Bank of Canada Interest Rate Announcement - September 5, 2018
The Bank of Canada maintained its target for the overnight rate at 1.50 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy is evolving in line with its projections and that real GDP growth is expected to slow in the third quarter due to fluctuations in energy production and exports. Inflation is anticipated to come down from the 7-year high of 3 per cent rate observed in July, falling back to 2 per cent in early 2019. The Bank further noted that housing markets are beginning to stabilize following the implementation of the mortgage stress test. Overall, the Bank's assessment is that higher interest rates will be warranted to achieve the 2 per cent inflation target, but policymakers are closely monitoring NAFTA negotiations and their impact on the inflation outlook.
With the threat of significant trade disruption looming from NAFTA negotiations, the Bank chose to pause its rate tightening cycle. However, strong economic growth over the past year has pushed the Canadian economy beyond its full-employment level, creating upward pressure on inflation. Rising inflation and an economy operating at capacity means that the Bank of Canada will continue on its rate tightening path, likely at it next meeting in October with an ultimate goal of the overnight rate returning to between 3 and 3.5 per cent over the next two years.
The Bank of Canada maintained its target for the overnight rate at 1.50 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy is evolving in line with its projections and that real GDP growth is expected to slow in the third quarter due to fluctuations in energy production and exports. Inflation is anticipated to come down from the 7-year high of 3 per cent rate observed in July, falling back to 2 per cent in early 2019. The Bank further noted that housing markets are beginning to stabilize following the implementation of the mortgage stress test. Overall, the Bank's assessment is that higher interest rates will be warranted to achieve the 2 per cent inflation target, but policymakers are closely monitoring NAFTA negotiations and their impact on the inflation outlook.
With the threat of significant trade disruption looming from NAFTA negotiations, the Bank chose to pause its rate tightening cycle. However, strong economic growth over the past year has pushed the Canadian economy beyond its full-employment level, creating upward pressure on inflation. Rising inflation and an economy operating at capacity means that the Bank of Canada will continue on its rate tightening path, likely at it next meeting in October with an ultimate goal of the overnight rate returning to between 3 and 3.5 per cent over the next two years.
Bank of Canada Interest Rate Announcement - July 11, 2018
The Bank of Canada opted to raise its target for the overnight rate 25 basis points to 1.5 per cent this morning. In the statement accompanying the decision, the Bank cited that the economy is operating close to capacity and as a result inflation is expected to edge higher over their two year forecast horizon. The Bank noted that incoming data suggests housing markets are starting to stabilize after the implementation of the B20 stress test.
With inflation rising to the Bank's two per cent target and the Canadian economy operating at or near capacity, the Bank of Canada is unlikely to be finished tightening. At its current level, the overnight rate is about 150 basis points below the 3 per cent rate the Bank would ultimately prefer it to be. However, the Bank may take a brief pause to assess the impact of its past tightening as well as the ongoing effects of the B20 stress test on housing markets. It may also be dissuaded from further tightening should there be a further escalation in trade tariffs from the United States. Overall, we expect at least one more round of rate increases from the Bank of Canada in 2018.
The Bank of Canada opted to raise its target for the overnight rate 25 basis points to 1.5 per cent this morning. In the statement accompanying the decision, the Bank cited that the economy is operating close to capacity and as a result inflation is expected to edge higher over their two year forecast horizon. The Bank noted that incoming data suggests housing markets are starting to stabilize after the implementation of the B20 stress test.
With inflation rising to the Bank's two per cent target and the Canadian economy operating at or near capacity, the Bank of Canada is unlikely to be finished tightening. At its current level, the overnight rate is about 150 basis points below the 3 per cent rate the Bank would ultimately prefer it to be. However, the Bank may take a brief pause to assess the impact of its past tightening as well as the ongoing effects of the B20 stress test on housing markets. It may also be dissuaded from further tightening should there be a further escalation in trade tariffs from the United States. Overall, we expect at least one more round of rate increases from the Bank of Canada in 2018.
Bank of Canada Interest Rate Announcement - April 18, 2018
The Bank of Canada decided to leave the target for the overnight policy rate unchanged at 1.25 per cent this morning. In the statement accompanying the decision, the Bank noted that inflation is forecast to be slightly higher in 2018 than originally expected but will return to the Bank's 2 per cent target once the impact of higher gas prices and minimum wage increases dissipate. While the mortgage stress test has been a contributor to weaker growth in the first quarter of 2018, the Bank expects the economy to be operating at above potential over the next three years, growing at an average rate of about 2 per cent.
Although the Bank held steady today, with inflation rising to the Bank's two per cent target and many Canadian firms operating at or near capacity, interest rates are very likely headed higher this year. Headwinds from the trade sector have moderated, energy prices are higher and growth for the first quarter appears to be firming after a slow start. Given those trends, the Bank is likely to adjust its policy rate higher in coming months. That will translate to higher mortgage rates which, combined with the erosion of purchasing power from the mortgage stress test, will temper housing demand in 2018.
The Bank of Canada decided to leave the target for the overnight policy rate unchanged at 1.25 per cent this morning. In the statement accompanying the decision, the Bank noted that inflation is forecast to be slightly higher in 2018 than originally expected but will return to the Bank's 2 per cent target once the impact of higher gas prices and minimum wage increases dissipate. While the mortgage stress test has been a contributor to weaker growth in the first quarter of 2018, the Bank expects the economy to be operating at above potential over the next three years, growing at an average rate of about 2 per cent.
Although the Bank held steady today, with inflation rising to the Bank's two per cent target and many Canadian firms operating at or near capacity, interest rates are very likely headed higher this year. Headwinds from the trade sector have moderated, energy prices are higher and growth for the first quarter appears to be firming after a slow start. Given those trends, the Bank is likely to adjust its policy rate higher in coming months. That will translate to higher mortgage rates which, combined with the erosion of purchasing power from the mortgage stress test, will temper housing demand in 2018.
