24 Feb Fixed Rates / Short Term Outlook
Fixed rates were improving in early February until two data sets were released over the last week.
- Canada’s employment report came in above expectations.
- USA inflation data caused a spike in the bond yields.
Canada Jobs Report
The Canadian labour market added 150k positions in January, with full-time employment up 121k and part-time employment up 28.9k. This was 10x the expectations of 15,000. As wage inflation is a key contributor to CPI, this is a cause for concern moving forward for interest rates.
The report is sure to raise eyebrows at the Bank of Canada. The messaging for a pause on further rate hikes is contingent on a slowing of economic growth and an easing in the labour market. The Bank won’t adjust after just one report, but it will be closely watching to see if this trend of massive job gains continues.
U.S.A Inflation Numbers
United States inflation data sets were worse than projected.
- 6.4% y/y for headline inflation v.s. 6.2% consensus.
- 5.6% y/y for core inflation vs. 5.6% consensus.
- 4.6% for the Fed’s much-watched 3-month rate (not good news) vs. 4.3% in Dec.
Over the past year, shelter costs have accounted for roughly 60% of the total increase in core U.S. inflation. CIBC predicts this component will ease in the months ahead due to lag effects.
Overall the data could have been a lot worse, but the bond market is now reacting and it is taking yields up. This is causing fixed rates to rise to late 2022 levels.
Canada’s 4-year swap rate which is a leading indicator of fixed mortgage pricing has followed U.S. yields higher by 11 bps. It’s now approaching December’s high.
January Housing Stats
(18.3%): Average home price declines.
- The most in four decades of CREA records.
(1.9%): HPI drops month over month.
- Tied for the biggest monthly decline in records back to 2000.
$612,204: Canada’s average resale home price
- Down $14,114 from December and down $204,000 from the peak.
New listings were the lowest for a January in over two decades.
Housing Starts vs Immigration – Are We Building Enough?
- Desjardins estimates that housing starts would have to jump by 50% (100,000) to handle the surge of future demands caused by immigration.
- Canada is estimating that there were 955,000 newcomers to Canada in 2022.
What are the Impacts on Rent?
As more individuals enter the country, and we lag behind in suitable homes, rent will continue to increase. Just look at the two charts below, and the substantial rental increases over the past year.
Investor Housing Data
For the first time, Stats Can has published data on investors vs principal residence holders across Canada. This data is for 2020 and the full report can be found here.
Note; investor is defined as an owner who owns at least one home that is not used as their principal residence; cottage, second home, rental property, etc. No tenant is required.
- The proportion of investors among owners varied from 20.2% in Ontario to 31.5% in Nova Scotia.
- Condominium apartments were used as an investment more often than houses (single-detached houses, semi-detached houses, row houses, and mobile homes). Ontario topped the list with the highest rate of condominium apartments used as an investment, at 41.9%.
- Houses used as an investment were mainly owned by individuals living in the same province as the property.
- The highest proportion of investors is in British Columbia
- For every 100 home owners, 20 own a second property
- The highest proportion of investors from out of province is in Nova Scotia.
- The majority of investors own a second home in the province in which they reside.
- Ontario has the highest proportion of investors owning condo’s as their investment.
- Toronto, City = 21.70%
- Vancouver City = 32.50%
- Greater Vancouver, district = 42.10%
- Canada’s most mortgaged city is Milton, ON. 79% of homes have mortgage registrations.
- 3,726 – That’s the number of times humans were attacked by wildlife in Alberta over the last decade—the highest of any province. The most likely animal to attack is an Elk.
Connolly Capital Mortgage Solutions
119 Lakeshore Rd. W, Upper Level, Mississauga, ON
Matthew O’Neil – Mortgage Broker
John O’Neil – Private Lending
Sean Clearihue – Mortgage Agent
Trenton Beaty – Mortgage Agent
Kane Boultwood – Mortgage Agent
Rebecca Tanner – Client Relationship Manager