What usually follows once someone hears the term “Monoline Lender” for the first time is a feeling of suspicion and lack of trust. It’s understandable, I mean why is this “bank” you’ve never heard of willing to loan you money when you’ve never banked with them before?

In an effort to help you see the benefits of working with a Monoline Lender, here is some basic information that will help you understand why you’ve never heard of them, why you want to, and the reason they are referred to as lenders, not banks.

Monoline Lenders only operate in the mortgage space. They do not offer chequing or savings accounts, nor do they offer investments through RRSPs, GICs, or Tax-Free Savings Accounts. They are called Monoline because they have one line of business- mortgages.

This also plays into the reasons you never see their name or locations anywhere. There is no need for them to market on bus stop benches or billboards as they are only accessible through mortgage brokers, making their need to market to you unnecessary. The branch locations are also unnecessary because you do not have day-to-day banking, savings accounts, investment accounts, or credit cards through them. All your banking stays the exact same, with the only difference of a pre-authorized payments coming from your account for the monthly mortgage payment. Any questions or concerns, they have a phone number and communicate documents through e-mail.

Would it help Monoline Lenders to advertise and create brand awareness with the public? Absolutely. Is it necessary for them to remain in business? No.

Monoline Lenders also have some of the lowest interest rates on the market, the most attractive pre-payment privileges, and the lowest pre-payment penalties, especially when compared to a bigger bank like CIBC or RBC. If you don’t think these points are important, ask someone whose had a mortgage with one of these bigger banks and sold their property before their term was up and paid upwards of $12,000 in penalty fees. An equivalent amount with a Monoline Lender would be anywhere from $2,000-$4,000 in fees.

Monoline Lenders are not to be feared, they should be welcomed, as they are some of the most accommodating and client service-oriented lenders around! If you have any questions, don’t hesitate to call your local Dominion Lending Centres mortgage professional.

RYAN OAKE

Dominion Lending Centres – Accredited Mortgage Professional
Ryan is part of DLC Producers West Financial based in Langley, BC.

If you haven’t seen your credit score, you’re not alone.

Many of our clients don’t know about their credit score or even know what it is when we first meet with them. During our initial consultation, we go over your complete credit report with you. As an added bonus, we’ll even teach you how to read it.

So, how can you make sure you have a great credit score? Here are a few tips to get you started.

1. You need to have credit. It may be surprising – but your credit score goes up as more credit is available to you. We recommend at least two facilities: a credit card and a line of credit (or 2 credit cards).
2. You also have to pay your bills when they are due. That goes for your internet, cell phone and even parking tickets.
3. It also helps to start as soon as possible. The longer you have a clean record of paying your credit card, loans or other credit facilities, the better your credit becomes.
4. Finally, make sure to carry a low balance. One of the least known ways to hurt your credit is to have high utilization.

Don’t ever hesitate to contact a Dominion Lending Centres mortgage professional about your mortgage related needs when you’re buying a property anywhere in Canada.

EITAN PINSKY

Dominion Lending Centres – Accredited Mortgage Professional
Eitan is part of DLC Origin Mortgages based in Vancouver, BC.

Data released today by the Canadian Real Estate Association (CREA) show a second consecutive dip in home sales across much of the country. Rising mortgage rates and tighter mortgage qualification rules have hit first-time homebuyers particularly hard, and activity was pulled-forward late last year in advance of the new OSFI rules.
Existing home sales dropped 6.5% nationally in February, deepening the decline that began in January. February’s sales figure posted the lowest monthly reading in nearly five years. Home purchases over the first two months of this year plunged 19.4%. Sales fell in almost three-quarters of all local markets, with out-sized declines in and around Greater Vancouver (GVA) and Greater Toronto (GTA).
On a year-over-year (y/y) basis, activity slumped 16.9% from the peak pace of early 2017 and hit a five-year low for any February. Sales activity last month was 7% below the 10-year February average.
Toronto existing home sales plunged nearly 35% compared to the record pace of February 2017. In the GVA sales fell 9% y/y–14.4% below the ten-year February sales average. A CREA official said that “momentum for home sales activity going into the second quarter is likely to be weighed down by housing market uncertainty in British Columbia, where the provincial budget introduced new housing policies toward the end of February.”
Judging from price trends detailed below, the decline in sales in both Toronto and Vancouver appears to be almost entirely in higher-end single-detached homes, as the mid-range of the market–mainly condo apartments and townhouses–remain active.
Ottawa and Montreal have held up better than most, with sales little changed from a year ago. Elsewhere, sales in Calgary and Edmonton were down from the prior month and modestly from a year ago. But, most metrics still point to a soft and relatively stable market, ignoring the OSFI-related swing.
On a month-over-month (m/m) basis, three-quarters of housing markets experienced a decline in sales with just two provinces, P.E.I. (+2.98%) and N.B. (+0.79%) posting gains. B.C. led the declines, down 12.7% m/m, with the GVA down 15.8% and Fraser Valley down 16.3%. Calgary (-8.6%), the GTA (-8.2%) and several Greater Golden Horseshoe markets including Hamilton (-12.1%) and Oakville (-8.8%) were also down sharply on the month.

