HELOCs, also known as a Home Equity Line of Credit, provide homeowners with the opportunity to capitalize on the available equity in their property.
One benefit of HELOCs is the ability to borrow varying amounts over time, with interest rates tied to the Prime Rate. These loans are "open" and can be paid off without penalty, and can be used as needed up to the credit limit. The loan is considered revolving because once it is paid back, the borrower can access the available credit again. It is recommended to borrow only the required amount to keep monthly payments low and prevent additional debt and interest payments. However, HELOCs can be risky for undisciplined borrowers because of the fluctuating interest rate and the feeling of having unlimited credit. What does the term Home Equity Line of Credit (HELOC) mean?HELOCs, similar to credit cards, have variable interest rates which can result in changes to your monthly payment depending on the amount borrowed and current interest rates during a specific time frame. This makes them essential. When you have a HELOC, the equity in your home determines the maximum amount you can borrow, which is like a credit card's credit limit. You can choose to use some or all of this limit, and you will only be charged interest on the amount you actually borrow. If you haven't borrowed any money yet, you won't have to pay back anything or any extra fees. Pros: - Credit cards have higher APRs compared to HELOC rates. - Possibly eligible for tax deductions, the interest paid. - Withdrawals and repayments that can be adjusted according to individual needs. - Possible enhancement to one's credit record. Cons: - The loan is secured by the home. - The share of the borrower's home equity is diminished. - Rise in interest rate if Prime Rate rises. - Ability to quickly accumulate a large balance. -->Regulatory Agency & Home Equity Lines:The Office of the Superintendent of Financial Institutions (OSFI) has made a significant move to ensure that financial institutions regulated by the federal government are adequately equipped to deal with the potential dangers of unresolved consumer debt, which could potentially expose lenders to adverse economic impacts. Therefore, OSFI declared that starting from the conclusion of 2023, the highest permissible loan-to-value (LTV) ratio for Combined Loan Plans, as referred to by OSFI, will be lowered from 80% to 65%. In our industry, re-advanceable mortgages are often known as Combined Loan Plans due to their inclusion of home-equity lines-of-credit (HELOCs). According to Mortgage Professionals Canada, Canadian homeowners typically use just around 30% of their approved HELOC limits. Additionally, it has been noted that only about 6% of all HELOCs are fully utilized. Furthermore, MPC has stated that only one out of every thousand borrowers with HELOCs was more than 90 days late on their payments. They have also mentioned that the default rates for HELOCs are approximately half as high as the default rates for mortgages. (In Q1 2022, Equifax reported that the proportion of mortgages in Canada that were in default was 0.18%.) The Office of the Superintendent of Financial Institutions (OSFI) is set to introduce new guidelines that will lower the borrowing capacity of certain Canadian homeowners due to the increasing household debt, which is causing concerns for our country's financial system. The guidelines are specifically aimed at combined loan plans (CLPs), which are also referred to as re-advanceable mortgages. Stated by OSFI, CLPs combine a standard mortgage loan that gradually reduces the principal amount with a home equity line of credit (HELOC). As you pay down your mortgage principal each month, that money becomes immediately available in a line of credit up to a certain threshold. Do you have a mortgage question? I would be more than happy to assist you. Please do not hesitate to reach out. Sarah Colucci, Mortgage Agent Level Sherwood Mortgage Group, Broker 1217 Direct: 647-773-4849 www.coluccimortgages.com #HomeEquity #HELOC #Mortgage #Finance #CreditLines #RealEstate #FinancialPlanning #OSFI #Borrowing #Debt #Homeowners
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Organize your way to mortgage approval with our tailored mortgage solutions and expert guidance.9/6/2023 The success of your mortgage application ultimately hinges on the effectiveness of both your own level of organization and that of your mortgage broker.