Bank of Canada Interest Rate Announcement - March 7, 2018
The Bank of Canada opted to maintain its target for the overnight interest rate this morning at 1.25 per cent. In the statement accompanying the decision, the Bank noted that although growth in the Canadian economy slowed more than expected in the fourth quarter of 2017, the economy is expected to operate at capacity going forward. The bank cited recent trade policy developments, mainly the threat of a trade war with the United States, as a significant risk to its outlook for growth and inflation.
The Canadian economy is at or very close to full-employment, meaning there is little room for Canadian firms to expand output without putting undue pressure on inflation. There are signs core inflation is already firming up. Two of the Bank’s three core inflation measures are closing in on the Bank’s 2 per cent target and all three measures have increased significantly in the past six months. Absent any unforeseen challenges to the Canadian economy, monetary policy will be biased in the direction of higher interest rates. However, the Bank will likely hold off raising its overnight rate while it assesses the impact of tighter monetary policy over the past year, the impact of newly implemented B-20 guidelines on mortgage qualification rules, and heightened risk to Canadian exports from US trade policy.
The Bank of Canada opted to maintain its target for the overnight interest rate this morning at 1.25 per cent. In the statement accompanying the decision, the Bank noted that although growth in the Canadian economy slowed more than expected in the fourth quarter of 2017, the economy is expected to operate at capacity going forward. The bank cited recent trade policy developments, mainly the threat of a trade war with the United States, as a significant risk to its outlook for growth and inflation.
The Canadian economy is at or very close to full-employment, meaning there is little room for Canadian firms to expand output without putting undue pressure on inflation. There are signs core inflation is already firming up. Two of the Bank’s three core inflation measures are closing in on the Bank’s 2 per cent target and all three measures have increased significantly in the past six months. Absent any unforeseen challenges to the Canadian economy, monetary policy will be biased in the direction of higher interest rates. However, the Bank will likely hold off raising its overnight rate while it assesses the impact of tighter monetary policy over the past year, the impact of newly implemented B-20 guidelines on mortgage qualification rules, and heightened risk to Canadian exports from US trade policy.
Bank of Canada Interest Rate Announcement - January 17, 2018
The Bank of Canada opted to raise the target for its overnight interest rate this morning 25 basis points to 1.25 per cent. In the statement accompanying the decision, the Bank cited recent strong economic data and rising inflation as motivations for the rate increase. The Bank expects growth in the Canadian economy to slow to 2.2 per cent in 2018 and 1.6 per cent in 2019 with consumption and new home construction contributing less to growth than in years past. With the economy returning to full-capacity, inflation is forecast to remain at 2 per cent over the medium term. The Bank also flagged risk to its outlook from ongoing NAFTA negotiations and noted it would remain cautious in considering future interest rate adjustments.
With the Canadian unemployment rate hitting a 40-year low and inflation ticking higher in recent months, the Canadian economy would seem to be operating at full capacity. That argues for a more hawkish approach to monetary policy in order to bring interest rates closer to what the Bank estimates would be neutral for the economy, that is, a level in which the economy is neither running too hot nor too cold. While today's rate increase was widely anticipated, it did come earlier in the year than previously expected and likely signals further rate increases to come in 2018. Canadian mortgage rates have already moved higher in anticipation of Bank of Canada tightening, which means a much tighter borrowing environment in 2018, particularly given newly implemented mortgage qualifying rules for low-ratio buyers.
The Bank of Canada opted to raise the target for its overnight interest rate this morning 25 basis points to 1.25 per cent. In the statement accompanying the decision, the Bank cited recent strong economic data and rising inflation as motivations for the rate increase. The Bank expects growth in the Canadian economy to slow to 2.2 per cent in 2018 and 1.6 per cent in 2019 with consumption and new home construction contributing less to growth than in years past. With the economy returning to full-capacity, inflation is forecast to remain at 2 per cent over the medium term. The Bank also flagged risk to its outlook from ongoing NAFTA negotiations and noted it would remain cautious in considering future interest rate adjustments.
With the Canadian unemployment rate hitting a 40-year low and inflation ticking higher in recent months, the Canadian economy would seem to be operating at full capacity. That argues for a more hawkish approach to monetary policy in order to bring interest rates closer to what the Bank estimates would be neutral for the economy, that is, a level in which the economy is neither running too hot nor too cold. While today's rate increase was widely anticipated, it did come earlier in the year than previously expected and likely signals further rate increases to come in 2018. Canadian mortgage rates have already moved higher in anticipation of Bank of Canada tightening, which means a much tighter borrowing environment in 2018, particularly given newly implemented mortgage qualifying rules for low-ratio buyers.
Bank of Canada Interest Rate Announcement - December 6, 2017
The Bank of Canada maintained its target for the overnight rate at 1 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy is evolving as expected, with growth slowing in the second half of the year. On inflation, the Bank expects the continued absorption of economic slack to push core inflation higher in subsequent months. Importantly, the Bank concluded its statement by noting that rate increases will be required over time, though it will proceed with caution as it assesses the economy’s sensitivity to higher rates.
Although the Bank of Canada has a bias toward raising rates over the next 12 months, it is currently sidelined by low inflation as well as concerns over how higher interest rates will interact with elevated household debt levels. We anticipate the Bank will remain on hold in early 2018 as it assesses the impact of the forthcoming mortgage stress test, but will look to raise rates one or two times in the second half of next year.
The Bank of Canada maintained its target for the overnight rate at 1 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy is evolving as expected, with growth slowing in the second half of the year. On inflation, the Bank expects the continued absorption of economic slack to push core inflation higher in subsequent months. Importantly, the Bank concluded its statement by noting that rate increases will be required over time, though it will proceed with caution as it assesses the economy’s sensitivity to higher rates.