New Listings
The number of newly listed homes recovered 8.1% in February following a plunge of more than 20% in January. Despite the monthly increase in February, CREA reported that new listings nationally were still lower than monthly levels recorded in every month last year except January and were 6.4% below the 10-year monthly average and 14.6% below the peak reached in December 2017.
New supply was up in about three-quarters of local markets. B.C.’s Lower Mainland, the GTA, Ottawa and Montreal led the monthly increase. Despite the monthly rise in new supply, these markets remain balanced or continue to favour sellers.
With sales down and new listings up in February, the national sales-to-new listings ratio eased to 55% compared to 63.7% in January. Based on a comparison of the sales-to-new listings ratio with its long-term average, almost three-quarters of all local markets were in balanced market territory in February 2018. There were 5.3 months of inventory on a national basis at the end of February 2018 – the highest level in two-and-a-half years and in line with the long-term average of 5.2 months.

Home Prices
On a national basis, the Aggregate Composite MLS Home Price Index (HPI) rose 6.9% y/y in February posting the 10th consecutive deceleration in y/y gains. This continued the trend that began last April when the province of Ontario announced its new housing measures that included a 15% tax on nonresident foreign homebuyers. The slowing y/y home price growth mainly reflects the trend for the Greater Golden Horseshoe. Prices in that region have stabilized or begun to show tentative signs of moving higher in recent months; however, year-over-year comparisons are likely to continue to deteriorate further due to rapid price gains posted one year ago.
Nationally, condo units continued to show the highest y/y price gains in February (+20.1%), followed by townhouse/row units (+11.8%), one-storey single family homes (+3.5%), and two-storey single family homes (+1%).
In the GTA, the Composite MLS HPI rose 3.2% y/y, which was driven by an 18.8% y/y rise in condo apartment prices and 7.5% growth in townhouse prices. Single-family detached home prices were down slightly compared to February 2017.
Benchmark home prices in February were up from year-ago levels in 10 of the 13 markets tracked by the MLS® HPI (see the table below). Composite benchmark home prices in the Lower Mainland of British Columbia continued to trend higher after having dipped briefly during the second half of 2016 (GVA: +16.9% y/y; Fraser Valley: +24.1% y/y). Benchmark home prices rose by about 14% y/y in Victoria and by roughly 20% elsewhere on Vancouver Island.
In the GTA, benchmark price gains have slowed considerably but remain 3.2% above year-ago levels. While home prices in Oakville-Milton are down slightly over the past year (-1.9%), the monthly price trends there have begun to show signs of stabilizing with some tentative upward movement in recent months.
Calgary benchmark home prices were flat (+0.1%) on a y/y basis, while prices in Regina and Saskatoon were down from last February (-4.8% y/y and -3.8% y/y, respectively).
Benchmark home prices rose by 7.7% y/y in Ottawa (led by an 8.9% increase in two-storey single-family home prices). Greater Montreal saw a 6.1% rise y/y (driven by an 8.8% increase in townhouse prices). Benchmark prices increased 5% in Greater Moncton (led by a 6.4% rise in one-storey single-family home prices).

Bottom Line
Housing markets continue to adjust to regulatory and government tightening as well as to higher mortgage rates. The speculative frenzy has cooled, and multiple bidding situations are no longer commonplace in Toronto and surrounding areas. Home prices in the detached single-family space will remain soft for some time, and residential markets are now balanced or favour buyers across the country. The hottest sector remains condos in Toronto and Vancouver where buyers are confronted with limited supply. Owing to the housing slowdown, a general slowing in the Canadian economy and significant trade uncertainty, the Bank of Canada will continue to be cautious.

