Global financial markets faced unprecedented disruption when economies shut down in response to the global COVID-19 pandemic. To support financial markets, the Bank of Canada launched 10 liquidity facilities and asset purchase programs. As markets recovered from the initial shock, the central bank refocused their operations from ensuring that markets functioned to using these tools for monetary policy as mentions Kevin Fettig CEO of CMI.

Given that the Bank’s policy interest rate reached its effective lower bound of 25 basis points, quantitative easing (QE) played a pivotal role in extending the reach of interest rate reductions across the yield curve. QE involves the central bank purchasing government securities or other financial assets from the market, which increases the money supply and lowers long-term interest rates. By injecting liquidity into the financial system, QE aims to encourage lending and investment, stimulate economic activity, and support asset prices.

As a result, QE served as an additional tool for implementing monetary stimulus measures during the pandemic, leading to the Bank’s holdings of Government of Canada bonds reaching approximately $440 billion at its peak. However, starting from April 25, 2022, the Bank transitioned from quantitative easing (QE) to quantitative tightening (QT), allowing assets to gradually roll off its balance sheet. Last March, the Bank indicated its expectation that QT would conclude around the end of 2024.

The objective is to employ an abundant reserve system (ARS), also known as a “floor system,” for setting interest rates. Previously, the Bank had operated under a “corridor system,” which is characterized by scarce reserves. In this system, the central bank sets a policy rate, such as the overnight lending rate, which serves as the upper bound of the corridor. Simultaneously, the central bank sets a lower bound, typically referred to as the deposit rate or the floor rate. Banks can borrow funds from the central bank’s lending facility at the upper bound rate and deposit excess reserves at the lower bound rate. The corridor system effectively limits short-term interest rate fluctuations within this range, with market forces determining rates within the corridor.

Central banks typically use the corridor system to maintain control over money market rates and influence broader economic conditions. However, during times of financial stress or when interest rates approach zero – as they did during the pandemic – central banks may adjust their policy framework, such as transitioning to an abundant reserve system, to better achieve their monetary policy objectives.

Claudio Borio of the Bank for International Settlements notes, there are potential drawbacks to the abundant reserves approach. Firstly, there’s a greater need for the central bank to inject liquidity during periods of stress to maintain market stability. Secondly, it could contribute to collateral scarcity. Rates in the repo market, which is used by the bond market to finance bond portfolios, are heavily dependent on the supply of government securities and reserves.

In 2017, then Federal Reserve chair Janet Yellen likened the reduction of the Fed’s balance sheet to “watching paint dry,” suggesting it would go unnoticed. However, in practice, we saw stress events in the repo market in 2019, when increasing reserve scarcity hindered banks from lending in the money markets, leading to higher repo rates due to heightened demand for cash.

Recently, the Canadian Overnight Repo Rate Average (CORRA), the overnight repo rate between banks that serves as the Bank of Canada’s target rate for monetary policy, has traded above the Bank’s intended target of 5%. At times, CORRA exceeded the target by as much as 6 basis points, prompting the Bank to inject $5 billion of liquidity into the overnight market through its overnight repo operations.

Part of the challenge stems from the fact that although banks are able to hold large cash reserves since the financial crisis, liquidity requirements mandating banks to maintain minimum cash levels can limit their willingness to lend funds. The introduction of Lynx, the real-time payment system used by the Bank of Canada for implementing monetary policy, presents another aspect of the challenge. Lynx, which replaced the Large Value Transfer System (LVTS) in 2021 as part of Canada’s payments modernization efforts, is still in its early stages, and the amount of settlement balances required for the system is still being refined.

Settlement balances have decreased significantly, dropping to $112 billion from a peak of $390 billion in February 2021. The Bank has indicated an estimated target range for settlement balances of between $20 to $60 billion, while market analysts anticipate that settlement balances will stabilize at approximately $80 to $100 billion. Additionally, there is speculation that the central bank may signal the end of quantitative tightening (QT) as early as April.