Our company works alongside various Canadian mortgage lenders, such as banks and credit unions, to provide customized mortgage solutions that cater to the needs of different types of borrowers. Each program has its own set of requirements for documentation. Mortgage brokers often face rejection due to their failure to prioritize organization. If they submit applications with incorrect information without verifying it first, clients may find out later that they were not actually approved for a mortgage. This is an unfortunate situation that occurs frequently in the mortgage industry. Our clients can always rely on us to prevent them from being in a position where they lose the approval they believed they had. Our focus is on efficiency and accuracy for this very reason! As a borrower, you have a part to play as well in maximizing your chances of success. To improve your likelihood of approval, it is important to collect and send all necessary documentation in a single, well-organized email. Ensure that the documents are clear, complete, and saved as PDF files. Additionally, do not redact official bank statements. Finally, it is important to remain patient throughout the process. Once you submit the required paperwork as instructed, you can rest assured that the approval you obtain will be definitive. Bank of Canada increases overnight rate by 25 basis points, continues quantitative tightening.7/12/2023 The Bank of Canada has taken decisive action to rein in economic growth and combat inflation, increasing its overnight rate target to 5%, Bank Rate to 51⁄8%, and deposit rate to 5%. In addition, it has continued to enforce its quantitative tightening policy to reduce the amount of money in circulation.
The global rate of inflation is decreasing due to lower energy prices and a decline in the inflation of goods prices. However, there are still inflationary pressures in the service sector due to strong demand and tight labor markets. The economy has been growing more than expected, particularly in the United States, where consumer and business spending has been resilient. China's economic growth has slowed down due to a decline in exports and ongoing weaknesses in its property sector, despite a surge in early 2023. The euro area's growth has effectively stalled, with manufacturing contracting while the service sector continues to grow. Global financial conditions have tightened, with bond yields increasing in North America and Europe as major central banks signal that further interest rate increases may be necessary to combat inflation. The Monetary Policy Report in July suggested the world economy is set to expand at a rate of 2.8% this year and 2.4% in 2024, before settling on 2.7% growth in 2025. Canada, it appears, is performing above projections, having witnessed an unpredicted growth in consumer demand with a 5.8% boost in the first quarter. It is anticipated that this increase will slow down with higher interest rates, though more current retail and trade data may be signifying that the boost is going to persist for longer. Additionally, the housing market is blooming but new constructions and real estate listings are few and far between, causing prices to climb. Lastly, the labor market is revealing more open positions, though wages have only been rising at 4-5%, with a jump in the number of immigrants adding to the demand and supply. With higher interest rates affecting the entire economy, economic growth is predicted to slow down, likely falling to an average of 1% during the second half of this year and the first half of next. That would lead to a 1.8% growth in GDP in 2023 and 1.2% in 2024, before reaching 2.4% growth in 2025. Consumer price index (CPI) inflation dropped to 3.4% in May of this year, a stark decrease from the 8.1% in the summer of 2020. Though the CPI is on a downward trajectory as predicted, it is mostly energy costs which have gone down and the underlying inflation has remained unchanged. Furthermore, the core inflation has held between 31⁄2-4% since September 2020, signaling consistent inflation. Hence, as reported in the July MPR, it is estimated that the CPI will stay around the 3% mark in the upcoming year before eventually easing to the 2% target in mid-2025. Nonetheless, Governing Council is aware that the progress towards this objective could slow, thus they raised the interest rates and applied quantitative tightening to rebalance the Bank's balance sheet. Going forward, they will vigilantly monitor core and CPI inflation, carefully watching out for how expectations, wage growth, and corporate pricing will affect the achievement of the 2% inflation target. As such, the Bank of Canada is resolute in bringing back price stability to its people🇨🇦. Despite the soaring mortgage rates to their highest levels in more than a decade, Canadian home prices are still increasing. The continuous rise in prices has led many prospective homebuyers to question why Canadian home prices refuse to slow down. In this blog post, we will explore the factors that are keeping Canadian home prices buoyant, despite the increasing cost of borrowing money for a mortgage.