As the Bank of Canada pointed out last week, household credit growth has slowed in recent months led by a slowdown in residential mortgage credit. Rising interest rates are a severe headwind for consumer spending, and tighter monetary policy could derail an already fragile economy. So don’t expect a Bank of Canada rate hike anytime soon.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

Housing & Smarties

All levels of government are trying to control a situation akin to that of 22 kids that want a Smartie, and there are only six-and-a-half Smarties to be had.

As authority figures tend to, they are creating all kinds of rules about which kid can have a Smartie, and some kids are being marginalized. As any parent knows, efforts to try and suppress Smartie demand by dealing with the kids themselves is foolish.

And no parent would ever suggest that these Smarties were the last Smarties on the planet Earth.

Seriously, just get another box or two of Smarties (approx 15 smarties per box). Then, each kid can have one, even that kid visiting here from another country. Why not show them some hospitality if we now have more than enough Smarties to go around.

But we clearly do not have enough Smarties on hand, and they seem to be tough to find.

So, why not call up the Smarties manufacturer’s and see how we can help them increase supply?

Let’s build more Smarties!

Instead of consistently singling out one kid or another and saying ‘no Smarties for you’, or ‘you pay extra’, and you over there ‘you need to work harder to earn the right’… in other words restrictions and punishment… let’s start building supply.

Then everyone can have one, two, three, or more.

More importantly when you have enough Smarties, then people will still want to come over to your house, and those people will add value – they’ll do chores in order to pay off those Smarties.

It’s a win-win.

Smarties for all!

DUSTAN WOODHOUSE

Dominion Lending Centres – Accredited Mortgage Professional
Dustan is part of DLC Canadian Mortgage Experts based in Coquitlam, BC.

Recently there were changes to the mortgage rules yet again, and one of the rule changes was regarding refinancing your home. At one point in the last 10 years you could refinance your home all the way back up to 95% of its current value, which in many cases has put that property what we call under water or upside down. Basically, real estate markets ebb and flow and if you refinanced to 95% when we were at the crest of a market wave then as markets rolled back you were underwater… clever huh.

Fast forward a few years and the government said ‘what a minute, that is dangerous’, and it was. Clients now had no options for that property except to keep it, hoping values came back or turn it into a rental and hope to break even. At this point the government now said you can only refinance your home to 80% of the value which of course meant you needed to have equity in the property of at least 20% to make a change. This was an insurable product for many of our monoline lenders at this point, so it was something that was competitive in the market.

Welcome to 2018 and today you can still refinance your home to 80% but the Office of the Superintendents of Financial Institutions (OSFI) and CMHC now say that as a lender you can no longer insure this product. What does that mean for the average consumer? First off, it means that lenders across the board are not offering the same rate for insured mortgages as they are for refinances. The point spread between insured and uninsured mortgages has grown to, on average, .30% higher for 5-year fixed rates and it is .55% higher for variable rates.

To add to this extra cost, the new rules of qualifying at 5.14% which is currently the benchmark rate, applies to all mortgages including refinancing. Overall, the changes make it tougher to refinance and forces Canadians to seek alternative options to take equity out of their homes. In many cases this will mean looking to the private sector at higher rates when they need that money. If you have any questions about refinancing, contact your local Dominion Lending Centres mortgage professional.

LEN LANE

Dominion Lending Centres – Mortgage Professional
Len is the owner and founder f DLC Brokers For Life based in Edmonton, AB.

2017 was a year of change for the Canadian Mortgage Market. With the announcement of the B-20 guideline changes requiring all insured or uninsured mortgages to undergo stress testing. In addition, the removal of mortgage bundling and the continued rate rises from the Bank of Canada have led to significant changes in mortgage rates.

This raises the question: what does 2018 hold? While we cannot be 100% certain, based on predictions and summarizing stats from various corporations, we are able to put together a strong prediction of what 2018 will hold.

The Real Estate Market

As a whole, the Canadian real estate market is expected to see a 5.3% drop in national sales due in large part to the new OSFI guidelines (CREA). With this, there is an expectation of minimal growth for home prices at just 1.9% vs. the 8.5% gain seen in 2017. This is due again to the heightened stress testing procedures.

In addition, the sales of condos and townhomes are expected to increase with new developments of multifamily complexes reaching an all-time high, and the demand for smaller, more affordable houses increasing.

So, what does that mean for home prices? CMHC predicts that the average home price is to increase from a range of $493,900-$511,300 in 2017 to a range of $499,400-$524,500 by 2019.

