31 Jul

Renting vs. buying in today’s market: how monthly payments compare

General

Posted by: Dean Kimoto

In addition to the stats on renting vs buying there’s some great economic data following!

This article was written by Steve Huebl for Canadian Mortgage Trends: Renting vs. buying in today’s market: how monthly payments compare

A new study has found the cost of renting vs. buying comparable housing in select Canadian markets is nearly on par.

In fact, the difference between renting and buying was less than $500 per month in 11 different markets, according to the report from Zoocasa.

“Though no market is more affordable to buy in than rent, there are several markets where the rental and mortgage payments are similar, though these are all outside of Ontario and British Columbia,” the report notes.

For example, in Winnipeg the average monthly rent is $1,475, while the average mortgage payment was calculated at $1,493, for a difference of just $18. Similarly in Quebec City and Regina, the Zoocasa report found average rents were just slightly more affordable, by $54 and $148, respectively, per month.

It’s important to note that the study didn’t factor in other costs such as utilities, maintenance or property taxes.

In other markets, the monthly cost between renting and owning was more drastic. The largest payment difference was found in Surrey, B.C., where the average mortgage payment was calculated at $2,639 more than the cost of renting. Similar large gaps were seen in the Ontario cities of Burlington and Brampton.

The results were in contrast to a 2021 Royal LePage survey that found, on average, the cost of homeownership was actually less than the cost of renting a comparable housing unit. At that time, of course, homeowners were benefiting from record-low interest rates.

Zoocasa said the average rental rates were sourced from Rentals.ca, while mortgage payments were based on average house price data from the Canadian Real Estate Association and calculated assuming a 20% down payment, and a 5.04% rate amortized over 30 years.

Courtesy: Zoocasa

Other mortgage and real estate stories…

Bank of Canada expected to keep benchmark rate at 5%

The Bank of Canada’s benchmark interest rate is expected to spend the remainder of the year at its current 22-year high of 5.00%, according to a median of responses from market participants.

The findings were released in the Bank of Canada’s second-quarter Market Participants Survey, which surveyed 30 financial market participants between June 8 and 19, 2023.

Asked for their forecast for the Bank of Canada’s policy interest rate, respondents were near-unanimous in believing the policy rate will remain at 5% through the end of the year.

That’s contrary to current bond market pricing, which currently sees a near 80% chance of one more quarter-point rate hike at the Bank’s September meeting.

Most survey respondents expect rates to fall to 4.75% by March 2024, and believe the benchmark rate will end 2024 at 3.50%. By the third quarter of 2025, a median of responses from participants see the Bank of Canada cutting rates further to 2.50%.

The respondents pointed to higher interest rates as the top risk facing economic growth in Canada, followed by tighter financial conditions and a decrease in purchasing power.

A majority of respondents also now believe Canada will skirt a recession and see annual gross domestic product growth remaining positive throughout both 2023 (+0.7%) and 2024 (+1.2%). In the first-quarter survey, the median forecast was for slightly negative growth in 2023.

On inflation, the participants expect total CPI inflation to slow to 3% by the end of 2023 (up from 2.7% in the previous survey), easing further to 2.2% by the end of 2024 (unchanged from the Q1 survey).

Canadian job vacancy rate drops to two-year low

Canada’s job vacancy rate continued to trend down in May, reaching a two-year low.

Statistics Canada reported on Thursday that the number of unfilled positions fell to 759,000 in May, a decline of 26,000 from April. The declines were concentrated in Quebec (-10,800), Manitoba (-3,700) and Saskatchewan (-2,400).

This resulted in the job vacancy rate falling to 4.3%, down by 0.1% from the previous month. Compared to last year, the job vacancy rate is down by 1.5 percentage points.

The StatCan report shows the number of payroll employees rose by 129,900 in the month, led by gains in public administration (106,200) and healthcare and social assistance (+7,000).

Average weekly earnings were up 3.6% on an annual basis to $1,200.75. That’s up from the 2.9% pace reported in April.

U.S. Fed hikes interest rates

On Wednesday, the U.S. Federal Reserve raised its benchmark borrowing costs to the highest level seen in more than 22 years. The Federal Open Market Committee (FOMC) raised the fed funds rate to a target range of 5.25% to 5.5%. The midpoint of this range represents the highest benchmark rate level since early 2001.

Financial markets had largely expected this rate hike.

Fed Chairman Jerome Powell noted during a news conference that inflation has shown some moderation since the middle of the previous year, but still has a way to go to reach the Fed’s 2% target. Powell left open the possibility of maintaining rates at the next meeting in September, stating that future decisions would depend on carefully assessing incoming data and its impact on economic activity and inflation.

“It’s certainly possible we would raise (rates) again at the September meeting, and it’s also possible we would hold steady,” he said.

Steve Huebl
Steve Huebl is a graduate of Ryerson University’s School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.
19 Jul

CPI Inflation Falls To 2.8%–Inside the BoC’s Target Range

General

Posted by: Dean Kimoto

Canadian inflation falls within Bank of Canada’s target range, but food and shelter costs remain high

 

June inflation data released today by Statistics Canada showed that the Consumer Price Index (CPI) rose 2.8% year-over-year (y/y), slightly below expectations. This was the lowest CPI reading since February 2022.

The decline in inflation was mainly due to lower energy prices, which fell by 21.6% y/y. Without this decline, headline CPI inflation would have been 4.0%. The year-over-year decrease resulted from elevated prices in June 2022 amid higher global demand for crude oil as China, the largest importer of crude oil, eased some COVID-19 public health restrictions. In June 2023, consumers paid 1.9% more at the pump compared with May.