According to a report by the Canadian Real Estate Association, average prices of homes being resold continued to rise in May, marking the fourth consecutive month of increase. Since January, the average price of a Canadian house (not adjusted for seasonal variations) has gone up by more than $116,000. Almost all provinces saw a rise in monthly prices, with British Columbia, Ontario and Saskatchewan experiencing the strongest increases. When adjusted for seasonal variations, CREA's Home Price Index rose by 2.1% compared to April, but was still down by 8.6% year-over-year. National home sales also increased by 5.1% in May compared to April, with only three provinces - PEI, B.C. and Ontario - experiencing a rise in sales activity. According to Shaun Cathcart, a senior economist at CREA, the increase in housing activity this year was expected due to the existing demand. The only uncertainty was the timing, which was resolved this spring. However, the reluctance of current homeowners to sell their properties due to the low fixed rates they secured during the pandemic was an unexpected factor in the 2023 housing market. CREA reported that the months of inventory decreased to 3.1 months in May, which is below the long-term average of five months. Although new listings increased by 6.8% from the previous month, they remain historically low. Randall Bartlett, Senior Director of Canadian Economics at Desjardins, noted that a growing population, a tight labor market, falling price-to-rent ratios, and the expectation of lower interest rates have all contributed to the high demand for housing in the first five months of 2023. The Canadian housing market is currently experiencing high demand due to various factors, but the only thing that could potentially cool it down is an increase in interest rates. Although the recent rate hike by the Bank of Canada and the possibility of more hikes in the future may slow down resale activity, the trend of slowing housing starts and the current lack of demand to meet supply will only worsen the affordability crisis, leading to higher home prices and rent. Until there is significant progress in inflation reaching the Bank of Canada's 2% target, the bank will likely continue to raise rates, with a possible hike in July and further hikes as needed. TD Economics' Rishi Sondhi adds that higher rates may result in weaker sales growth in the latter half of the year, coupled with a softening job market. As a consumer, understanding the APR (Annual Percentage Rate) is crucial when it comes to your mortgage and other loans. APR is a percentage that represents the total cost of borrowing money over a year, including interest and fees. It is important to understand this rate because it can greatly impact your finances.
Firstly, APR helps you compare loan offers from different lenders. For example, if you are looking at two different mortgage offers with different interest rates and fees, the APR can help you determine which one is more affordable in the long run. It gives you a more accurate picture of the total cost of each loan. Secondly, knowing your APR can help you budget and plan for your payments. If you only focus on the interest rate, you may not be aware of all the other fees associated with your loan. By understanding the APR, you can calculate exactly how much you will be paying each month and over the life of the loan. Thirdly, APR can help you avoid hidden fees and charges. Some lenders may advertise low interest rates, but have high fees that are not immediately apparent. By looking at the APR, you can see the total cost of borrowing money and avoid being blindsided by unexpected charges. Finally, understanding your APR can help you save money in the long run. By choosing a loan with a lower APR, you can save thousands of dollars over the life of the loan. This can free up money for other expenses or investments. In conclusion, understanding APR is crucial when it comes to your mortgage and other loans. It helps you compare offers, budget for payments, avoid hidden fees, and save money in the long run. Make sure to take the time to understand your APR before signing any loan agreements. Below is a brief overview of the current status of interest rates:
1. If you have some time left in your mortgage term, you can get in touch with your lender to secure a fixed rate. This could help you avoid any fluctuations in your mortgage payments and provide you with a sense of stability. 2. One option to potentially reduce your monthly payments is to refinance into a longer amortization period. This can provide some financial relief in the short term, but keep in mind that it may result in paying more interest over the life of the loan. It's important to carefully weigh the pros and cons before making a decision. 3. Consider completing a comprehensive financial clean-up and consolidating your debts. Eliminate high-interest loans that may be depleting your finances and reducing your monthly cash flow. 4. Consider taking out a line of credit while the value of your property is still high. This can provide you with financial flexibility for unexpected expenses or to weather any market instability until conditions improve or interest rates decrease. 5. Let's conduct a complimentary financial review together to identify potential areas for saving money. Schedule a meeting with me. Remember: One way to achieve financial stability is by prioritizing saving over earning. The Prime rate in Canada is currently 6.70%. Changes in the prime rate can affect your debt payments and thus your GDS and TDS ratios when applying for mortgage loans or even at the time of your mortgage renewal.
In its latest move, the Bank of Canada (BoC) has kept its policy rate fixed at 6.7% and expects inflation to be around 3% by 2023. Canada's housing market is the largest channel for the monetary policy to affect the real economy. The BoC's assets have moderated from their peak, yet they are far above their pre-pandemic level of $120 billion. Prime rates at Canada's financial institutions are 6.7%, the highest level over the past 22 years. The cost of borrowing has increased dramatically over the past year. Some credit cards set their interest rate based on the Prime rate, while others are unsecured and have high interest rates to make up for the additional risk. If the Prime rate goes up, your mortgage payment will go towards interest and less towards your mortgage principal. Some borrowers may also reach their trigger rate. If you plan to get a variable rate mortgage, you should know how the Prime rate affects your potential mortgage rate. Although variable rate mortgages are all based on the Prime rate, lenders can set a modifier that determines how much higher or lower the variable rate is relative to the Prime rate. The Prime rate tends to follow the Bank of Canada target overnight rate because the overnight rate influences a bank's cost of funds. If the overnight rate goes down, the banks can pass on the savings to their customers. If you're thinking of converting your variable rate to a fixed rate, please call today to discuss your options. Please call direct @ 647-773-4849. As real estate prices surge, you may feel discouraged about getting into the market if you’re a potential first time buyer or you may feel scared attempting to expand your real estate portfolio because the market seems volatile and the future uncertain.