Housing Affordability Watch

Despite the presence of various rent control policies across Canada, doubts persist about their effectiveness in curbing inflation in the housing market. With rent controls in place for a significant portion of the rental market, including capped increases and annual guidelines, one would expect more stability in rental prices. However, despite these measures, the rent component of inflation remains notably high.

While rent inflation is expected to moderate, ongoing pressure exists to either tighten existing controls or introduce new ones, as seen in recent bylaws targeting renovictions. Yet, economists caution against the broader implications of rent controls, citing their potential to deter new construction, reduce housing quality, and distort market dynamics. In this context, the debate shifts towards the concept of housing abundance as the most effective form of rent control, where a surplus of housing incentivizes landlords to prioritize tenant retention over excessive rent hikes.

Canada’s latest inflation numbers were not the sign anyone hoping for lower interest rates was looking for.  Headline inflation, also known as the Consumer Price Index, rose to 3.4% in December, up from 3.1% in November.  Much of the increase was driven by high rents and increasing mortgage costs as report says by First National bank.

None the less, some recent surveys suggest Canadians are adjusting to the current situation and the “Fear of Missing Out”, FOMO, appears to be shifting to TOWA – “Tired of Waiting Around”.

The Canadian Pulse Report for the 4^th quarter, from the research firm Dye and Durham, indicates only 20% of potential homebuyers are going to wait for prices to fall, and just 21% say they are going to wait for interest rate cuts, before they enter the market.

“Inflation is cooling and interest rates are stabilizing, and with that Canadians are telling us that they have renewed optimism in the outlook for their housing plans,” Martha Vallance, chief operating officer at Dye & Durham, said in a release.

That optimism is also reflected in the December Household Outlook Index from the data firm, Maru.  It suggests almost 40% of Canadians believe the economy will improve in the next 2 months, up from 33% back in October.  Canadians who intend to make big-ticket purchases edged up to 18% from an earlier reading of 17%.  Just over half say they will put money away for retirement, up from 48%.

The Bank of Canada’s 4^th quarter survey of consumer expectations indicates Canadians are keeping a close eye on inflation and the economy and are adapting, and adjusting their finances in response.

Home buyers report a variety of feelings when it comes to financing a new home. According to the 2019 CMHC consumer report, most borrowers reported feeling “happy” or “excited” about their purchase, but over one-third of borrowers also said that buying made them feel stressed. Additionally, 42% of buyers felt uncertain about the process and 28% felt anxious about home ownership.

Along with feelings of frustration and fear, it is fair to feel overwhelmed with emotion while making, arguably, your largest financial decision. While it is important to acknowledge those feelings, we want borrowers to feel confident about their decision, and optimistic about their future. This post contains a few tips on how you can reduce feelings of stress, fear and frustration during the home-buying process as mentioned by Jacqueline Kean  in Home-Trust blog post.

Budget

You can help reduce the stress around home buying by beginning with a budget. A budget can help you feel more in control of your financial situation and reduce your stress. Budgets can allow you to better balance your income against expenses, which will help you reach your financial goals faster.

The Government of Canada has budget worksheets that can help you calculate expenses, including your one-time expenses in buying a home, such as your down payment, closing costs and ongoing expenses like your mortgage payment or optional mortgage life and disability insurance. Budget planners and calculators can help you understand what expenses to expect which may reduce any fear or frustration caused by future surprise expenses.

Having a budget also allows you to allocate money toward your emergency fund. Experience from  COVID-19 has emphasized the importance of having an emergency fund to reduce financial stress, both now and for the future. As a general rule, your emergency fund should cover your expenses for three to six months.

Research

While it seems like more work up front, learning mortgage terminology before you start the process can help you prepare for conversations with your broker. For example, knowing the correct language can help you understand a mortgage pre-approval, which is when a lender examines your finances to understand what they would lend you. Over half of borrowers who plan to purchase a home in the next two years get pre-approved.[1] Pre-approval can be a good step to understanding what you can afford while you are in the early stages of buying a home.

