pace supports the assertion that the bottom is likely near — something that has been corroborated by report after report. Last week alone, reports from the Canadian Real Estate Association, RBC, and Desjardins all came to a similar conclusion: prices are looking likely to bottom out soon, although there is still much debate as to when exactly that will be.

READ: Canadian Home Sales Have Slumped 40% From February Peak

Month over month, seven of the 11 CMAs examined by Teranet saw their indexes contract in February, including Toronto (-2.7%), Calgary (-2.4%), Halifax (-1.8%), Edmonton (-0.8%), Hamilton (-0.3%), Montréal (-0.3%), and Ottawa-Gatineau (-0.2%).

Additionally, price declines were observed in 11 of the 20 CMAs not included in the composite index, with Thunder Bay and Sherbrooke experiencing the steepest drops of 12.5% and 10.5%, respectively. The report also notes that Thunder Bay and Sherbrooke saw gains of 2.8% and 9% the month prior.

Conversely, prices increased during the month in Vancouver (+3.8%), Victoria (+1.9%), and Québec (+0.1%). Of the CMAs not included in the index, Trois-Rivières observed a gain of 7.7% in February, following a decrease of 9% the month prior, and Guelph saw a gain of 6.6%, following a decrease of 9.4% the month prior.

The index remained stable in Winnipeg.

Year over year, the national index fell 4.7% in February, marking the second straight month in which the metric was in “negative territory.”

Nonetheless, annual increases were observed in four of the 11 CMAs examined, with Calgary at the forefront with a gain of 8.8%. Quebec City trailed behind with a 5% gain and Edmonton also saw a 1.9% increase. Meanwhile, Hamilton, Toronto, and Vancouver dragged down the national composite, with declines of 14%, 8.8%, and 3.9%, respectively.

Amongst the 20 CMAs not considered in the index, positive annual gains were observed in five, with Trois-Rivières (+12.4%), and Saint John (+12.1%) leading the pack. Abbotsford-Mission, Guelph, and Thunder Bay saw the steepest declines, dropping 15.1%, 16.6%, and 17.5%, respectively.

Written by: Rob McLister, The Globe and Mail- March 9, 2023

Finally a pause after eight consecutive Bank of Canada rate increases.   Why now, and where do we go from here?  Dr. Sherry Cooper, Chief Economist for Dominion Lending Centres provides here expert insight to answer those questions and more. 

Bank of Canada Pauses Rate Hikes As US Fed Promises Further Tightening.

As expected, the central bank held the overnight rate at 4.5%, ending, for now, the eight consecutive rate increases over the past year. The Bank is also continuing its policy of quantitative tightening. This is the first pause among major central banks.

Economic growth ground to a halt in the fourth quarter of 2022, lower than the Bank projected. “With consumption, government spending and net exports all increasing, the weaker-than-expected GDP was largely because of a sizeable slowdown in inventory investment.” The surge in interest rates has markedly slowed housing activity. “Restrictive monetary policy continues to weigh on household spending, and business investment has weakened alongside slowing domestic and foreign demand.”

In contrast, the labour market remains very tight. “Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated.” Wages continue to grow at 4%-to-5%, while productivity has declined.

“Inflation eased to 5.9% in January, reflecting lower price increases for energy, durable goods and some services. Price increases for food and shelter remain high, causing continued hardship for Canadians.” With weak economic growth for the next few quarters, the Bank of Canada expects pressure in product and labour markets to ease. The central bank believes this should moderate wage growth and increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.

In sum, the statement suggests the Bank of Canada sees the economy evolving as expected in its January forecasts. “Overall, the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year,” policymakers said.

However, year-over-year measures of core inflation ticked down to about 5%, and 3-month measures are around 3½%. Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.

Today’s press release says, “Governing Council will continue to assess economic developments and the impact of past interest rate increases and is prepared to increase the policy rate further if needed to return inflation to the 2% target. The Bank remains resolute in its commitment to restoring price stability for Canadians.”

Most economists believe the Bank of Canada will hold the overnight rate at 4.5% for the remainder of this year and begin cutting interest rates in 2024. A few even think that rate cuts will begin late this year.

In Congressional testimony yesterday and today, Federal Reserve Chair Jerome Powell said that the Fed might need to hike interest rates to higher levels and leave them there longer than the market expects. Today’s news of the Bank of Canada pause triggered a further dip in the Canadian dollar (see charts below).