There is no doubt that real estate in Canada's major cities has increased by almost 300 percent since the 1990s, when the last market crash occurred. In the 90's, a few of my friends bought their homes when distressed mortgage holders left their keys on the front porch because they could no longer afford their mortgages. Their properties now have tons of equity, which they used to buy additional rental properties. Needless to say, they are multi millionaires and their retirements are secure! Owning real estate, however, is not for everyone. Despite the fact that their properties are rented out, some people are not comfortable managing rental properties or being responsible for various mortgages in case of market crashes like the 90s. That’s completely understandable. Just like any other investment, real estate can present risks and so it’s important to balance out those risks and rewards. For your own knowledge, a lot has changed in the banking world since the 90s. There are way more safety mechanisms in place to avoid crashes that happened in the 90s and in 2008, for example. During my career, I considered renting versus owning. Both sides had their arguments. Renting, for example, does not require you to pay property expenses or maintenance costs. The rent will only increase by about 2 percent per year if you stay in the same place, for instance, and there won't be a need to remortgage every five years. But realistically, with renting, you would have to be able to save enough money each year to beat or match the gains you are making in real estate. On average, real estate increases about 3-5% per year (even with corrections along the way). So, if you purchase a house for let’s say, $800,000, you can expect your value to increase by up to $40,000 per year. If you manage to save $10,000 a year in personal savings, you will only earn approximately $500. Of course, you can always put your money into riskier investments, but not everyone feels comfortable doing that, and nothing is as stable as a physical, hard asset like real estate. Additionally, with renting, you cannot force savings and your rent doesn’t gain you any equity. When you have a mortgage, you’re paying down principal and interest which frees up your equity that you can potentially use in the future. To put it in perspective, the property owner who purchased a home for $800,000 will have earned approximately $200,000 in five years, and the person renting and putting money away will have only earned $2,500-$5,000. This is exactly why 75% of Canadians have their wealth in real estate, and why many renters complain they can’t get ahead. Now, I know what you are thinking. The market has decreased in value! Well, you are right and wrong at the same time. During the last three years, the real estate market experienced exponential gains because of record-low interest rates. These low rates brought everyone and their mother out of risk-aversion and propelled them to buy real estate. A million dollar mortgage for five years only cost about $3,400 per month and was outperforming rent! It made sense to buy, and as a result, we had huge demand! Some properties increased by 50 percent! The correction we are seeing now is merely the scaling back of the pandemic gains, but property value in cities like Toronto and Vancouver are still up 14-20 percent, and it’s unlikely that this will change anytime soon. Just consider immigration. Our government has plans to bring in 100 million people by the year 2100. That’s 500,000 immigrants a year. Toronto’s population is going to go from 3.3 Million people to 33 Million people. And during this time, people will need shelter, which will put more demand on the housing sector, pushing up property value. Ontario only builds about 70,000 houses a year, so the math on supply/demand isn’t hard! Not to mention that it is getting harder and harder to qualify for mortgage financing! In addition to being stress tested, the government now wants to crack down on alternative loans and make sure even those who need unconventional financing pass certain tests and meet stricter qualifying criteria. This is simply going to create a larger divide between property owners and renters, but make no mistake, there will be many more renters, and this is why investment companies are purchasing neighborhoods at a time. These companies understand the future landscape of our countries and cities, and they are capitalizing on the prices now. So, the point of this post is to really think about your equity you have now or even getting into the market while you can, and of course, working with a knowledgeable mortgage professional;) I have been in the real estate and mortgage industry for over 20 years! I am very experienced in mortgage loans, and have been rated the best by “threebestrated.com” which actually checks my reviews on the web. It is my job to not just complete a mortgage for you, but also help you understand the process and become your personal mortgage guide. I recognize that sometimes, people need more than just a person behind a desk. They need someone to confide in and trust and look out for their best interests. I will do just that! If you would like to set up a consultation, please feel free to call 647-773-4849 or email me at scolucci@sherwoodmortgagegroup.com. You can also visit my website at www.coluccimortgages.com #overnight #rate cut #payments #variable #term #rate hikes #policy #bond market #home prices #recession