By familiarizing yourself with mortgage terminology, you can also reduce uncertainty and stress later in the process when it comes to signing a commitment. Start with words like term, amortization and principal.

Planning

An essential part of planning is finding a mortgage broker you trust with your story. One-third of buyers received recommendations for a broker from a real estate agent, and half of customers interacted with a broker in 2019. At Home Trust, our broker partners understand that life happens, and take the time to listen to your whole story so we can work together to find you the right mortgage solution.

While buying a home can seem stressful, there is an abundance of resources, from budgeting tools, realtors and brokers that can help you through the process. By taking the time to learn more about mortgages, you can feel confident about your financial situation.

Housing starts in Canada bounced back in June, reversing a string of declines dating back to November of last year as mentioned by First National Financial LP

Canada Mortgage and Housing Corporation reports the seasonally adjusted annual rate of housing starts totalled 281,373 units in June, up from 200,018 in May.

The increase was led by multi-unit starts in urban areas, which rose nearly 60% to almost 220,000 units.  Single, detached urban home starts were up a mere 3%.  Almost half of the total number of starts were in Toronto and Vancouver.

The June jump is widely seen as hopeful, but temporary.

The longer-term trend, which looks at the six-month moving average of the seasonally adjusted annual rate, shows about 235,000 units were started in June, up just 2.4% from May.  Housing starts for the first half of the year were 8% lower than for the same period last year.

The building business in Canada has been weighed down by a worker shortage, lingering pandemic supply chain problems, high inflation and rising interest rates.  Slowing home sales have also seen some developers put projects on hold.

“The high interest rate environment continues to challenge housing starts through increasing borrowing costs,” said CHMC chief economist Bob Dugan in a statement.

In June of last year CMHC projected that, based on the rate of construction at the time, Canada would need to build 3.5-million more housing units by 2030, on top of what is already expected, in order to restore affordability.

It was a busy week for economic data in Canada.  Much of it tended to be optimistic but there is little to suggest the Bank of Canada will not be raising interest rates again on July 12th as mentioned by First National Financial LP.

The Consumer Price Index for May showed the annualized inflation rate slowed to 3.4%, down a full percentage point from April.  Much of that decline came from the falling price of fuel.  The Bank of Canada’s measures of Core inflation, which strip out volatile items like fuel and food, were also down.  However, they all remain above the Bank’s 2.0% target.

Unfortunately, the Bank’s interest rate hikes are actually driving up a key component of the inflation calculation.  Mortgage Interest Cost rose at a rate of nearly 30% in May, up about half a percentage point from April.  Excluding higher mortgage costs, the inflation rate drops to 2.5%.

A pair of quarterly surveys performed by the Bank of Canada suggest inflation expectations remain elevated and have become somewhat entrenched, which the Bank was hoping to avoid.  Both businesses and consumers expect price increases and wage demands to be higher than usual for the foreseeable future.

According to the Bank, several businesses are “planning to make larger and more frequent price increases, in the coming year, than they usually would.”  Businesses also think it will take the Bank longer than forecast to tame inflation.  More than half do not expect to see the rate back at 2.0% until 2025, at the earliest.

Consumers also expect high inflation to persist.  Not surprisingly the survey suggests the cost of living is the top concern for Canadians, with mortgage holders expecting their payments to increase when it comes time to renew.

“Most mortgage holders are confident they will be able to make these higher payments, though doing so will further constrain their discretionary spending,” the report says.

Expectations for wage gains also remain elevated.

Finally, despite the Bank’s efforts to slow the economy, growth remains resilient.  While Gross Domestic Product came in flat in April, that is considered a strong performance in light of the impact of the national, federal public service strike that month.  The early projections for May show 0.4% growth.

Most market watchers remain confident the Bank of Canada will announce another quarter-point interest rate increase on July 12th.