Fed officials next meet on March 21-22, when they will update quarterly economic forecasts. In December, they saw rates peaking around 5.1% this year. Investors upped their bets that the Fed could raise interest rates by 50 basis points when it gathers later this month instead of continuing the quarter-point pace from the previous meeting. They also saw the Fed taking rates higher, projecting that the Fed’s policy benchmark will peak at around 5.6% this year.

Bottom Line

The widening divergence between the Bank of Canada and the Fed will trigger further declines in the Canadian dollar. This, in and of itself, raises the Canadian prices of commodities and imports from the US. This ups the ante for the Bank of Canada.

The Bank is scheduled to make its next announcement on the policy rate on April 12, just days before OSFI announces its next move to tighten mortgage-related regulations on federally supervised financial institutions.

To be sure, the Canadian economy is more interest-rate sensitive than the US.  Nevertheless, as Powell said, “Inflation is coming down, but it’s very high. Some part of the high inflation that we are experiencing is very likely related to a very tight labour market.”

If that is true for the US, it is likely true for Canada. I do not expect any rate cuts in Canada this year, and the jury is still out on whether the peak policy rate this cycle will be 4.5%.

Written by: Dr. Sherry Cooper, Chief Economist for Dominion Lending Centres

Do you own a residential property in the City of Toronto?  The city will begin to levy an annual tax of 1% starting in 2023 on all vacant Toronto residential properties.  Toronto residential property owners must complete their declaration of property status by Feb 2/23 to avoid penalties.   Full details in the ‘Vacant Home Tax” link below.

A new tax on vacant homes is set to take effect in Toronto and homeowners have until this Thursday to declare the status of their properties.

Toronto’s City Council introduced the Vacant Home Tax in a bid to increase housing supply by discouraging homeowners from leaving their properties unoccupied. It went into force last year, making 2022 the first payable year the tax will be levied on vacant homes for one per cent of a property’s Current Value Assessment (CVA).

Lived-in homes won’t be taxed, but all Toronto residential property owners must submit a declaration of their properties’ status by Feb 2 – and those who don’t submit the paperwork could find their homes deemed vacant and pay the price.

POSSIBLE FINES

Penelope Graham, director of content at Ratehub.ca, said homeowners should strive to meet the Feb. 2 deadline in order to avoid steep fines, which range between $250 for failing to submit a declaration to $10,000 for making a false declaration.

“From the homeowners’ perspective, I think awareness is really important because the city is being quite stringent in terms of the fines if you don’t comply,” she said in a Monday phone interview with BNNBloomberg.ca.

People who don’t submit a declaration could also be taxed the full portion of the Vacant Home Tax.

Interest will be applied to overdue tax amounts at a rate of 1.25 per cent on the first day after default, and again each month as long as there are unpaid amounts. Toronto said unpaid amounts will be added to property taxes upon default of payment.

WHO IS AFFECTED

Toronto defines a property as vacant if it was not used as a principal residence for the owner or other occupants, or was unoccupied for six months or more during the previous calendar year.

Graham said real estate investors with units sitting empty will likely be among those affected by the tax.

She also advised that home buyers and sellers pay close attention to their closing dates when it comes to the tax.

The seller must complete the tax declaration if the sale closes between Jan. 1 and Feb. 2, and the purchaser must submit a declaration the following year for any closing dates from Feb. 3 until Dec. 31.

However, Toronto said “any unpaid taxes will become the purchaser’s responsibility” and the Vacant Home Tax will form a lien on a property.

EXEMPTIONS

Some vacant homes are exempt from the tax. Those situations include:

• Death of a homeowner
• Principal resident is in a care facility like a hospital or long-term care home
• Court order preventing occupancy
• Owner lives outside the Greater Toronto Area but requires the vacant home for occupation-related residency for at least six months of the year
• Repairs and renovations
• Transfer of legal ownership

Paperwork is required to qualify for an exemption to the tax, and Graham said people with exemptions or those who might fall through the cracks should stay on top of communication with municipal officials.

“It’s really important to be communicating with the city and ensuring you’re getting ahead of it,” she said.

HOW TO DECLARE

Homeowners can submit their declaration for the tax online. There is also a paper option, but Graham noted that the city must receive copies by the Feb. 2 deadline.

Toronto said it will issue notices to owners in March and April and payments for the tax will be due on May 1.

WHAT IS THE GOAL

Toronto is the latest Canadian jurisdiction to introduce a tax on vacant homes as the country struggles with a widespread housing shortage.

Vancouver was the first to introduce a tax on vacant homes and said in November it had generated $115.3 million for affordable housing initiatives and renter supports since 2017.