While many homeowners' monthly mortgage payments on adjustable-rate mortgages and lines of credit are increasing by hundreds of dollars per month, some industry analysts think that time is running out on interest rate increases. With rampant inflation and higher rates bleeding through to 2023, it is expected that variable-rate and fixed-rate mortgages will continue to remain unattractive in the short term. BCREA believes that five-year fixed rates have already peaked at the current 5.5 percent average, and that rates are expected to start falling early in 2023, ending at 5.05 percent at the tail-end of 2023. Mortgage rates are expected to increase through 2023, but they are equally likely to start falling if the Bank of Canada (BoC) hits their inflation targets earlier. CIBC analysts project that the Bank of Canada will keep rates at the higher levels through 2023, slowing demand and allowing inflation to hit its 2 per cent target. Looking forward at the end of 2023 and through 2024, analysts are penciling in an early rate cut from the Bank of Canada, which could bring national benchmark prices back below the 3.00% mark before 2024. If the bond markets predictions are right, though, our central bank would be signalling a rate cut before year-end 2023. The Bank of Canada is expected to start cutting its policy rate in response to significant economic slowdowns or a recession, beginning in the second half of 2023. The BoC has also said that it will hold off on cutting its overnight rate until Canada's economy has recovered and inflation has reached about 2%. Long-term rates could reach lower levels by late 2023 in both Canada and the United States, because markets are starting to price in modest central bank policy rate cuts for 2024, and forecasting inflation will stabilize and decrease. Currently, the Canadian 5-year bond yield is priced to expect another 0.75 percent hike by the Bank of Canadas interest rates in early 2023. That means that some homeowners, who are seeing a big jump in mortgage payments, may have to either refinance their homes or list them for sale. It can take 1-2 years for inflation to tame, according to BoC, so holding onto a short-term fixed-rate mortgage might be a good bet, but you might then end up having to re-lock in as rates will not be at their lowest. Cited Sources
Last Wednesday, the Bank of Canada raised its overnight lending rate to 3.75%, up half a percentage point. Which means, Prime Rate is now 5.95%.
Think about how to manage your unsecured debts and mortgage debts if you need to pause and take a look at your finances. A specialist may be able to help you either consolidate existing debt or even consider selling your property if things become unmanageable if finances are tight. Again, a large percentage of Canadian homeowners are mortgage free, and according to big bank data, many had loans that were around 50% loan to value during the pandemic, which means those borrowers should still have a wealth of equity in their properties. Those who purchased during the last three years with minimal downpayments like 20% or who took out high-risk loans requiring high-ratio mortgage insurance may be in the worst position.These people may be in a negative-equity situation that makes it almost impossible to sell since they owe more on mortgage debt than the property is worth. The recent rate hikes will likely increase homeowners' monthly payments by 18 percent, according to Ratesdotca. If your mortgage is up for renewal, you may want to shop it around. There are still some lenders offering mortgages in the high 4’s although that’s unlikely to last much longer. Are we likely to see a 3 stage pivot by the Central Bank in Canada? Well, according to experts that seems to be very likely. It is predicted with only a 50 basis point hike on Wednesday by the Bank of Canada, which was 25 points less than what the market expected, the Bank of Canada may be winding down its front-loading of rate hikes. According to experts like Deputy Chief Economist of CIBC, Benjamin Tal and even prominent traders like Greg Mannarino of traderschoice.net, the fed wil be easing rate hikes in the coming months, only to leave them alone for the next year, which will, of course, allow markets to shoot back up. According to Rob McLister, of MortgageLogicNews, the Bank of Canada may or may not have made a mistake easing their rate hikes to only 50 basis points when market was expecting 75 points. Most people don’t believe inflation is coming down, although the Bank is telling us it is coming down, except core inflation, which is still rising despite unprecedented rate hikes. According to a recent survey, 53% of Canadians don't even know the Bank of Canada has an inflation target, much less a 2% target. Quantitative Tightening is also not well accepted by everyone, and when you factor in the tight labour market, this could create a nightmare for central banks. Due to the fact that people will ask for wage increases to keep up with inflation, inflation will not be lowered. Market expectations have historically been higher than what the Bank has increased rates. Based on forward pricing in the bond market, overnight rates are only going to 4.25%, and core inflation is 5.3%, which may be enough for the central banks to stop raising rates for