DLC BLOG
The 5 Mortgage Elements- Decisions You Need to Make Before You Sign!

The 5 Mortgage Elements- Decisions You Need to Make Before You Sign!Before you buy a home there are a couple things you need to figure out first. One of the very first decisions you need to make is whether you want to work with a mortgage broker who is independent from the bank, or if you prefer, work with a financial representative from a specific bank. Next, you want to find a realtor that best understands your needs and wants.

From there, you and your realtor go through the laundry list of pros and cons as they relate to; type of neighborhood, type of building whether detached or attached, one, two, or three bedrooms, strata operated, resale potential, upgrades needed, local amenities, previous owners, the list goes on. Once you get an idea of the homes that tick the most boxes possible, writing an offer to purchase comes quick.

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Dr. Sherry Cooper – Chief Economist, Dominion Lending Centres
Canada’s May Job Loss in Manufacturing and Construction

Statistics Canada announced this morning that Canada’s employment was little changed in May, and the jobless rate remained at a low 5.8% for the fourth consecutive month. The headlines, however, highlighted the modest 7,500 job losses last month on the heels of a 1,100 job loss in April. The job declines are small in a country that has added 238,200 new positions over the past year.

In the private sector, the job losses were focused in manufacturing and construction. Manufacturing has been weak all year no doubt dampened by the continuing uncertainty surrounding NAFTA. The latest trade battles have postponed any NAFTA decisions until 2019. Not only has the U.S. imposed tariffs on shipments of Canadian steel and aluminum, but Trump is now pushing for separate one-on-one trade negotiations with Canada and Mexico.

This divide-and-conquer strategy will only prolong the uncertainty, and it is not clear that the 24-year old NAFTA deal will endure. Reciprocal tariffs by Canada, Mexico and many other U.S. trade partners will continue to disrupt economic activity worldwide.

Construction employment fell for the second consecutive month, decreasing 13,000 in May. Construction jobs are little changed from a year earlier, with recent declines offsetting gains observed in late 2017. Housing activity has slowed markedly in the past 12 months in response to government and regulatory measures to slow residential activity.

Much of the decline in jobs can be chalked up to B.C., where employment fell by 12,400 in May. Mixed performances were observed elsewhere. But B.C. has exceptionally tight labour markets where the unemployment rate has fallen to 4.8%, the lowest in the country. Job losses there might well reflect an inability to find appropriate workers (see chart below).

The jobs market remains very tight in Canada as an increasing number of employers report job vacancies and difficulty in finding experienced workers in some sectors. Labour shortages and provincial hikes in minimum wages have boosted income. Average hourly wages for permanent workers rose 3.9% from a year earlier, matching a pace last seen in April 2009, and the number of hours worked climbed by 2%. Wage gains hitting a nine-year high was undoubtedly helped by Quebec’s minimum wage increase, but the broader story of price pressures remains–12 of 16 major industries saw wage growth above the 3% mark in May, which also marked the twelfth straight month of real wage gains.

Industrial company capacity utilization rose to 86.1% in the first quarter, the highest since 2006, Statistics Canada said in a separate report. It was the seventh consecutive gain.

The Bank of Canada has said it is closely monitoring income growth as it considers whether to raise interest rates again next month. The job market is expected to remain strong this year with unemployment holding close to record lows despite trade uncertainty and weaker housing. Governor Poloz on Thursday said there are signs of “solid” expansion.

The Bank of Canada is expected to hike interest rates when the Governing Council meets again in July, adding to the three rate hikes over the past year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca

DLC BLOG
Last Minute Credit Check

Last Minute Credit CheckAs I’ve said many times, one of the single greatest determining factors in whether you can become qualified for a mortgage and the interest rate at which you do, is your credit history. Many people unfortunately don’t know this, and can be completely blind-sided when it comes time to qualifying.