Essentially, the market is going through a period of increased demand for condos and townhomes, leading to potential price increases. In relation to the detached home market, there will be slight price increases, but nothing compared to the growth that was seen in 2016-2017. There is an ongoing trend for homebuyers based in Vancouver and the Fraser Valley to contentedly sit by the sidelines as they save up for a larger down payment before purchasing-further increasing condo ownership and driving demand for rental properties as well.

The Economy

The Canadian Economy has been growing and surging forward through most of 2017. In the four quarters from the second half of 2016 to the first half of 2017, the Canadian Economy grew on average each quarter by 3.6%. Further, despite a slight slowdown in the second half of 2017, there was a rise in employment Canada wide, posting the annual real GDP growth over 3% in 2017. It was a substantial year for the Canadian economy in 2017 and this growth was directly seen in the real estate and housing market.

As many are aware, to stabilize the economy and ensure balance remains, the Bank of Canada began raising interest rates in 2017 and has plans to continue to do so in 2018. This rise in interest rates serves to steadily and slowly stunt the growth of the economy in Canada. Coupled with the ongoing trade disputes, the Canadian economy is forecasted to slow overall, but will still post an above-trend 2.2% of growth in 2018.

The Mortgage Market

So, what does all of the above mean for the mortgage industry and its rates? Well, with the predicted increase in rates from the Bank of Canada it is safe to say that the mortgage rates will follow.

CMHC summarized that the expected interest rate increase over the near-term horizon will bump the posted 5-year mortgage rate to lie within 4.9% and 5.7% in 2018. For 2019 that number increases to 5.2%-6.2% range*

In layman’s terms, the rates are likely to continue to rise alongside the Bank of Canada’s increases. It is important to keep in mind that with planning and budgeting these rates can easily be taken on by the average consumer. A key thing to keep in mind is that a 0.25% rate increase works out to only $13.00/100k increase in your payment. Another fact is that every lender is different in how they will calculate this change. Your mortgage product is unique and may be affected differently than another.

Since the new changes have rolled out there has been a slight decline in consumer demand. As the changes continue to take effect and the potential for more rate increases continues, it becomes more apparent we will continue to see a shift in the mortgage and real estate market.

However, by choosing to work with a Dominion Lending Centres mortgage broker you are guaranteed to work with someone who has an in-depth understanding of both the changes and the market. They will work alongside you to find the best possible solution to get you the sharpest rate.

GEOFF LEE

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

Statistics Canada announced this morning that Canada’s jobless rate returned to a four-decade low as job growth rebounded, confirming that the jobs market is at or near full-employment. Canada added 15,400 net new jobs last month as the unemployment rate edged downward to 5.8%, its lowest level in records back to 1976. This follows January’s 88,000 job loss. However, the gains reflected a rise in part-time employment, which was up 54,700. Full-time jobs were down by 39,300, a reversal in the January performance and the first time in five months that full-time employment has fallen. Full-time positions have been responsible for most of the boom in jobs in the past year and a half, jumping by nearly 500,000 net new ones over that period.

Wage growth decelerated to 3.1% in February, after hitting 3.3% a month earlier, its fastest pace since 2015. Salary gains were boosted last month by the Ontario hike in minimum wages.

Ontario recorded the most substantial monthly drop in employment in January (down 50,900) on the heels of the wage hike. The province led job growth in February but made up only a small part of January’s loss with only 15,700 net new jobs. Employment was also up in New Brunswick and Nova Scotia, while it decreased in Saskatchewan and was little changed in B.C. Of note, Alberta’s unemployment rate fell to 6.7%, a 1.5 percentage point decline over the past year, as the provincial participation rate fell slightly in February.

The bulk of the gains were in the public sector (+50,300), while the private sector added 8,400 net jobs. Holding back the overall pace of gains was a decline in self-employment, down 43,300 in February after four months of net increases.

The gain last month was driven by services-producing industries, particularly health care and education. Manufacturing recorded a loss of 16,500 workers during the month. The number of people working in natural resources rose 7,600 in February, bringing the year-over-year employment growth to 3.4%. Employment in this industry has been trending higher since the second half of 2016.

The finance, insurance, real estate, rental and leasing industry–heavily impacted by the slowdown in housing–experienced a drop in employment of 12,000 last month, posting no growth on a year-over-year basis. 