When you’re ready to enter the housing market as a first-time home buyer, one key part of the home-buying process is choosing the right neighbourhood to live in. After all, your neighbourhood choice can have a significant impact on the types of property that are available to you, the cost of homeownership and your overall enjoyment of your new home and community as mentioned by Duffie Osental from Home Trust.

But how can you tell if the neighbourhood is right for you? We look at some signs to help you decide.

1. It fits your needs and lifestyle.

When looking for a neighbourhood to buy a home in, it pays to think about how a potential area fits your needs and lifestyle. If you enjoy the outdoors, for instance, you will probably want your neighbourhood to have easy access to parks and hiking trails. Or if you’re new to Canada, perhaps you’d want to have a cultural centre nearby.

2. You like the environment.

When you explore the vicinity of a potential neighbourhood, it’s a good idea to ask yourself if you’re happy with an area’s character and feel. For instance, do you want to live in a quiet suburb of detached homes or do you prefer the buzz of the big city?

A good way to get a good feel for the environment is to spend some time walking or driving around at different times of the day and imagine yourself living there. Does it feel like home or is there something missing?

3. You’ve considered your transit options.

Your transit options in a new location may have a significant impact on your expenses and quality of life, so think about what you need to get around in your day-to-day life. For instance, if you feel like you need a car, you will need to add insurance, maintenance and gas costs to your monthly budget.

4. You are comfortable with the cost of living in the area.

The cost of living is the cost of things like housing, food, taxes and healthcare in a given area. This information will give you a better understanding of how much you need to be earning to live in the neighbourhood you’re eying.

One good resource for this information is a real estate agent, who will often have expertise in certain geographical areas. Another great resource is a mortgage broker, who will be able to give you an idea of how much your monthly payments might be in a given neighbourhood.

5. You like where the neighbourhood is heading.

When choosing a neighbourhood, do some research on any future developments that are being planned and ask yourself if that’s something that you’d like to see. For example, are there any new additions to the nearby parks that will be built over the next few years? Are new train lines, bus stops or roads coming soon? It’s prudent to also weigh out the pros and cons of each new development – a new train line and station nearby, for example, may add transit options but it can also result in noisier surroundings.

Whatever neighbourhood you choose to buy a house in, an experienced mortgage broker will be able to guide you through the home buying process.

It’s hard to believe we’re halfway through the year – and what a year it’s been. There have been ups and downs and more than a few surprises, the latest being the Bank of Canada’s decision to end its rate pause. On June 7, the Bank increased its overnight rate by 25 basis points to a 22-year high of 4.75% as Andrew Roper from CMI mentions. Analysts are forecasting yet another increase in July to quash stubbornly high inflation. It seems every day brings a new set of economic data to digest, along with all the implications for borrowers.

Every day, it’s increasingly difficult for Canadians to qualify for a mortgage with their bank. Often, they’re not aware of other options that are available to them. This is where the expertise of a mortgage broker is invaluable. Brokers with private lending expertise can provide the full range of alternatives, so borrowers turned away by their banks are not without options.

A second mortgage can be a particularly valuable tool for homeowners to access equity in their homes. In this month’s Broker’s Blog, Second mortgage strategies: Alternative solutions for homeowners, learn about specific scenarios where it could be the right move.

In today’s turbulent market, Canadians will turn to mortgage brokers now more than ever for creative solutions to help them achieve their financial objectives.

From cloud storage and 5G connection speeds to chatbots and augmented reality, new developments in internet technology have made life a lot more convenient for many Canadians. However, the same technology has also enabled criminals to create ever more sophisticated ways to steal your information to use in scams and fraud. This article by the Home Trust blog shows you how you can protect yourself from Fraud.

In fact, the Canadian Anti-Fraud Centre reported that over $530 million was lost to acts of fraud in 2022 – a substantial 39% increase from the $380 million lost in 2021. Because of this financial impact, it pays to take some personal precautions to defend yourself against scams and fraud.

