London Real Estate

10/23/2024

BOC has dropped .50%

Bank of Canada reduces policy rate by 50 basis points to 3¾%
The Bank of Canada today reduced its target for the overnight rate to 3¾%, with the Bank Rate at 4% and the deposit rate at 3¾%. The Bank is continuing its policy of balance sheet normalization.
The Bank continues to expect the global economy to expand at a rate of about 3% over the next two years. Growth in the United States is now expected to be stronger than previously forecast while the outlook for China remains subdued. Growth in the euro area has been soft but should recover modestly next year. Inflation in advanced economies has declined in recent months, and is now around central bank targets. Global financial conditions have eased since July, in part because of market expectations of lower policy interest rates. Global oil prices are about $10 lower than assumed in the July Monetary Policy Report (MPR).
In Canada, the economy grew at around 2% in the first half of the year and we expect growth of 1¾% in the second half. Consumption has continued to grow but is declining on a per person basis. Exports have been boosted by the opening of the Trans Mountain Expansion pipeline. The labour market remains soft—the unemployment rate was at 6.5% in September. Population growth has continued to expand the labour force while hiring has been modest. This has particularly affected young people and newcomers to Canada. Wage growth remains elevated relative to productivity growth. Overall, the economy continues to be in excess supply.
GDP growth is forecast to strengthen gradually over the projection horizon, supported by lower interest rates. This forecast largely reflects the net effect of a gradual pick up in consumer spending per person and slower population growth. Residential investment growth is also projected to rise as strong demand for housing lifts sales and spending on renovations. Business investment is expected to strengthen as demand picks up, and exports should remain strong, supported by robust demand from the United States.
Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026. As the economy strengthens, excess supply is gradually absorbed.
CPI inflation has declined significantly from 2.7% in June to 1.6% in September. Inflation in shelter costs remains elevated but has begun to ease. Excess supply elsewhere in the economy has reduced inflation in the prices of many goods and services. The drop in global oil prices has led to lower gasoline prices. These factors have all combined to bring inflation down. The Bank’s preferred measures of core inflation are now below 2½%. With inflationary pressures no longer broad-based, business and consumer inflation expectations have largely normalized.
The Bank expects inflation to remain close to the target over the projection horizon, with the upward and downward pressures on inflation roughly balancing out. The upward pressure from shelter and other services gradually diminishes, and the downward pressure on inflation recedes as excess supply in the economy is absorbed.
With inflation now back around the 2% target, Governing Council decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range. If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further. However, the timing and pace of further reductions in the policy rate will be guided by incoming information and our assessment of its implications for the inflation outlook. We will take decisions one meeting at a time. The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.

10/22/2024

Is Canada ready for a 50-point rate cut? Economists weigh in
Market expectations build around a steep rate cut as inflation slows and economic risks rise

Economists are placing their bets on the Bank of Canada cutting interest rates by 50 basis points, as the central bank prepares to announce its latest interest rate decision on Wednesday.
BoC officials are facing pressure to act as downside risks to the Canadian economy become more apparent.
“Markets have thrown down their 50-basis point chip on the poker table, betting that the Bank of Canada will deliver an interest rate cut of that magnitude,” CIBC chief economist Avery Shenfeld said in a note to clients.
While Shenfeld acknowledged the possibility of a larger 75-bps cut, he believes the central bank is more likely to go with the 50-bps reduction, a move that would signal confidence in economic recovery prospects for 2025.
Inflation has been a key driver of these rate cut predictions. Headline inflation fell to 1.6% in September, down from the Bank of Canada’s 2% target in August. This drop, combined with weaker economic indicators, has led five of the six major Canadian banks to predict a sharper rate cut this month.
“What the economy tells us is that inflation, if anything, is going to slow even more,” said RBC economist Claire Fan, adding that the central bank is likely to highlight the risk of inflation falling below target rather than overshooting it.
Economic growth has also lagged behind expectations. The Bank of Canada’s July monetary policy report predicted gross domestic product (GDP) growth of 2.1% for the third quarter, but early estimates now suggest the figure will be closer to 1%.
“The Bank of Canada had a very high forecast for GDP,” said Beata Caranci, chief economist at TD Bank. “I don’t think anyone had forecasted as high… when they came out with that number.”
While September’s unemployment rate dipped slightly to 6.5%, it remains nearly a percentage point higher than the same time last year. Governor Tiff Macklem indicated last month that the central bank could consider faster rate cuts if growth continues to lag behind expectations. However, TD Bank remained cautious, predicting a smaller 25-bps cut.
“There is not a compelling case that they need to accelerate rate cuts at this stage,” Caranci explained. “Whether you get there six weeks early or not, is not as important as the signal you send to households and markets by doing an almost emergency-style cut when there is no fire to put out.”
She added that the absence of a serious rise in delinquency rates, along with concerns about reigniting housing market activity, support a more gradual approach.
Economists at the National Bank of Canada are among those calling for a steeper cut, predicting a 50-bps reduction not only this month but also at the Bank’s next meeting in December.
“To be sure, the Bank of Canada will still acknowledge some upside risks but expect more emphasis on the downside,” wrote National Bank economists Taylor Schleich and Warren Lovely. “This is why we argue that, at a minimum, the Bank of Canada will/should quickly get back to a more neutral policy stance, entailing a 50-basis-point cut on Wednesday and (another) in December.”