Today’s employment release is consistent with Canadian growth of roughly 2.0%. The February net gain of 15,400 is probably about what we can expect on average this year as the economy bumps up against full capacity. At 3.1% in February, wage growth posted a fourth consecutive month above its longer-term average of 2.6%. This will not set off inflation warnings at the central bank as the Bank of Canada reported this week that it still assesses wage growth to be below what is normal in an economy without labour market slack. This suggests the Bank will maintain its cautious stance.

U.S. Jobs Strong As Wage Gains Slow

U.S. nonfarm payrolls surged 313,000 in February compared to an expectation of a 200,000 net gain. Gains were mainly in the private sector and upward revisions to the prior two months added another 54,000 jobs. The jobless rate held at 4.1%–the fifth straight month at that level–as increased numbers of new workers entered the labour force. Rising labour force participation rates–reflecting the reentry of discouraged workers–might be one factor holding down wage gains.

Wage growth, which rose a moderate 0.2% month-over-month in February, dipped on a year-over-year basis to 2.6% from a level of 2.8% the prior month. Still, wages have risen at a 3.0% annualized pace over the past three months. The sharp pay gains spooked the markets last month but are apparently not yet taking hold.

Today’s jobs release signals the U.S. labour market remains strong and will keep driving economic growth, while the wage figures show some cooling from a pace that spurred financial turbulence last month on concern that the Federal Reserve could raise interest rates faster. The unemployment rate remains well below Fed estimates of levels sustainable in the long run.

The new Federal Reserve Chairman Jerome Powell will debut at his first Federal Open Market Committee Meeting March 20-21. The question market participants are mulling over is whether central bank officials will hold to projections of a total of three rate hikes this year, or boost the outlook to four.

President Donald Trump has said the tax-cut legislation he signed in December would spur economic growth and boost jobs and wages. At the same time, his tariffs on steel and aluminum imports may become a headwind depending on how extensively they’re implemented and how other nations retaliate. Canada can breathe a sigh of relief for now as Trump made a last-minute turnabout to exempt US NAFTA partners from the tariffs. The president struck an unusually optimistic tone on the fate of NAFTA but repeated his threat to quit the pact if the talks fall short.

“Today is a step forward,” Chrystia Freeland, Canada’s foreign minister, told Bloomberg News in Toronto Thursday. She said Canada would push “until the prospect of these duties is fully and permanently lifted,” and said it would be inconceivable to apply tariffs to a close military ally like Canada on national security grounds.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

What you need to know before you renew your mortgage could save you thousands of dollars. Is your mortgage on your home or other properties maturing in 2018?

Typically you will receive your mortgage renewal notice from your current lender 3-4 months in advance of the renewal date. Sometimes you may receive an offer for early renewal. Either way, always reach out to your Dominion Lending Centres mortgage broker to find out your options and what you need to know before your renew your mortgage.

With the new mortgage rules in effect in October/November 2016 and subsequent changes January 1st 2018 it is more important than ever to know your options before you sign a renewal.

Did you know…?

• If your current mortgage is funded before October 2016, regardless if you were a high ratio borrower or conventional borrower, the old rules for qualifying still apply
• If you want to renew your mortgage at best rates you can transfer that mortgage to another lender without qualifying under the new rules
• If you have any fees for transferring the mortgage they may be covered
• Lenders are currently offering high renewal rates as they know 65%+ of borrowers will simply sign without doing any homework
• Lenders are currently offering lower rates only after clients decline their first offer. Doesn’t seem fair does it?

Mortgage brokers have access to lots of great renewal programs from the banks, mortgage companies and credit unions.

Be informed before your mortgage renewal. Consult with an independent mortgage broker to review your financing needs for all of your properties and to set a plan well in advance of any mortgage renewal. If you are looking to make any large purchases such as investments, real estate, an automobile— know your options and the impact of these purchases on your financial situation.

PAULINE TONKIN

Dominion Lending Centres – Accredited Mortgage Professional
Pauline is part of DLC Innovative Mortgage Solutions based in Coquitlam, BC.

An accelerated payment is a mortgage payment that is increased slightly so that you can pay off your mortgage faster. There are two common types of accelerated payments: bi-weekly and weekly. Of the two, bi-weekly is the much more common choice because it matches with pay dates more often.

An accelerated payment works by increasing your weekly or bi-weekly payment by an amount that would have you pay one full month’s payment extra per year.

Accelerated payments are a great way to start paying off your mortgage, but they actually do not have much of an impact on the interest you will pay. Banks and mortgage professionals use this term to make borrowers think they are paying off their mortgage faster, but the amount of interest saved over the course of your term is minescule.