now. Nevertheless, anything can happen, as McLister pointed out. More wars, Chinese trade disputes, oil, the loonie, etc. and it may be too early for the Bank of Canada to get softer on inflation. Even though we are headed towards a recession, inflation can still become entrenched. There is a possibility that inflation has not peaked. Inflation may have peaked in June, but core inflation is more important. For mortgage interest rates to decrease, we need core inflation back to 3%. Prime could surge like it did in 1981 and if that happened again prime could go to 6.75%. We should all prepare for the worst on rates. I agree with Rob that if rates do not increase further in 2023, consumer psychology will change and prices may bounce in the spring. If sales surge, then we are near a short-term bottom. It's anyone's guess what will happen with unemployment expected to spike, however, the housing fundamentals are still there. Lots of immigration, mortgage stress-test which is now making borrowers qualify at 7.25% for a variabel rate mortgage and so on. Economic and financial well-being is the objective of Canada's monetary policy. Canadians are best protected by a low and stable environment. A five-year extension of the flexible inflation targeting strategy was announced by the Canadian Government and the Bank of Canada on December 31, 2021. The current inflation target is 2%, being the midpoint between 1 and 3 percent. It is within the control range of 1-3 percent that the central bank can actively seek to maintain maximum sustainable employment levels. Inflation expectations will be anchored at 2% using this flexibility. Monetary policy changes take time to materialize and work their way through the economy, which is why monetary policy is considered “forward-looking.” Throughout the world, inflation has continued to rise this year, reaching highs not seen for decades. In response, many central banks have raised their policy rates. In many countries, underlying inflation has yet to ease despite a decline in commodity prices and easing inflationary pressures due to supply challenges. Businesses and consumers worldwide are feeling the effects of tightening monetary and financial conditions and Russia's invasion of Ukraine. Global economic growth is expected to slow sharply. There has been a significant decline in household spending and investment in the United States. Canadian exports are driven by these factors. Energy shortages and elevated uncertainty are expected to cause economic contraction in the euro area during the second half of 2022. As China's economy recovers from the most recent round of lockdowns due to the COVID-19 pandemic, the property market correction continues to stifle growth. Global financial conditions have been affected by the rapid rise in US policy interest rates and the surge in the US dollar. There are rising debt servicing costs for many emerging-market economies (EMEs), with some developing economies having difficulty servicing their debt. Many countries experience inflationary pressures due to the appreciation of the US dollar. In 2023, the Bank of Canada projects global growth to decline from roughly 314% in 2022 to 112%. If the COVID-19 pandemic and the 2008–09 global financial crisis are excluded, this would be the slowest rate of global growth since 1982. Despite tighter monetary policy and tighter financial conditions, growth is expected to pick up to around 212% in 2024. At the global level, inflation is expected to decline to levels that are close to the targets set by central banks in 2024. As monetary policy tightens, commodity prices will fall, supply challenges will ease, and demand will slow, which will lead to lower inflation. Here are the Bank of Canada’s changes to the projections that made in July: There are potential output growth changes. The negative effects of supply chain disruptions on productivity and of labour market mismatch that previously assumed to be temporary are now assumed to be permanent. Financial conditions are tighter, and wealth is lower than expected. Household spending has consequently been revised down. As a result of lower commodity prices and weaker foreign demand projections, exports have been revised downward. These effects are partially offset by the depreciation of the Canadian dollar. It is expected that business investment will decline this year due to tighter-than-expected financial conditions, weaker foreign demand, and the recent depreciation of the Canadian dollar, which has raised the price of imported machinery and equipment in Canadian dollars. Inflation in the consumer price index (CPI) is expected to be lower than previously predicted in 2022 and 2023. According to revised forecasts, CPI inflation will be just under 7% in 2022 and about 4% in 2023. Inflation is expected to remain relatively unchanged in 2024. Several factors contributed to the downward revisions, including lower gasoline prices and weaker demand. Inflation in 2023 is also expected to be reduced by lower-than-expected shipping costs and easing global cost pressures. These cost pressures are partially offset by the weaker Canadian dollar. Global economic challenges and risks are becoming more complex. There is still widespread and high inflation in most countries. Some central banks have begun shrinking their balance sheets as well as raising interest rates rapidly. A tightening