10/02/2024

Some clarification about the new mortgage rules.
1. The 30 year amortization is available provided at least on person on title is a 1st time buyer.
2. This is available to submissions after the 15th of December. Lender's may resubmit a current application after Dec 15th, provided it is prior to closing
3. The insurance premium is surcharged by .20% making the high ratio insurance premium more as well as the tax on that premium
I hope this clarifies some of the questions you may have

09/25/2024

Here is s snippet from TD's economists - positive news for teh RE market

Last week, TD Economics updated its economic forecasts. With the Bank of Canada firmly in its rate-reduction cycle, the housing market is expected to be strong next year. TD is forecasting a further 200 basis points of cuts: 50 basis points in the fourth quarter of 2024, 125 basis points in 2025 and an additional 25 basis points in the first quarter of 2026, bringing the overnight rate down to 2.25 per cent from the current 4.25 per cent. (There are 100 basis points in a percentage point.)
TD also raised its 2025 home sales and price forecasts for all provinces from its June forecast. In 2025, annual average existing home prices are forecast to rise between 3.6 per cent and 7 per cent across the 10 provinces with the strongest growth expected for the Prairie provinces and the greatest improvement seen in Ontario. Annual average existing home prices are anticipated to expand by 7 per cent in Alberta, 6.2 per cent in Saskatchewan and 6 per cent in Manitoba. In Ontario, the housing market is expected to recover with annual average existing home prices rising 4.6 per cent, up from a decline of 0.4 per cent anticipated in 2024.

09/05/2024

Interesting, and worth a read about interest rates


OTTAWA (Reuters) -The Bank of Canada on Wednesday trimmed its key policy rate by 25 basis points to 4.25% as forecast and Governor Tiff Macklem, citing weak growth, said a larger cut could be in order if the economy needs a boost.
The bank had held its benchmark rate at a two-decade high of 5% for a year until June when it started the easing cycle.
Wednesday marked the third consecutive cut, with the bank citing continued easing in broad inflationary pressures.
Overall inflation fell to a 40-month low of 2.5% in July, still above the BoC's target of 2.0%. But the economy now looks to be weaker than the bank had forecast just six weeks ago.
"With inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much," Macklem said.
Second-quarter growth was better than expected at 2.1% but it flattened out in June and is likely to be anemic in July. Growth could fall short of the 2.8% annualized third-quarter advance the bank projected in July, economists say.
Macklem echoed their comments at a press conference, saying that while he expects growth to pick up in the second half of the year, there could be some risks to the projections.
A weakening economy has hurt the country's ability to absorb a sharply rising workforce, leading to a rise in unemployment, prompting calls for continued rate cuts.
Some economists are predicting that slow growth could prompt the bank to go for a jumbo cut of 50 basis points in October or December. Macklem said a bigger cut was possible if the economy weakened more than expected.
View on Watch
"We will be assessing the data as it comes out, and (if) we need to take a bigger step, we're prepared to take a bigger step," he said.
Financial markets see a 93% chance of a rate cut of 25 basis points in October while a rate reduction in December is fully priced in.
"With growth faltering instead of picking up as officials had forecast back in July, the risk is that central bankers will need to slash rates in October by 50bps instead of 25bps to spur a recovery," Royce Mendes, head of macro strategy at Desjardins Group, wrote in a note.
Since July, the six-member governing council has pivoted from seeking only to control inflation to supporting the economy even as it fights resilient inflation in some pockets.
"Overall weakness in the economy continues to pull inflation down," Macklem said, adding that stubbornly high price pressures in shelter and some services were holding inflation up.
If inflation continues to ease broadly in line with the bank's July forecast, it is reasonable to expect further rate cuts, he said.
The Canadian dollar pared early losses and was up 0.1% to 1.3538 against the U.S. dollar, or 73.87 U.S. cents, while yields for two-year Canadian government bonds fell 5.2 basis points to 3.193% after the release of the decision.
The BoC will announce its next decision on Oct. 23 and also update its economic projections.
The last time the bank cut rates on three consecutive scheduled announcement dates was in 2009, during the global financial crisis.
The BoC became the first G7 central bank to start cutting rates.
The European Central Bank followed with a rate cut in June, but has held steady since then. It is widely expected to cut this month.
Markets are pricing in the first rate reduction by the U.S. Federal Reserve this month.