Although the Bank of Canada has a bias toward raising rates over the next 12 months, it is currently sidelined by low inflation as well as concerns over how higher interest rates will interact with elevated household debt levels. We anticipate the Bank will remain on hold in early 2018 as it assesses the impact of the forthcoming mortgage stress test, but will look to raise rates one or two times in the second half of next year.
OCTOBER 17, 2017 announcement for January 2018 Mortgage Changes
Almost 1 year to the date of the 2016 mortgage changes OSFI announced new rules to come into effect January 1, 2018 that will require buyers who are making down payments of more than 20 per cent of a home's value – who do not need mortgage insurance – to prove they could still afford their mortgage payments if interest rates were 200 basis points (two percentage points) higher than the rate they negotiated.
Previously, stress test requirements only applied to insured mortgages (those with down payments of less than 20%) and most variable mortgages and terms less than five years.
The so-called new “stress test” is designed to protect homeowners should interest rates rise. Lenders will be obligated to qualify all new conventional mortgages at the greater of the Bank of Canada’s five-year benchmark rate (currently 4.89%) or the contracted rate plus 2%.
So for example, if your contract rate is 3.29%, you will be qualified at 5.29%.
High Ratio and Variable rate products will still be qualified at the 5 year BOC benchmark rate.
Last month, the qualifying rate—which closely resembles the average posted five-year fixed rates from the Canadian banks—was raised to 4.64% from 4.84 and now is 4.99%
Remember:
QUALIFYING RATE is the BOC Conventional 5 year fixed posted rate.
CONTRACT RATE is the rate offered by the Lender in which home buyer’s actual mortgage payments are based upon.
The changed are to come into full effect on January 1st, 2018, but you may have even less time than that.
The Office of the Superintendent of Financial Institutions (OSFI) tells us that "approved loan applications occurring between October 17, 2017 and January 1, 2018 might be subject to the new rules, depending on the institution. This is because … where possible, institutions are encouraged to comply with the new rules as soon as they can."
NOTE:
RENEWALS:
OSFI's new guidelines also clarified that borrowers who are renewing mortgages will not have to meet the new stress-test standard as long as they are staying with the same bank. However, renewals done with another lender will have to qualify under the revised standards because they require new underwriting.
Trapped renewers: Lenders are thrilled about one thing: customer retention. As many as one in six people renewing their mortgage could be trapped at their existing bank because they can't pass the stress test at another lender. And if a bank knows you can't leave, you can bet your boots they'll use that as leverage to serve up subpar renewal rates.
Here’s an example of a new mortgage qualifying for purchase with 20% down:
New mortgage qualifying for purchases with 20% down
Household Income Purchasing Power Income Purchasing Power
Today Jan 1, 2018
$60,000 $409,626 $334,323
$100,000 $682,710 $557,206
$150,000 $1,024.065 $835,809
$200,000 $1,365,420 $1,114,411
Assuming you’re making $60,000 a year, have no debt and 20 per cent down, based on a stress test of the contract rate plus 200 basis points, consumers now qualify for 18 per cent less loan
For illustration purposes only. Based on 25 yr amortization, 20% down purchases, 5 yr term, qualifying rate 3.29% today and 5.29% January 2018. Does not include property taxes, heat or condo fees. OAC.
Here is a quick analysis of October 2008 rules vs. January 2018 Rules.
If we look at a $480,000 refinance on a $600,000 house with a $1,000 per month basement suite. The income needed to qualify for that refinance now vs. then using the same contract rate of 3.5% and looking at a 25 year amortization on the refinance – you would need 150% of the employment income to qualify today – eg: 90K compared to 60K
NOTE: Most provincially regulated lenders are not bound by the OSFI's new rules.(credit unions)
Toronto-Dominion Bank economist Brian DePratto estimated in a report Tuesday that the OSFI changes will depress housing demand by 5 per cent to 10 per cent, and will reduce price growth by 2 per cent to 4 per cent over 2018.
Mortgage Professionals Canada warned the changes could reduce the volume of home sales by 10 per cent to 15 per cent annually, resulting in 50,000 to 75,000 fewer home sales a year in Canada, when combined with other mortgage rule changes announced last year.
Almost 1 year to the date of the 2016 mortgage changes OSFI announced new rules to come into effect January 1, 2018 that will require buyers who are making down payments of more than 20 per cent of a home's value – who do not need mortgage insurance – to prove they could still afford their mortgage payments if interest rates were 200 basis points (two percentage points) higher than the rate they negotiated.
Previously, stress test requirements only applied to insured mortgages (those with down payments of less than 20%) and most variable mortgages and terms less than five years.
The so-called new “stress test” is designed to protect homeowners should interest rates rise. Lenders will be obligated to qualify all new conventional mortgages at the greater of the Bank of Canada’s five-year benchmark rate (currently 4.89%) or the contracted rate plus 2%.
So for example, if your contract rate is 3.29%, you will be qualified at 5.29%.
High Ratio and Variable rate products will still be qualified at the 5 year BOC benchmark rate.
Last month, the qualifying rate—which closely resembles the average posted five-year fixed rates from the Canadian banks—was raised to 4.64% from 4.84 and now is 4.99%
Remember:
QUALIFYING RATE is the BOC Conventional 5 year fixed posted rate.
CONTRACT RATE is the rate offered by the Lender in which home buyer’s actual mortgage payments are based upon.
The changed are to come into full effect on January 1st, 2018, but you may have even less time than that.
The Office of the Superintendent of Financial Institutions (OSFI) tells us that "approved loan applications occurring between October 17, 2017 and January 1, 2018 might be subject to the new rules, depending on the institution. This is because … where possible, institutions are encouraged to comply with the new rules as soon as they can."
NOTE:
- Existing mortgage applications: If you’ve received approval for a mortgage already, the new rules won’t affect your mortgage, regardless of when it closes.
- Preapprovals: Banks should honour existing preapprovals issued under the old rules until those preapprovals expire. For preapprovals issued between Oct. 17 and Dec. 31, 2017, the lender can choose which rules to apply (unless they’ve implemented the new stress test prior to the deadline). The OSFI suggests confirming the conditions of your preapproval with your lender, just to be safe.