Food and shelter costs remained the two most significant contributors to inflation, rising by 9.1% y/y and 4.8% y/y, respectively. Food prices at stores have risen nearly 20% in the past two years, the most significant rise in over 40 years. Shelter inflation rose slightly from 4.7% y/y in May.

The largest contributors within the food component were meat (+6.9%), bakery products (+12.9%), dairy products (+7.4%) and other food preparations (+10.2%). Fresh fruit prices grew at a faster pace year over year in June (+10.4%) than in May (+5.7%), driven, in part, by a 30.0% month-over-month increase in the price of grapes.

Food purchased from restaurants continued to contribute to the headline CPI increase, albeit at a slower year-over-year pace in June (+6.6%) than in May (+6.8%).

Services inflation cooled to 4.2% y/y from 4.8% y/y in May. This was due to smaller increases in travel tours and cellular services.

The Bank of Canada’s target range for inflation is 1% to 3%. While June’s inflation reading was within the target range, it is still higher than the Bank would like. The Bank raised the overnight policy rate twice in the past two months to reduce the stickier elements of inflation.

There were signs of easing price pressures for consumer goods also. Durable goods inflation continued to cool to 0.8% y/y in June. Passenger vehicle prices rose slower in June (+2.4%) than in May (+3.2%). The year-over-year slowdown resulted from a base-year effect, with a 1.5% month-over-month increase in June 2022 replaced with a more minor 0.6% month-over-month increase in June 2023. This coincided with improved supply chains and inventories compared with a year ago. Household furniture and equipment was up only 0.1% y/y in June, down from a peak of 10.5% last June.

The June inflation data provides some relief to consumers, but it is clear that food and shelter costs remain a major concern. The Bank of Canada will closely monitor inflation in the coming months to see if it is on track to return to its 2% target. There is another CPI report before the Bank meets again on September 6th.

The Bank of Canada’s underlying inflation measures cooled further in May. CPI-trim eased to 3.7%y/y in June from 3.8% y/y in May, and CPI-median registered 3.9% versus 4.0% y/y in May. The chart below shows the closely watched measure of underlying price pressures, the three-month moving average annualized of the core measures of CPI. They continue to be just under 4%.

Canadian inflation continued to make encouraging progress in June. However, the cooling in headline inflation benefits from sizeable base effects due to the favourable comparison to high energy prices last June. The Bank of Canada (BoC) is watching its preferred core measures, which continue to show glacial progress.

Bottom Line

It takes time for the full effect of interest rate hikes to feed into the CPI. Mortgage interest costs will continue to rise as higher interest rates flow gradually through to household mortgage payments with a lag as contracts are renewed.

BoC Governor Macklem emphasized last week that the Bank has become worried about the persistence of underlying inflation pressures in the economy. The June inflation data likely provides some reassurance that things are moving in the right direction, but not fast enough for the Bank of Canada to let its guard down.

The BoC is facing a difficult balancing act. It needs to raise interest rates enough to bring inflation under control, but it also needs to be careful not to raise rates so high that it causes a recession. The next few months will be critical for the BoC as it assesses the risks of inflation and recession.

Please Note: The source of this article is from SherryCooper.com/category/articles/
8 Jul

Strong Canadian Job Growth in June Will Not Please The Bank of Canada

Interest Rates

Posted by: Dean Kimoto

Its a close call which way the bank wil go… (Bank of Canada Policy interest rate announcement coming Wednesday, July 12th)

Employment growth last month came in at a whopping 60,000 jobs, tripling expectations, and most of those net new jobs were for full-time workers. As our population grows, more people are available to fill job vacancies. Employment rose in wholesale and retail trade (+33,000), manufacturing (+27,000), health care and social assistance (+21,000) and transportation and warehousing (+10,000). Meanwhile, declines were recorded in construction (-14,000), educational services (-14,000) and agriculture (-6,000).

The unemployment rate rose 0.2 percentage points to 5.4% in June, following a similar increase (+0.2 percentage points) in May. The increase brought the rate to its highest level since February 2022 (when it was also 5.4%). There were 1.1 million people unemployed in June, an increase of 54,000 (+4.9%) in the month.

The population grew by 0.3%, the labour force rose by 0.5%, and employment increased by 0.3%. The participation rate increased by 0.2 percentage points to 65.7%. Despite the successive increases in May and June, the unemployment rate in Canada remained below its pre-COVID-19 pandemic average of 5.7% recorded in the 12 months to February 2020.

One thing the Bank of Canada will be happy about is that wage inflation slowed to 4.2% on a year-over-year basis following four consecutive months of more than 5% wage growth. This is good news for the Bank, but not good enough given that wages are still rising at more than double the inflation target of 2.0%.

Bottom Line

Traders are now betting that there is a 70% chance that the Bank of Canada will hike the policy rate by 25 basis points on July 12, taking the overnight rate to 5.0%. Given that many consumers are feeling the pinch of rising prices, and the June housing data appears to have softened, at least in the GTA, the Bank could surprise us again by remaining on the sidelines. After all, inflation fell to 3.4% in May, and the Business Outlook Survey softened broadly, particularly regarding hiring intentions.

In contrast, the latest monthly GDP report showed an uptick in growth in May. Remembering that Q1 growth came in nearly one percentage point above the Bank’s forecast in the April Monetary Policy Report (MPR) and all six Canadian bank economists are forecasting a rate hike, the Bank might want to take out a bit more insurance that inflation will return to the 2% target next year.

A fresh MPR will accompany next week’s policy announcement and press conference. It’s unclear which way the Bank will go, but the odds favour a rate hike.

Please Note: The source of this article is from SherryCooper.com/category/articles/