The federal government has also introduced an “Underused Housing Tax” that mostly applies to non-resident homeowners, while other Canadian cities are also considering the measure.

Toronto said revenue from its tax will go towards affordable housing, with a goal to discourage vacant rental units at a time when Canadian renters face the tightest market since 2001, according to a report from the Canada Mortgage and Housing Corporation (CMHC).

Some data from Vancouver suggests the tax nudged some vacant homes back onto the market, with the city reporting that the number of unoccupied properties decreased by 36 per cent between 2017 and 2021.

It remains to be seen how the tax will play out in Toronto, but Graham said it presents an opportunity to understand true number of vacant properties and potentially expand housing supply amid a “crucial shortage” that’s also contributing to the steep cost of real estate.

“Any opportunity to get more data on the true status of the housing market is going to be beneficial,” she said. “Hopefully we’ll see some positive benefits … and actually see some of these units returning to either the rental or the ownership market.”

Written by:  Holly McKenzie-Sutter, BNN Bloomberg (published Jan 31/23)

I think we have all been reading the headlines and feeling the impact of the rapid rise in variable interest rates.  However, the 5-year fixed rates are now tracking about 120 basis points below the variable rates.  Steve Huebl from Canadian Mortgage Trends provides some insight as to where this might be leading us.

While rates have been steadily climbing for variable mortgages, fixed mortgage rates have been moving in the opposite direction.

Certain lenders and national brokerages have been gradually dropping rates for select terms since the start of the month. Average nationally-available deep-discount 5-year fixed mortgage rates are now about 20 basis points lower compared to earlier in the month, according to data from MortgageLogic.news.

The move follows the recent decline in the 5-year Government of Canada bond yield, which typically leads fixed mortgage rates.

The 5-year bond yield closed at 3.05% on Monday, bouncing back slightly from a 5-month low of 2.80% reached last week. Still, yields are down from about 3.40% four weeks ago and the 14-year high of 3.89% reached in October.

Could this be a peak for fixed rates?

While this isn’t the first time fixed mortgage rates have dipped in recent months, some suggest that with expectations of a recession on the horizon and with the worst of inflation seemingly behind us, rates could continue to ease some more.

“It certainly looks to me like we’re starting to bump up against some resistance on fixed mortgage rates,” Ben Rabidoux of Edge Realty Analytics said during a webinar for clients on Monday. “I think there is a very good chance that we’ve seen the peak in fixed mortgage rates and they’re now beginning to decline.”

He pointed to the “highly unusual” fact that fixed rates are now priced about 120 basis points (or 1.2 percentage points) below variable rates.

“That’s an indication that the rates market is projecting Bank of Canada rate cuts later this year,” he said. “This helps explain why fixed rates are lower than variable because the fixed rates are priced off the bond market…[and] the bond market is clearly signalling that the worst of the inflation scare is behind us.”

If the current trend continues, Rabidoux said that there’s a “very good chance” that 5-year fixed rates fall back to the “low fours” by the spring homebuying season.

“If [yields] continue to tick down a little, the possibility that we end up with mortgages in the high threes is not outside the realm of possibility at this point,” he added. “A lot can change, but as it stands right now, I think the direction of travel for interest rates is clearly down and that’s good news.”

Short-term fixed rates growing in popularity

Many borrowers are clearly anticipating lower rates again in the coming years, which explains the rising popularity of short-term fixed rates.

Data from the Bank of Canada shows a clear trend of borrowers shifting away from variable rates and towards short-term fixed rates.

Nearly a third (31%) of all new mortgage originations as of November had a fixed-rate term of under three years.

It’s a trend Rabidoux said he expects to continue, so long as expectations are for rates to come down in the near term.

“It makes sense. If I were taking out a mortgage today, I would be inclined to look at 1- or 2-year fixed because I think there’s a decent chance that, a year or two from now, [rates are] going to be substantially cheaper at renewal,” he said.

Meanwhile, after making up nearly 60% of new mortgage originations last year, variable-rate products are back to making up a more historically average share of new mortgages, according to the Bank of Canada data. In November, 22% of new originations had a variable-rate mortgage.

Written by: Steve Huebl_Canadian Mortgage Trends (published Jan 30/23)

“There have been a number of recent newpaper headlines about frauds being purpetrated against unsuspecting homeowners having their property sold out from under them.  What is Title Insurance and how can you protect yourself?”

What to Know About Title Insurance.

