8 Apr

Mortgage reform?


Posted by: Chris Cavaghan

Could the government extend amortization limits as part of housing plan?



16 Nov

US Treasury yields down due to jobless numbers


Posted by: Chris Cavaghan


Courtesy of Tania Hatcher at RMG Mortgages

Thursday initial jobless claims higher than consensus.  Causing US Treasury yields to drop early this morning and likely bond yields in Canada will follow.  Export/import prices in US also negative and disinflationary.

US 10 year treasury down 8.2 bps this morning

The number of Americans filing for unemployment benefits rose by 13,000 to 231,000 on the week ending November 11th, the highest in nearly three months, and well above market expectations of 220,000. In the meantime, continuing claims rose by 18,000 to 1,865,000 in the previous week, the highest in nearly two years and sharply above market forecasts of 1,847,000, suggesting that jobseekers are having a more difficult time in finding suitable employment. The data pointed to a marked softening in the US labor market, aligning with the Fed’s recent warnings of a slowing economy, and underscoring that business conditions are giving in to restrictive interest rates following a period of resilience.

6 Nov

October Jobs Report


Posted by: Chris Cavaghan

Weak October Jobs Report Likely Takes Further BoC Rate Hikes Off The Table
Today’s StatsCanada Labour Force Survey for October was weak across the board. Total job gains were meagre, full-time jobs fell, hours worked were flat, wage inflation eased (a bit), and the unemployment rate rose.

Employment changed little in October, up only 17,500 (0.1%), after rising 64,000 in September and 40,000 in August. The employment rate—the proportion of the working-age population with a job—fell 0.1 percentage points to 61.9% in October, as the population aged 15 and older increased by 85,000 (+0.3%).

Most notably, the unemployment rate rose 0.2 percentage points to 5.7%–its fourth monthly increase in six months and its highest level in 21 months, adding evidence to a weakening economy. The latest monthly GDP figures released earlier this week point to a flat to negative growth rate for the third quarter this year. Final data will be released later this month, but today’s numbers suggest that the overnight policy rate at 5.0% has peaked. The pace of employment gains is running below labour force growth from record population increases. It indicates that labour demand is cooling while supply is catching up quickly. The Bank of Canada expects the economy to move into modest excess supply in the fourth quarter, helping to reduce consumer price inflation.

As unemployment has increased and job vacancies have decreased in recent months, the labour force participation rate—the proportion of the population aged 15 and older that was either employed or looking for work—has remained relatively high. The participation rate in October (65.6%) was unchanged from the previous month and up 0.2 percentage points on a year-over-year basis.

The most significant job gains were in construction, rising by 23,000, more than offsetting a decline of 18,000 in September. The most economically sensitive sectors posted job losses. These included manufacturing, wholesale and retail trade, finance, insurance, real estate, and rental and leasing, as well as accommodation and food services.

Wage inflation continues to be troubling for the central bank. On a year-over-year basis, average hourly wages rose 4.8% in October, following an increase of 5.0% in September.

Bottom Line

The Bank of Canada meets once again on December 6th. Before then, we will see another CPI inflation report on November 21, Q3 GDP on November 30 and the November Labour Force Survey on December 1. Given the Bank’s general reluctance to hike rates just before the holiday season, the Bank of Canada will remain on the sidelines.

Judging by today’s weaker-than-expected employment report in the US as well, the Fed will also hold their pause for the remainder of this year.

Rate relief, however, is still many months away. The central banks will want to see inflation at 2% with the belief that it will remain there before they begin to cut interest rates. That will happen, but probably not before next summer. According to Bloomberg News, “Traders in overnight swaps brought forward their expectations for when the Bank of Canada will start loosening policy, and are now betting policymakers will cut interest rates by 25 basis points in July, from September a day ago.”

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
18 Sep

Home Sales Dipped Once Again Last Month In The Wake of Two Consecutive BoC Rate Hikes


Posted by: Chris Cavaghan

@DrSherryCooper https://dominionlending.ca/economic-insights/canadian-home-sales-dipped-in-august-following-boc-rate-hikes


Not surprisingly, buyers moved to the sidelines last month as the central bank took the overnight policy rate up to 5.0%. Home sales posted a 4.1% decline between July and August, well below the 10-year moving average shown in the chart below. However, on a year-over-year (y/y) basis, the number of transactions rose 5.3%.

The national sales data were depressed in August by declines in Greater Vancouver and the Fraser Valley, Montreal, Ottawa, Hamilton-Burlington, London and St. Thomas.

New Listings

The number of newly listed homes edged up 0.8% m/m in August, adding to the cumulative gain of more than 24% between March and July. New listings started 2023 at a 20-year low but are now closer to average levels. Recent survey data suggest pent-up supply is coming down the track as many homeowners reported they planned to their home in the next three years.

With sales falling and new listings edging up in August, the sales-to-new listings ratio eased to 56.2% compared to 59% in July and a peak of 67.4% in April. The measure is now closely aligned with its long-term average of 55.2%.