- Applications in the New Year: The OSFI states that if you get a mortgage from a federally regulated lender such as a bank, then all “loan applications or pre-approvals occurring after January 1, 2018, will be subject to the new rules.” There are no exceptions, even if you signed your purchase agreement before the new rules were announced.
RENEWALS:
OSFI's new guidelines also clarified that borrowers who are renewing mortgages will not have to meet the new stress-test standard as long as they are staying with the same bank. However, renewals done with another lender will have to qualify under the revised standards because they require new underwriting.
Trapped renewers: Lenders are thrilled about one thing: customer retention. As many as one in six people renewing their mortgage could be trapped at their existing bank because they can't pass the stress test at another lender. And if a bank knows you can't leave, you can bet your boots they'll use that as leverage to serve up subpar renewal rates.
- 5 years ago buyers were able to qualify on a 40 year amortization with the contract rate
Here’s an example of a new mortgage qualifying for purchase with 20% down:
New mortgage qualifying for purchases with 20% down
Household Income Purchasing Power Income Purchasing Power
Today Jan 1, 2018
$60,000 $409,626 $334,323
$100,000 $682,710 $557,206
$150,000 $1,024.065 $835,809
$200,000 $1,365,420 $1,114,411
Assuming you’re making $60,000 a year, have no debt and 20 per cent down, based on a stress test of the contract rate plus 200 basis points, consumers now qualify for 18 per cent less loan
For illustration purposes only. Based on 25 yr amortization, 20% down purchases, 5 yr term, qualifying rate 3.29% today and 5.29% January 2018. Does not include property taxes, heat or condo fees. OAC.
Here is a quick analysis of October 2008 rules vs. January 2018 Rules.
If we look at a $480,000 refinance on a $600,000 house with a $1,000 per month basement suite. The income needed to qualify for that refinance now vs. then using the same contract rate of 3.5% and looking at a 25 year amortization on the refinance – you would need 150% of the employment income to qualify today – eg: 90K compared to 60K
NOTE: Most provincially regulated lenders are not bound by the OSFI's new rules.(credit unions)
Toronto-Dominion Bank economist Brian DePratto estimated in a report Tuesday that the OSFI changes will depress housing demand by 5 per cent to 10 per cent, and will reduce price growth by 2 per cent to 4 per cent over 2018.
Mortgage Professionals Canada warned the changes could reduce the volume of home sales by 10 per cent to 15 per cent annually, resulting in 50,000 to 75,000 fewer home sales a year in Canada, when combined with other mortgage rule changes announced last year.
Bank of Canada Interest Rate Announcement - October 25, 2017
The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 1 per cent. In the press release accompanying the decision, the Bank noted that inflation has edged up slightly and is expected to return to its target of 2 per cent in the second half of 2018 while economic growth is forecast to slow in the final six months of this year following a very strong first half. The Bank emphasized that it will be cautious in making future adjustments to its policy rate as it assesses the sensitivity of the economy to higher interest rates.
There are several factors influencing the Bank's decision to move to the sidelines. Recent economic data points to a slowing of growth from the soaring heights of the first half of 2017. Moreover, inflation remains muted and newly announced tightening of mortgage regulations will have a significant impact on households, particularly in a rising mortgage rate environment. We expect that the Bank will take a wait and see approach over the next few months as the impact of its previous rate tightening takes hold.
The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 1 per cent. In the press release accompanying the decision, the Bank noted that inflation has edged up slightly and is expected to return to its target of 2 per cent in the second half of 2018 while economic growth is forecast to slow in the final six months of this year following a very strong first half. The Bank emphasized that it will be cautious in making future adjustments to its policy rate as it assesses the sensitivity of the economy to higher interest rates.
There are several factors influencing the Bank's decision to move to the sidelines. Recent economic data points to a slowing of growth from the soaring heights of the first half of 2017. Moreover, inflation remains muted and newly announced tightening of mortgage regulations will have a significant impact on households, particularly in a rising mortgage rate environment. We expect that the Bank will take a wait and see approach over the next few months as the impact of its previous rate tightening takes hold.
OSFI Announcement of Change to Mortgage Underwriting - October 17, 2017
The Office of the Superintendent of Financial Institutions (OSFI) announced new restrictions on uninsured mortgages today. Effective January 1, 2018, all home-buyers with a down-payment of more than 20 per cent will have to qualify at the higher of the posted 5-year qualifying rate and their contractual rate plus 200 basis points (2 per cent). This is in addition to policy announced in October of 2016 that required all insured borrowers qualify at the posted 5-year qualifying rate.
In addition to the new stress test for uninsured mortgages, OSFI is also requiring lenders to establish and adhere to appropriate loan-to-value limits reflective of risk and the current economic environment and is prohibiting s lending arrangements designed to circumvent loan-to-value limits such as combing mortgages with other lending products.
These new residential mortgage underwriting requirements will apply to all Federally regulated financial institutions.
The impact of the new stress test requirement will be to lower the purchasing power of households by up to 20 cent. Like past tightening of mortgage regulations, we anticipate that the market impact will be sharp but temporary. In the past, we have seen home sales decline in the 3 to 9 months following the implementation of tighter mortgage lending standards, with the severity of the impact fading within one year. However, these new regulations impact a larger pool of mortgages and so the impact could be more significant than in the past.
The Office of the Superintendent of Financial Institutions (OSFI) announced new restrictions on uninsured mortgages today. Effective January 1, 2018, all home-buyers with a down-payment of more than 20 per cent will have to qualify at the higher of the posted 5-year qualifying rate and their contractual rate plus 200 basis points (2 per cent). This is in addition to policy announced in October of 2016 that required all insured borrowers qualify at the posted 5-year qualifying rate.