There are many insurance products when it comes to your home, but not all are created equal. One such insurance policy that potential homeowners may encounter is known as “title insurance”.

This particular insurance is designed to protect residential or commercial property owners and their lenders against losses relating to the property’s title or ownership. In fact, it is so important to lenders that every single lender in Canada requires you to purchase title insurance on their behalf. It is not a requirement to have coverage for yourself, but that doesn’t mean you should dismiss it outright.

While title insurance can protect you from existing liens on the property’s title, the most common benefit is protection against title fraud.

Title fraud typically involves someone using stolen personal information, or forged documents to transfer your home’s title to him or herself – without your knowledge. The fraudster then gets a mortgage on your home and disappears with the money. As the old adage goes: “It’s better to be safe than sorry” and the same goes for insurance.

Similar to default insurance, title insurance is charged as a one-time fee or a premium with the cost based on the value of your property. This insurance typically runs around $300 for the lender and $150 for the individual. It can be purchased through your lawyer or title insurance company, such as First Canadian Title (FCT).

If you are wanting to know more about title insurance, or confirm that you (and your home) are properly protected, don’t hesitate to reach out to a Dominion Lending Centres mortgage expert today for a mortgage review!

Written by : My DLC Marketing Team (Published Jan 17/23)

Maybe you have a variable mortgage and maybe you are just a little concerned about mortgage interest rates as you approach your trigger rate (the point at which your mortgage payment does not cover the interest due to rising rates).  Dr. Sherry Cooper outlines why she thinks a quarter point interest rate may be coming our way when the Bank of Canada makes its next policy announcement on January 25, 2023.

Employment report ended 2022 with a boom

Labour Force Survey for December was much stronger than expected, raising the odds of a 25 bps increase in the policy rate by the Bank of Canada on January 25th. While the Bank has hiked rates by 400 bps to 4.25%, core inflation remains sticky, wages have risen by more than 5% for the seventh consecutive month in December, and Q4 GDP is running well above the Bank’s forecast of 0.5%.

Employment rose by 104,000 last month, and the unemployment rate fell to 5.0%–just above the 50-year low of 4.9% posted in June and July. Indeed, the jobless rate would have fallen even further had the labour force participation rate not ticked upward as discouraged workers re-enter the jobs market when vacancies are plentiful. Employment rose the most for youth and people aged 55 and older.

Throughout 2022 the employment rate of core-aged women hovered around record highs. On average, 81.0% of core-aged women were employed, the highest annual rate since 1976 and 1.3 percentage points higher than in 2019.

Much of this increase has been among women with young children. On average, during 2022, 75.2% of core-aged women with at least one child under six years of age were working at a job or business, up 3.3 percentage points compared with 2019.

The increase in employment in December was driven by full-time work, which rose for a third consecutive month.  Full-time work also led employment growth for the year ending in December 2022.

Employment rose in multiple industries, notably construction, transportation, and warehousing.

Job gains were reported in Ontario, Alberta, BC, Manitoba, Newfoundland and Labrador, and Saskatchewan.  There was little change in the other provinces.

Bottom Line

The Canadian economy has also been boosted by strength in the US, where nonfarm payroll employment rose by 223,000 in December, and the unemployment rate fell to 3.5%, matching a five-decade low.

Governor Tiff Macklem and his officials have slowed down the rate hikes (from 75 bps to 50 bps) and signalled that future decisions would depend on economic data. Indeed, the most recent GDP and today’s jobs report point to continued economic strength. The October and November gains in GDP suggest Canada’s growth is holding up better than expected. The economy is on track to expand at an annualized rate of 1.2% in the fourth quarter, exceeding the central bank’s expectations.

The December CPI report will be released on Jan 17, ahead of the Jan 25 Bank of Canada decision. That will be closely watched as well.

In other news, housing market activity continued to slow in December. Home sales plummeted in the country’s largest metro areas by 30%-to-50% as buyers and sellers moved to the sidelines. Housing is the most interest-sensitive sector and has been slowing since the Bank began hiking interest rates last March.

Greater Vancouver led the way, with sales falling 52% year-over-year, while the Greater Toronto Area saw a 48% decline. Montreal followed with a 39% annual decline, whereas sales were down 30% in both Calgary and Ottawa.

Average prices continued to fall in most of the metro areas. The MLS Home Price Index benchmark is now down 9% year-over-year in the Greater Toronto Area. In Calgary, however, average prices remain nearly 8% above year-ago levels.

Written by: “Dr. Sherry Cooper, Chief Economist to Dominion Lending Centres”