in financial conditions has increased financial stress in 2022. Rising geopolitical tensions and Russia's invasion of Ukraine remain major uncertainties. The projection incorporates some of the risks identified in previous issues of the Report. Base-case scenarios include weaker global growth, lower commodity prices, tighter global financial conditions, and sharper declines in Canadian housing activity in the near term. There are two main risks to the inflation outlook, according to the Bank. It is possible that inflation could stay higher for a longer period of time than predicted in the base case. Inflation expectations failing to adjust downward as expected is one way this could occur. This would result in a wage-price spiral according to the July Report. Stickier inflation can also be caused by other factors. A global economic slowdown could be even more severe and inflation could fall further than expected. Since inflation is persistently high, the Bank is more concerned about the upside risk than the downside risk. Upside risk: High inflation that persists Inflation could persist at a higher rate than expected. Global or domestic channels could pose this risk. There are some global factors responsible for recent high inflation that could last longer or have a greater impact on consumer prices than expected. Price spikes in oil, natural gas and agricultural products could result from an intensification of supply disruptions caused by Russia's invasion of Ukraine. Increased geopolitical tensions may prolong supply chain disruptions, creating higher prices for internationally traded goods. It is also possible that domestic factors will keep inflation high. The pandemic has increased short-term inflation expectations. The inflation rate will remain higher for longer if these expectations persist longer than expected. Additionally, households may tap into their higher levels of savings more than anticipated. Inflation would be pushed higher by increased household spending. Global financial vulnerabilities could amplify the impact of tighter monetary policy in many countries, leading to a severe global slowdown. There is a high level of debt in many countries, including sovereign debt, nonfinancial corporate debt, and household debt. There is also a vulnerability associated with significant external borrowing in US dollars for several EMEs. Lower levels of liquidity have made some funding markets more fragile. It is possible for higher-risk borrowers to face funding strains and a prolonged period of deleveraging as a result of an abrupt repricing of risk. Consequently, commodity prices are likely to fall and a global slowdown will be more severe. Foreign demand could be weaker, terms of trade could fall, and spillovers could affect the Canadian economy. The resulting tighter financial conditions and higher unemployment could undermine homebuyer sentiment and lead to a larger-than-expected drop in house prices. This in turn could reduce household wealth, access to credit and consumer confidence. The base case assumes that the spike in goods prices since the beginning of the pandemic will persist. In the event of a slowdown, however, these prices could decline in global growth proves to be more severe than anticipated. A sharper slowdown, especially in the US, may result in retailers offering deep discounts if they have too much inventory. Ontario is still tackling its housing crisis. Since October 25, 2022, the Non-Speculation Tax rate has increased from 20% to 25%. As home ownership becomes more and more out of reach, foreign real estate is eating into Canadians' buying power. It is intended to discourage foreign speculation in Ontario by making it harder to buy property. As a result of these steps, both near-term solutions and long-term commitments will be made to provide more affordable housing options to Ontario families based on recommendations from the Housing Affordability Task Force and the first-ever Provincial-Municipal Housing Summit. By limiting relief eligibility to newcomers who commit to stay in the province long-term, the provincial government is also eliminating loopholes. In August, there were a little more than 5,600 home sales, down 34.2 percent year-over-year, according to the Toronto Regional Real Estate Board (TRREB). Whether higher interest rates or falling prices, prospective homebuyers are weighing current conditions. There has been a noticeable slowdown in price growth. A year ago, the average sales price of all homes combined was $1,079,500, up just 0.9 percent. TRREB also pointed out an important point: "The average selling price also rose slightly month-over-month, while the HPI Composite dipped compared to July.". A higher share of more expensive home types sold in August was indicated by a monthly increase in the average price versus a dip in the HPI Composite." Detached
There has been a mixed supply. In August, there were 10,537 new residential listings, down 0.7% from July. However, active listings increased by more than 62 percent to 13,305. Toronto's real estate market has also seen robust new home construction activity, according to CMHC data. To 4,535 units, housing starts grew 12.55 percent in August. The number of units under construction as of August has increased nearly 4.5 percent from October of last year. |
By: Sarah ColucciSenior Mortgage Agent, Lic. M14000929 Categories |