In addition to the new stress test for uninsured mortgages, OSFI is also requiring lenders to establish and adhere to appropriate loan-to-value limits reflective of risk and the current economic environment and is prohibiting s lending arrangements designed to circumvent loan-to-value limits such as combing mortgages with other lending products.
These new residential mortgage underwriting requirements will apply to all Federally regulated financial institutions.
The impact of the new stress test requirement will be to lower the purchasing power of households by up to 20 cent. Like past tightening of mortgage regulations, we anticipate that the market impact will be sharp but temporary. In the past, we have seen home sales decline in the 3 to 9 months following the implementation of tighter mortgage lending standards, with the severity of the impact fading within one year. However, these new regulations impact a larger pool of mortgages and so the impact could be more significant than in the past.
Canadian Building Permits - September 7, 2017
The total value of Canadian building permits fell 3.5 per cent on a monthly basis in July, the first decrease since March 2017. The decrease was largely the result of lower construction intentions in Ontario, though several provinces saw declines.
The total value of permits issued in BC increased 4.6 per cent on a monthly basis and were up 35.4 per cent year-over-year, exceeding $1.3 billion for a second consecutive month. Residential permits rose 7.8 per cent on a monthly basis and were 52.6 per cent higher year-over year. That growth was led by a record $771.8 million in permits for multi-family dwellings. Non-residential permits declined 6.1 per cent on a monthly basis and were 5.6 per cent lower year-over-year.
Construction intentions were higher in three of BC's four census metropolitan areas (CMA):
The total value of Canadian building permits fell 3.5 per cent on a monthly basis in July, the first decrease since March 2017. The decrease was largely the result of lower construction intentions in Ontario, though several provinces saw declines.
The total value of permits issued in BC increased 4.6 per cent on a monthly basis and were up 35.4 per cent year-over-year, exceeding $1.3 billion for a second consecutive month. Residential permits rose 7.8 per cent on a monthly basis and were 52.6 per cent higher year-over year. That growth was led by a record $771.8 million in permits for multi-family dwellings. Non-residential permits declined 6.1 per cent on a monthly basis and were 5.6 per cent lower year-over-year.
Construction intentions were higher in three of BC's four census metropolitan areas (CMA):
- Permits in the Abbotsford-Mission CMA fell 17.4 per cent on a monthly basis to just over $30 million. Year-over-year, permit values were more than double the value of July 2016.
- In the Victoria CMA, total construction intentions totaled $138.9 million, an 8.2 per cent monthly increase and a 48 per cent increase in permit values from one year ago.
- In the Kelowna CMA, permits were 1.8 per cent higher a monthly basis and close to 5 per cent higher compared to July 2016 at $71 million.
Bank of Canada Interest Rate Decision - September 6, 2017
The Bank of Canada announced this morning that it is raising its target for the overnight rate by 25 basis points to 1 per cent. In the press release accompanying the decision, the Bank noted that recent economic data have been stronger than expected but growth is forecast to moderate in the second half of the year. On inflation, the Bank cited some excess capacity and temporary price shocks as factors keeping inflation below its 2 per cent target. Importantly, the Bank mentioned it will be paying particular attention to the evolution of the economy's potential growth rate (meaning the economy's estimated long-run growth rate) as well as to labour market conditions and the economy's sensitivity to higher interest rates.
The Bank has now removed the stimulus it injected into the Canadian economy in 2015 to offset the impact of falling oil prices. With the economy expanding at a 3.5 per cent rate over the past year, that stimulus is clearly no longer required. The Bank seems to be more concerned about the potential for higher future inflation due to an over-heated economy than on the actual very low inflation observed in recent months. That leaves the door open for further rate increases should economic growth remain robust.
The Bank of Canada announced this morning that it is raising its target for the overnight rate by 25 basis points to 1 per cent. In the press release accompanying the decision, the Bank noted that recent economic data have been stronger than expected but growth is forecast to moderate in the second half of the year. On inflation, the Bank cited some excess capacity and temporary price shocks as factors keeping inflation below its 2 per cent target. Importantly, the Bank mentioned it will be paying particular attention to the evolution of the economy's potential growth rate (meaning the economy's estimated long-run growth rate) as well as to labour market conditions and the economy's sensitivity to higher interest rates.
The Bank has now removed the stimulus it injected into the Canadian economy in 2015 to offset the impact of falling oil prices. With the economy expanding at a 3.5 per cent rate over the past year, that stimulus is clearly no longer required. The Bank seems to be more concerned about the potential for higher future inflation due to an over-heated economy than on the actual very low inflation observed in recent months. That leaves the door open for further rate increases should economic growth remain robust.
BC Commercial Leading Indicator Surges Higher
Vancouver, BC – September 6, 2016. The BCREA Commercial Leading Indicator (CLI) posted its largest increase since 2009, rising by 3.7 index points in the second quarter of 2017 to 133.1. That increase represents a 2.8 per cent rise over the first quarter and a 6.6 per cent increase from one year ago.
“The sustained rise in the CLI reflects strong growth in sectors of the economy beneficial to commercial real estate activity," says BCREA Economist Brendon Ogmundson. "An uptick in economic activity last quarter further reinforces the already strong trend in the CLI and points to continued growth for commercial real estate."
The underlying CLI trend, which smooths often noisy economic data, continues to push higher due to strong provincial economic and employment growth. That uptrend signals further growth in investment, leasing and other commercial real estate activity over the next two to four quarters.
Vancouver, BC – September 6, 2016. The BCREA Commercial Leading Indicator (CLI) posted its largest increase since 2009, rising by 3.7 index points in the second quarter of 2017 to 133.1. That increase represents a 2.8 per cent rise over the first quarter and a 6.6 per cent increase from one year ago.
“The sustained rise in the CLI reflects strong growth in sectors of the economy beneficial to commercial real estate activity," says BCREA Economist Brendon Ogmundson. "An uptick in economic activity last quarter further reinforces the already strong trend in the CLI and points to continued growth for commercial real estate."