There’s nothing wrong with accelerated payments, but they are only part of the puzzle. Please contact a Dominion Lending Centres mortgage professional to learn more.

Illustration:
If your payment is $1,000 per month, you pay 12 months per year, which will equal $12,000 of payments that year.

Now, if you pay semi-monthly, or every half month, you pay $500 per payment, for a total of $12,000 per year at 24 payments.

Bi-weekly payments are 26 payments per year with $461.50 per payment.

However, accelerated bi-weekly payments use the semi-monthly payments of $500, 26 times. This means that you end up paying $13,000 over the course of the year, or one extra monthly payment.

The Bare Bones

If all you do is an accelerated payment, your mortgage payoff is stunted compared to what is available. Across Canada, due to the fact that mortgage sizes are now very high, paying off a mortgage should be more of a priority.

The Bank of Canada held rates steady today, as expected, highlighting “trade policy developments” as an “important and growing source of uncertainty for the global and Canadian outlooks.”

As the seventh round of NAFTA negotiations commenced in Mexico City, President Trump dropped a bombshell late last week, threatening to impose a 25% tariff on imported steel and a 10% tariff on imported aluminum for national security reasons. The news reverberated around the world, causing U.S. trading partners in Europe to announce potential retaliatory actions quickly. The European Union raised the stakes for Trump by aiming levies on the GOP heartland, saying it would slap tariffs on products like Harley-Davidsons, Kentucky bourbon and Levi, bluejeans if President Trump goes ahead with his plan. Paul Ryan, Speaker of the House, is the Republican Representative from Wisconsin, headquarters of Harley-Davidsons. He immediately urged the President to stand down or ‘to be more surgical’ on tariffs. Hardliners such as Secretary of Commerce Wilbur Ross argued that any retribution would be trivial.

Well-known Republican economic advisors to the president warned that the tariff plan would do more harm than good, having adverse effects on consumers and many companies that use imported metals in the production of their products. The number of jobs lost in the auto sector and construction, for example, could be far more significant than the positive impact on the comparatively few jobs in the steel industry mainly in Pennsylvania. Prices of many products would rise including infrastructure costs, energy and food products.

Canada is ground zero in this maelstrom as the number-one exporter of steel and aluminum to the U.S., supplying $7.2 billion of aluminum and $4.3 billion of steel to the United States last year. Trump has often accused China of forcing U.S. steel and aluminum companies to fold by inundating the market with cheaper materials, but Trump thus far has refused to exclude Canada from the tariff proposal, holding Canada hostage to a favourable NAFTA deal.

Canada and the rest of the world are hoping that reasonable voices are going to prevail, but the resignation of Gary Cohen, White House Economic Adviser and formerly President of Goldman Sachs, is a victory for the protectionists (and immigration hawks). A registered Democrat, Cohn was regarded as one the few political moderates close to the president. His absence will amplify voices like Commerce Secretary Wilbur Ross and trade adviser Peter Navarro who back the president’s impulses to buck convention and pick trade fights on a global stage.

Housing Another Factor Postponing Rate Hikes

Even before the escalating trade tensions, the Bank of Canada was concerned about the impact of rising mortgage rates and new mortgage guidelines on housing, a significant contributor to the 3% growth in the economy last year. “Strong housing data in late 2017, and softer data at the beginning of this year, indicate some pulling forward of demand,” according to the Bank of Canada press release. The central bank is monitoring the economy’s sensitivity to higher interest rates, pointing out that “household credit growth has decelerated for three consecutive months.”

Inflation has edged upward to close to the 2% target. Wage growth has firmed, but even with the hike in minimum wages, the rise in compensation remains smaller than usual at full-employment.

The Bank of Canada commented once again that the economic outlook is expected to warrant higher interest rates over time, but some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential with inflation on target. The next scheduled Bank of Canada policy announcement is April 18 when the full economic outlook will be updated in the quarterly Monetary Policy Report.

To be sure, if the Trump administration goes ahead with the tariffs, the Bank will keep rates steady in April as well. Investors have pared bets on rate hikes after weaker-than-expected fourth-quarter growth, turmoil in global equity markets and the sharp decline in the Canadian dollar. Traders are not pricing in another rate hike until July according to Bloomberg News calculation on overnight index swaps. A month ago, expectations pointed to at least one increase by May. By the Bank of Canada’s measure, interest rates are still about two percentage points below what it would consider “neutral” for the economy.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.