10/26/2023

3% by the end of 2024: What economists say
about the Bank of Canada's interest rate
decision

The Bank of Canada held its benchmark interest rate at five per cent on Oct. 25,
its second consecutive pause, meeting economist expectations amid a slowdown
in the economy.
The bank said there is growing evidence higher interest rates are cooling the
Canadian economy and noted easing demand for housing, goods and services
and business investment in its statement accompanying the decision .
“Signs of flagging demand were reason enough for the Bank of Canada to keep
its target rate on hold,” Avery Shenfeld, chief economist at CIBC Capital Markets,
said.
However, with inflation still above target, Shenfeld noted the bank wasn’t ready
to declare its job over in getting inflation to two per cent.
The bank warned it could hike interest rates again if “inflation expectations, wage
growth and corporate pricing behaviour” don’t moderate.
“Governing Council is concerned that progress towards price stability is slow and
inflationary risks have increased, and is prepared to raise the policy rate further if
needed,” the bank said.
The bank also noted that its preferred measures of core inflation remain above
target at 3.7 per cent and 3.8 per cent year over year.
“The bank is clearly frustrated by the achingly slow (but entirely predictable)
descent in inflation,” Douglas Porter, chief economist at BMO Economics, said.
Here’s what economists say about the Bank of Canada hold and where rates
could go from here.
Avery Shenfeld, CIBC Economics
“Signs of flagging demand were reason enough for the Bank of Canada to keep
its target rate on hold at five per cent today, but with inflation still well above
target, it’s not yet willing to give up on its warning that further hikes could still be
in the offing if prices don’t see enough cooling ahead.
Both decisions should come as no surprise to markets today. The statement cited
‘growing evidence that past interest rate increases are dampening economic
activity,’ and its 0.9 per cent forecast for 2024 growth (revised down from 1.2 per
cent) implies another few quarters of only sluggish gains ahead. But it also is
concerned about what it sees as ‘little downward momentum’ in core inflation.
It’s raised the near term inflation projection somewhat due to energy prices but
also due to the lack of core inflation progress, but the fact that it’s not hiking in
response to that suggests that it’s willing to show some patience while they wait
for economic slack to bring inflation down to two per cent in 2025.
Of interest, the nominal neutral rate is still seen as two to three per cent, while
the output gap has been revised down, and is seen as slightly negative as of Q3.
We expect that more of that momentum on inflation will show up as that slack
grows in subsequent quarters, and therefore don’t expect to see additional rate
hikes ahead, and room to ease as we approach mid-2024.”
Stephen Brown, Capital Economics
“Although the Bank of Canada maintained its tightening bias today, the rest of
the policy statement suggests that the bank is growing more confident that its
job is done. We continue to expect the bank to cut interest rates by much more
than markets are pricing in next year.
We see scope for headline inflation to return to the two per cent target in the
third quarter of 2024, a full year before the bank anticipates. That is partly
because, in contrast to the bank’s view that the economy will avoid recession, we
judge that we are already in the opening stages of one. We see scope for the
bank to begin cutting interest rates from around April 2024, taking the policy rate
back to three per cent by the end of the year.”
James Orlando, TD Economics
“Although the Bank of Canada has painted a clear picture for why it doesn’t need
to hike again, we expect its hawkish rhetoric to persist. It needs to maintain
current tight financial conditions in order to achieve its forecast slowdown. And
while markets are hesitant to build in another hike, the impact of the bank’s
rhetoric has resulted in a higher for longer path for its policy rate.”
Douglas Porter, BMO Economics
“We have long believed that fiver per cent rates are plenty high enough to
eventually quell underlying inflation, but it will take time and patience. Strong
wage growth and firm core inflation trends are going to test the bank’s patience.
However, all signs suggest that the economy is struggling mightily to grow —
despite the artificial sweetener of a surging population — with Q3 GDP about
flat, housing halting, consumer confidence crumbling, and the Business Outlook
Survey pointing south. Still, price and wage growth remain too fast for the BoC to
back off its hawkish rhetoric just yet. To act on that hawk talk would take either a
big rebound in growth, a renewed acceleration in inflation, or perhaps a
considerably weaker Canadian dollar. We assume none of those forces will weigh
in, and look for the bank to remain on hold deep into 2024

09/06/2023

Latest economic news from multiple bank economists.

By Ketki Saxena Investing.com -- Tomorrow at 10:00 a.m ET, the Bank of Canada is set to deliver its monetary policy announcement. Economists are nearly unanimous in their calls for the Bank of Canada to stay on pause tomorrow, holding its overnight...