The underlying CLI trend, which smooths often noisy economic data, continues to push higher due to strong provincial economic and employment growth. That uptrend signals further growth in investment, leasing and other commercial real estate activity over the next two to four quarters.
Bank of Canada Interest Rate Decision - July 12, 2017
The Bank of Canada announced this morning that it is raising its target for the overnight rate by 25 basis points to 0.75 per cent. In the press release accompanying the decision, the Bank noted that Canada's economy has been robust and a significant amount of economic slack has been absorbed. While inflation data has been soft, the Bank expects that this is temporary and that inflation will return to its 2 per cent target by mid-2018.
The motivation for today's rate increase seems primarily to be that the Bank feels that the stimulus it injected into the Canadian economy in 2015 through two rate cuts is no longer required given a recent trend of strong economic and employment growth. If that is the case, a further 25 basis point increase before the end of the year will likely follow. After that, the pace of rate increases relies heavily on the trend in Canadian inflation, which to date has been well below the Bank's 2 per cent target. If that trend does not reverse by early next year, the Bank may decide to stop at a 1 per cent overnight rate until higher inflation emerges.
As bond markets reprice rate expectations, Canadian mortgage rates have returned to levels observed at the beginning of the year. We expect that mortgage rates will rise further in the second half of 2017, finishing near 3 per cent for a five-year fixed rate.
The Bank of Canada announced this morning that it is raising its target for the overnight rate by 25 basis points to 0.75 per cent. In the press release accompanying the decision, the Bank noted that Canada's economy has been robust and a significant amount of economic slack has been absorbed. While inflation data has been soft, the Bank expects that this is temporary and that inflation will return to its 2 per cent target by mid-2018.
The motivation for today's rate increase seems primarily to be that the Bank feels that the stimulus it injected into the Canadian economy in 2015 through two rate cuts is no longer required given a recent trend of strong economic and employment growth. If that is the case, a further 25 basis point increase before the end of the year will likely follow. After that, the pace of rate increases relies heavily on the trend in Canadian inflation, which to date has been well below the Bank's 2 per cent target. If that trend does not reverse by early next year, the Bank may decide to stop at a 1 per cent overnight rate until higher inflation emerges.
As bond markets reprice rate expectations, Canadian mortgage rates have returned to levels observed at the beginning of the year. We expect that mortgage rates will rise further in the second half of 2017, finishing near 3 per cent for a five-year fixed rate.
Canadian Housing Starts - July 11, 2017
Canadian housing starts increased 9 per cent in June to 212,695 units at a seasonally adjusted annual rate (SAAR). The six-month trend in Canadian housing starts continues to trend higher at about 215,459 units SAAR, the highest level in almost five years.
In BC, total housing starts declined 19 per cent on a monthly basis to a still robust 37,279 units SAAR and were down 22 per cent on a year-over-year basis. Single detached starts fell 2 per cent month-over-month but were 14 per cent higher year-over-year. Multiple unit starts fell 24 per cent month-over-month and were down 31 per cent year-over-year.
Looking at census metropolitan areas (CMA) in BC:
Canadian housing starts increased 9 per cent in June to 212,695 units at a seasonally adjusted annual rate (SAAR). The six-month trend in Canadian housing starts continues to trend higher at about 215,459 units SAAR, the highest level in almost five years.
In BC, total housing starts declined 19 per cent on a monthly basis to a still robust 37,279 units SAAR and were down 22 per cent on a year-over-year basis. Single detached starts fell 2 per cent month-over-month but were 14 per cent higher year-over-year. Multiple unit starts fell 24 per cent month-over-month and were down 31 per cent year-over-year.
Looking at census metropolitan areas (CMA) in BC:
- Total starts in the Vancouver CMA were actually down 34 per cent year-over-year with a 2 per cent decline posted in single units starts and a 40 per cent drop in multiple units starts compared to last year. The record level of units currently under construction is likely putting downward pressure on new starts as the industry is close to capacity.
- In the Victoria CMA market, housing starts declined 42 per cent year-over-year with multiple unit starts at only half the level of June 2016. Single unit starts increased 5 per cent.
- New home construction in the Kelowna CMA was up 80 per cent year-over-year but fell by half on a monthly basis compared to a big increase in new home construction in May.
- Housing starts in the Abbotsford-Mission CMA more than doubled on a both a monthly and year-over-year basis due to more than 230 new multiple units starts in June.
Bank of Canada Interest Rate Announcement - May 24, 2017
The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is broadly in line with the Bank's projection, though intense retail competition is pushing inflation temporarily lower. The Bank also noted that the tightening of mortgage regulations implemented in the Fall of 2016 have yet to have a substantial cooling effect on markets but it does expect those measures will contribute to a more sustainable debt profile for Canadian households.
Although the Canadian economy has expanded well above the Bank's estimate of potential growth for three consecutive quarters, including a first quarter that is tracking at close to 4.5 per cent growth in real GDP, the Bank is not optimistic that the economy will sustain that level of growth for much longer. Moreover, despite faster growth, a significant amount of slack remains in the economy and there is therefore very little pressure on inflation. Without a signal that inflation is going to push higher, the Bank will remain sidelined at least until early 2018 when it expects remaining slack in the economy will be eliminated.
The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is broadly in line with the Bank's projection, though intense retail competition is pushing inflation temporarily lower. The Bank also noted that the tightening of mortgage regulations implemented in the Fall of 2016 have yet to have a substantial cooling effect on markets but it does expect those measures will contribute to a more sustainable debt profile for Canadian households.
Although the Canadian economy has expanded well above the Bank's estimate of potential growth for three consecutive quarters, including a first quarter that is tracking at close to 4.5 per cent growth in real GDP, the Bank is not optimistic that the economy will sustain that level of growth for much longer. Moreover, despite faster growth, a significant amount of slack remains in the economy and there is therefore very little pressure on inflation. Without a signal that inflation is going to push higher, the Bank will remain sidelined at least until early 2018 when it expects remaining slack in the economy will be eliminated.