There were 3.4 months of inventory on a national basis at the end of August 2023, up from 3.2 months in July. While the measure is up a bit from its recent low of 3.1 months in May and June, it remains below the second half of 2022 and well below its long-term average of about five months.

Home Prices

The Aggregate Composite MLS® Home Price Index (HPI) edged up 0.4% on a month-over-month basis in August 2023— only about half as large as the July gain, which was only nearly half as large as the gains recorded in April, May, and June. This leveling off of prices aligns with slowing sales and a rebound in listings.

While prices are stabilizing at the national level, regional differences are re-emerging. Price growth has remained solid in Quebec and the East Coast, followed by British Columbia and the Prairies. Ontario is now a mixed bag, with some of the more significant increases and some of the bigger declines.

As of August 2023, the Aggregate Composite MLS® HPI was up 0.4% y/y. This was the first year-over-year increase since September 2022. Even though prices appear to be leveling out near current levels, year-over-year comparisons will likely continue to rise in the months ahead because of how prices continued to decline through the second half of 2022.

Bottom Line

With the Bank of Canada moving to the sidelines and more supply gradually coming on board, housing activity will likely pick up in the coming months. Year-over-year home prices will rise owing to base effects, as lower prices were posted in the fall and winter of last year, making the y/y comparisons more favourable. We don’t want to see a burst of activity because that could cause the central bank to rethink its rate pause.

Housing affordability remains a significant problem for buyers, but recent data released for the second quarter shows an uptick in first-time purchases despite the affordability crunch.

The housing shortage and the resulting high cost of rent and buying are political issues at all levels of government. On Thursday, Prime Minister Trudeau pledged to cut the federal Goods and Services tax on constructing new apartment buildings as part of a promised host of measures to address affordability issues. Canadians are used to such actions by the feds, but the housing shortage will only worsen until municipalities address impediments to densification, building delays, and development costs.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
24 Aug

Inflation and Rate Hike


Posted by: Chris Cavaghan

Why Bank of Canada hike is not a done deal despite inflation ‘head fake’

Adapted From the Financial Post PostHaste article dated August 17, 2023 entitled ‘‘Why Bank of Canada hike is not a done deal despite inflation ‘head fake’’ 

– 2 minute read-


We were warned that the battle against inflation would get rough, but nonetheless, this week’s numbers were a gut punch for Canadians looking for interest-rate relief.


“There’s no sense sugar coating this one — it is not a good report for the Bank of Canada,” BMO chief economist Douglas Porter wrote after the data came out.


The Inflation Increase Beat the Forecasts of Bank Economists


Consumer prices rose 0.6 per cent in July, pushing the headline rate to 3.3 per cent, a big comedown from June when the reading (2.8 per cent) fell into the Bank of Canada’s target range for the first time in more than two years.


While a modest uptick had been expected, Tuesday’s data “blew the doors off economists’ forecasts,” said Randall Bartlett, senior director of Canadian economics at Desjardins.


It also pushed Canada’s inflation higher than the United States for the first time since before the pandemic.


How did this happen?


A couple of “idiosyncratic factors” drove the gain, including a spike in Alberta electricity prices and higher airfares and travel services, said Bartlett in a note entitled “CPI head fake masks cooling under the hood.” Gas prices played a role as they fell less on a year-over-year basis than they did in June.


The Canadian Economy Continues to Show Signs of Cooling


However, Bartlett argues that key measures that the Bank of Canada looks at showed signs of improvement. The Bank’s preferred CPI median and trimmed mean slowed slightly and its newest measure of core inflation which excludes shelter fell to 4.2 per cent annualized from 4.6 per cent in June.


“The modest slowing core CPI is a thin silver lining for policy makers in an otherwise strong CPI report,” said BMO’s Porter.


BMO economists like Desjardins’ believe the Bank of Canada would prefer to hold rates next month given that other data suggest the economy is cooling.


But “the inflation figures will make it a tougher call,” Porter said.


One of the main reasons the Bank began hiking again at the beginning of the summer was because of a bump-up in April’s inflation, he points out.


While the majority of economists expect the central bank to hold at 5 per cent next month, there are some in the hike camp. CIBC economists see a final 25-basis-point increase in September as likely.


Derek Holt, head of Scotiabank Capital Markets Economics, warns that the Bank of Canada is at “high risk of losing the fight” and needs to crush inflation with more rate hikes.


“If the BoC waits for the lagged effects, then it faces the high risk of losing as wages and expectations get out of hand,” he wrote in a note on the data.


For now economists will watch for the next piece in the puzzle. The reading on second-quarter gross domestic product comes out Sept. 1, giving the central bank something else to ponder before its decision Sept. 6.

31 Jul

Controlling Inflation


Posted by: Chris Cavaghan


19 Jul

Inflation Down


Posted by: Chris Cavaghan