With this in mind, we look at five ways you can protect yourself from fraud.

1. Be vigilant with your personal information.

Your personal information – including your full name, age, address, date of birth, account numbers and Social Insurance Number – is a potential gold mine for fraudsters, who can use it to open bank accounts, apply for loans or access your savings. For this reason, many scams are designed to get as much personal information from you as possible.

So, the first step to protecting yourself from fraud is adopting a privacy-first mindset and being careful with whom you share your personal information. A good approach is asking yourself these questions outlined by the Office of the Privacy Commissioner of Canada (OPC) before giving your personal information to anyone:

• How will your information be used?
• Why is it needed?
• Who will be sharing it?
• How will it be safeguarded?
• Are there any risks of harm or other consequences?

The OPC also advises to never give your personal information over the phone unless you initiated the call. It’s also a good idea to refrain from doing anything that might reveal your personal information – such as online banking or shopping – in a public setting where fraudsters could be lurking, such as a coffee shop, park or library.

2. Verify links and attachments in emails before clicking on them.

As more of our transactions move online, phishing emails  – or emails pretending to come from legitimate sources such as banks, online stores, utilities or government organizations – have become an increasingly common tactic that thieves use to get your personal information. In fact, they’re so common that the federal government estimates that one in every 99 emails are phishing emails.

These types of emails rely on you clicking on a link that will either take you to a legitimate-looking site to input sensitive information or download malware that will give fraudsters access to your files. Because of this, it’s important to verify links and attachments in emails before clicking on them, even if the email looks like it came from a legitimate sender. According to the Canadian Centre for Cyber Security, one way you can do this include hovering your mouse cursor over the link “to see if the info (sender/website address) matches what you expect.”

3. Be careful when sharing images online.

The photos you share in chat applications and social media can potentially give fraudsters clues about your day-to-day life that they can use in a variety of social engineering scams – and a determined thief can use even seemingly innocent photos to steal your data. For instance, if fraudsters see photos on social media of you working out at a local gym, they may send an email disguised as a promotion from that gym as a way to collect your credit card information.

In this light, think about being more prudent about the images you share online. A good tactic provided by the federal government is to ask yourself these questions before sharing anything:

• Who will see this post?
• Is there anything in this post that gives away sensitive information?
• Why does this information need to be shared?

4. Monitor your purchase transactions.

Keeping an eye out for suspicious purchase transactions in your bank and credit card statements will allow you to flag fraudulent activity quickly to lock thieves out of your account. And as an extra layer of protection, many credit cards – including those offered by Home Trust – offer real-time fraud alert services that ask you to authenticate transactions that may be fraudulent.

5. Act with urgency if your information has been exposed.

If you feel that your personal information could be exposed – if you lose your credit card, for instance – it’s crucial that you notify all relevant organizations as quickly as possible to prevent thieves from using that information.

April is typically a very busy month for the mortgage industry, and this year has been no different. After a rapid series of interest rate hikes put a chill on real estate activity over the past year, the market is showing early signs of recovery.

As CMI(Canadian Mortgage Investments) mentions, Demand for private mortgages is expected to remain robust as the market anticipates the potential introduction of a new set of lending guidelines that will make it even harder to qualify for a traditional mortgage. Proposals include new limits on loan-to-income ratios, GDS and TDS limits for uninsured borrowers, and updates to the mortgage stress test. OSFI, Canada’s banking regulator, sought feedback from mortgage industry participants beginning in mid-January, and the comment period for the proposals closed on April 14. According to OSFI, feedback from this consultation process will inform proposed revisions to B-20 guidelines, which will be issued for public consultation in the form of a draft guideline at a future date.

If these changes come to pass, it will become more difficult for your borrowers to qualify for a traditional mortgage. Remember that CMI is here to help by ensuring that there’s a fair and flexible alternative solution available.