Canadian Building Permits - May 9, 2017
The total value of Canadian building permits declined 5.8 per cent to $7 billion in March, the second consecutive monthly decline.
BC posted the largest decrease at the provincial level due to fewer permit applications for multiple family residential projects, slowed perhaps by the record number of units already under construction. The total value of permits fell 21.4 per cent on a monthly basis and 11.4 per cent year-over-year. Residential permits were down close 26 per cent on both a monthly basis and 14 per cent lower year-over year while non-residential permits were down 4 per cent on a monthly basis and 2.5 per cent year-over-year.
Construction intentions were actually higher across three of BC's four census metropolitan areas (CMA). Permits in the Abbotsford-Mission CMA increased 53 per cent from February to March and were up 29 per cent year-over-year. The Victoria CMA saw permit values increase 10 per cent on a monthly basis but were 6 per cent lower year-over-year. In the Kelowna CMA, permits rose 60 per cent on a monthly basis were more than triple the value in March 2016. Conversely, the Vancouver CMA, where construction is probably at capacity, posted a 40 per cent monthly decline in permit activity on a monthly basis and was down 32 per cent year-over-year.
The total value of Canadian building permits declined 5.8 per cent to $7 billion in March, the second consecutive monthly decline.
BC posted the largest decrease at the provincial level due to fewer permit applications for multiple family residential projects, slowed perhaps by the record number of units already under construction. The total value of permits fell 21.4 per cent on a monthly basis and 11.4 per cent year-over-year. Residential permits were down close 26 per cent on both a monthly basis and 14 per cent lower year-over year while non-residential permits were down 4 per cent on a monthly basis and 2.5 per cent year-over-year.
Construction intentions were actually higher across three of BC's four census metropolitan areas (CMA). Permits in the Abbotsford-Mission CMA increased 53 per cent from February to March and were up 29 per cent year-over-year. The Victoria CMA saw permit values increase 10 per cent on a monthly basis but were 6 per cent lower year-over-year. In the Kelowna CMA, permits rose 60 per cent on a monthly basis were more than triple the value in March 2016. Conversely, the Vancouver CMA, where construction is probably at capacity, posted a 40 per cent monthly decline in permit activity on a monthly basis and was down 32 per cent year-over-year.
Canadian Housing Starts - May 8, 2017
Canadian housing starts declined to 214,098 units at a seasonally adjusted annual rate (SAAR) in April following a surge in new home construction in March that saw a pace of over 250,000 units SAAR. The six-month trend in Canadian housing starts continues to trend higher at about 214,000 units SAAR.
In BC, total housing starts were 44,604 units SAAR, a 1 per cent dip from the previous month and 1 per cent higher compared to April 2016. Single detached starts declined 9 per cent month-over-month but were 16 per cent higher year-over-year. Multiple unit starts increased 2 per cent month-over-month and were down 3 per cent year-over-year.
Looking at census metropolitan areas (CMA) in BC:
Canadian housing starts declined to 214,098 units at a seasonally adjusted annual rate (SAAR) in April following a surge in new home construction in March that saw a pace of over 250,000 units SAAR. The six-month trend in Canadian housing starts continues to trend higher at about 214,000 units SAAR.
In BC, total housing starts were 44,604 units SAAR, a 1 per cent dip from the previous month and 1 per cent higher compared to April 2016. Single detached starts declined 9 per cent month-over-month but were 16 per cent higher year-over-year. Multiple unit starts increased 2 per cent month-over-month and were down 3 per cent year-over-year.
Looking at census metropolitan areas (CMA) in BC:
- Total starts in the Vancouver CMA were flat month-over-month and down 7 per cent year-over-year with declines posted in both single and multiple units starts.
- In the supply constrained Victoria CMA market, housing starts jumped 25 per cent from March as new multiple unit projects broke ground. However new home construction was well off the pace set in 2016 with total starts down 26 per cent year-over-year .
- New home construction in the Kelowna CMA dropped 24 per cent on a month-over-month basis after a strong March. However, year-over-year, total housing starts were four times higher than April 2016.
- Housing starts in the Abbotsford-Mission CMA were down 26 per cent from March but were up close to 60 per cent compared to April 2016 due to a stronger pace of multiple unit starts.
Bank of Canada Interest Rate Announcement - April 12, 2017
The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that economic growth has been faster than previously expected, boosted by what the Bank sees as temporary spending from the oil and gas recovery and a boost to consumer spending by the Canada Child Benefit. However, export growth remains challenged and business investment is low. Therefore, the Bank judges that it is too early to conclude that the economy has turned a corner. In addition, CPI inflation is trending below its 2 per cent target while the Bank's three new measures of core inflation continue to drift lower.
That downward trending inflation, along with uncertainty in United States policy, seems to be the main barriers keeping the Bank from raising its benchmark overnight rate. While there is some remaining slack in the economy, as measured by the output gap, the Canadian economy has been growing well above the Bank's estimate of potential growth (1.5 per cent) for three consecutive quarters including a first quarter 2017 in which available data points to above 4 per cent growth. In addition to strong GDP numbers, the economy is adding jobs at a rate of 35,000 per month over the past six months, the highest level of job growth since 2010. Should this momentum continue, it is likely we will begin to see a more hawkish Bank of Canada in the second half of the year and a first rate increase in early 2018.
The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that economic growth has been faster than previously expected, boosted by what the Bank sees as temporary spending from the oil and gas recovery and a boost to consumer spending by the Canada Child Benefit. However, export growth remains challenged and business investment is low. Therefore, the Bank judges that it is too early to conclude that the economy has turned a corner. In addition, CPI inflation is trending below its 2 per cent target while the Bank's three new measures of core inflation continue to drift lower.
That downward trending inflation, along with uncertainty in United States policy, seems to be the main barriers keeping the Bank from raising its benchmark overnight rate. While there is some remaining slack in the economy, as measured by the output gap, the Canadian economy has been growing well above the Bank's estimate of potential growth (1.5 per cent) for three consecutive quarters including a first quarter 2017 in which available data points to above 4 per cent growth. In addition to strong GDP numbers, the economy is adding jobs at a rate of 35,000 per month over the past six months, the highest level of job growth since 2010. Should this momentum continue, it is likely we will begin to see a more hawkish Bank of Canada in the second half of the year and a first rate increase in early 2018.
US Federal Reserve Interest Rate Decision - March 15, 2017
The US Federal Reserve's Open Market Committee (the Fed) raised its target overnight rate to between 0.75 and 1 per cent this morning. In the statement accompanying the Fed's decision, it was noted that the labour market continues to strengthen and economic activity is expanding at a moderate pace. Moreover, inflation has increased in recent quarters and near-term risks to the economic outlook appear balanced. The committee expects that economic conditions will evolve in a manner that warrants gradual increases in its target rate, but it was also noted that rates will remain below long-run levels for some time.
Today's action on interest rates by the US federal reserve, particularly the signaling of further rate increases to come this year, will put upward pressure on long-term rates in both the US and Canada. A tightening cycle in the United States may be further compounded by US monetary and fiscal policy acting at cross purposes, with the Fed trying to cool the economy while the Trump administration embarks on deficit widening tax and spending measures. In all, we expect the consequence of these actions will be higher Canadian mortgage rates by the end of the year. A deeper analysis of these trends is contained in BCREA's first quarter Mortgage Rate Forecast, available online tomorrow.
The US Federal Reserve's Open Market Committee (the Fed) raised its target overnight rate to between 0.75 and 1 per cent this morning. In the statement accompanying the Fed's decision, it was noted that the labour market continues to strengthen and economic activity is expanding at a moderate pace. Moreover, inflation has increased in recent quarters and near-term risks to the economic outlook appear balanced. The committee expects that economic conditions will evolve in a manner that warrants gradual increases in its target rate, but it was also noted that rates will remain below long-run levels for some time.
Today's action on interest rates by the US federal reserve, particularly the signaling of further rate increases to come this year, will put upward pressure on long-term rates in both the US and Canada. A tightening cycle in the United States may be further compounded by US monetary and fiscal policy acting at cross purposes, with the Fed trying to cool the economy while the Trump administration embarks on deficit widening tax and spending measures. In all, we expect the consequence of these actions will be higher Canadian mortgage rates by the end of the year. A deeper analysis of these trends is contained in BCREA's first quarter Mortgage Rate Forecast, available online tomorrow.
Bank of Canada Interest Rate Announcement - March 1, 2017
The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that growth in the economy is improving and recent higher CPI inflation should be only temporary, reflecting increased energy costs. The Bank stated that it is remaining attentive to significant uncertainties weighing on its outlook.
While the Canadian economy is showing signs of improving, with strong hiring and faster than expected growth in real GDP, the outlook remains clouded by uncertainty over trade and tax policy in the United States. If economic growth and inflation evolve as the Bank currently projects, the Bank would likely be contemplating raising its overnight rate some time in early 2018. However, given that we have no more clarity now than at the time of the Bank's previous rate decision regarding changes to trade agreements or the stance of US fiscal policy, the Bank will remain sidelined until the path forward becomes more clear.
The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that growth in the economy is improving and recent higher CPI inflation should be only temporary, reflecting increased energy costs. The Bank stated that it is remaining attentive to significant uncertainties weighing on its outlook.
While the Canadian economy is showing signs of improving, with strong hiring and faster than expected growth in real GDP, the outlook remains clouded by uncertainty over trade and tax policy in the United States. If economic growth and inflation evolve as the Bank currently projects, the Bank would likely be contemplating raising its overnight rate some time in early 2018. However, given that we have no more clarity now than at the time of the Bank's previous rate decision regarding changes to trade agreements or the stance of US fiscal policy, the Bank will remain sidelined until the path forward becomes more clear.
Bank of Canada Interest Rate Announcement - January 18, 2017
The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that uncertainty in the global outlook, particularly with regard to policies in the United States, is undiminished. The Canadian economy is forecast to grow 2.1 per cent in both 2017 and 2018, implying the Canadian economy will return to full capacity in mid-2018. On inflation, the Bank noted that it continued to be lower than expected but should return to it 2 per cent target in coming months.
Political uncertainty in the United States will likely govern the direction of both policy rates and long-term bond yields over the next year. The interest rate on 5-year government of Canada bonds has risen to its highest point in a year, which is adding upward pressure to mortgage rates offered by Canadian lenders. While the Canadian economy is forecast to post steady growth in 2017, overall slack in the Canadian economy remains persistent. Without a significant uptick in economic growth, inflation will likely continue to trend at or below the Bank's 2 per cent target. That, along with lingering uncertainty, will keep the Bank sidelined through 2017 with a chance of lowering its target rate should current downside risks to the economy become realized
The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that uncertainty in the global outlook, particularly with regard to policies in the United States, is undiminished. The Canadian economy is forecast to grow 2.1 per cent in both 2017 and 2018, implying the Canadian economy will return to full capacity in mid-2018. On inflation, the Bank noted that it continued to be lower than expected but should return to it 2 per cent target in coming months.
Political uncertainty in the United States will likely govern the direction of both policy rates and long-term bond yields over the next year. The interest rate on 5-year government of Canada bonds has risen to its highest point in a year, which is adding upward pressure to mortgage rates offered by Canadian lenders. While the Canadian economy is forecast to post steady growth in 2017, overall slack in the Canadian economy remains persistent. Without a significant uptick in economic growth, inflation will likely continue to trend at or below the Bank's 2 per cent target. That, along with lingering uncertainty, will keep the Bank sidelined through 2017 with a chance of lowering its target rate should current downside risks to the economy become realized
Source from BCREA