However, the truly unsettling idea about credit scores and their relation to home financing is the fact that most people do not even know they are extremely important even after you have been approved…

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Dr. Sherry Cooper – Chief Economist, Dominion Lending Centres
Housing Slowdown and Wilting Consumers Dampened Q1 Canadian GDP Growth
Canadian Jobs Beat Expectation in March, But Wage Growth Is Sluggish
This morning, Stats Canada released the first quarter GDP figures indicating a slowdown in growth in the first quarter to a 1.3% annual rate compared to 1.7% in the final quarter of last year. This was precisely what the Bank of Canada (BoC) forecast for Q1 in the April Monetary Policy Report (MPR).

Yesterday, the BoC told us in its press release that the first quarter’s growth exceeded their expectations. Most economists were expecting first-quarter growth to come in at 1.8%, and so was the BoC. Only goes to show that not even the central bank has a crystal ball.

Growth was dampened by a deceleration in household spending, lower exports of non-energy products and a decline in housing investment. Consumer spending decelerated for the third consecutive quarter–rising by 1.1% in Q1 compared to 2.2% last quarter. The growth in consumption peaked in the first quarter of last year at a robust 4.0% annual rate. Household spending growth has decelerated to its slowest pace in three years. Consumer spending on goods such as automobiles stalled after almost three years of gains.

Growth in business spending on capital projects slowed to 3.5% from 9.7% in the final period of last year, and foreign trade was a drag on growth as exports climbed less than imports.

The most significant decline was in housing. Investment in housing fell 7.2%, the most since 2009, on a whopping 13.5% plunge in ownership transfer costs such as real estate and mortgage broker commissions (see chart). That reflected new mortgage stress test measures that began in January, Statistics Canada said.

On the positive side, the quarter ended with a monthly output gain of 0.3% for March, led once again by a 1.9% rise in mining, quarrying and oil and gas extraction. However, the monthly industry-level data showed the biggest plunge in the output of housing-related brokers since the first quarter of 2008 when the global economy was mired in financial crisis. This, of course, was the intentional result of government and regulatory efforts to slow the housing market.

The pace of economic expansion in Canada has now been below 2% for three consecutive quarters, the worst performance since the oil crash in mid-2015. The economy had recovered with gains exceeding 4% in the first half of last year when Canada boasted the most robust economy in the G-7. In the first quarter of this year, while Canada’s economy grew at a 1.3% pace, the GDP growth in the United States was 2.2%.

BoC Deputy Governor Leduc’s speech later today may give some hints about how today’s releases impact the Bank’s thinking, but in general, a July rate hike is still in play after yesterday’s no-change decision.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

DLC BLOG
When double dipping is okay

When double dipping is okayPerhaps you remember the Seinfeld episode where George Costanza catches someone double dipping in the salsa. While this is considered unsanitary and bad manners, some forms of double dipping are okay.

Sometimes two levels of government want you to do something, so they offer you an incentive. The idea is that people’s behavior over time changes and it becomes the norm to do this.

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Dr. Sherry Cooper – Chief Economist, Dominion Lending Centres
Poloz Opens The Door For A Rate Hike In July

As expected, the Bank of Canada held rates steady at 1.25% for the third consecutive month but said that first-quarter growth was stronger than expected and that developments since April suggest that higher interest rates will be warranted.

The first quarter GDP numbers are out tomorrow morning, and it’s clear the Q1 growth will be above the 1.3% figure the Bank projected in the April Monetary Policy Report. This opens the door for a rate hike possibly as soon as the next meeting on July 11. The Canadian dollar rallied on this news as many feared that the Bank was behind the curve in responding to a recent rise in overall inflation–induced by higher gasoline prices–and very tight labour markets.

Uncertainty remains on the NAFTA front, dampening global business investment. Canadian firms long for a bright and stable resolution of trade conflicts with the U.S., which continues to be elusive. Business investment picked up in the first quarter and the Business Outlook Survey released in late June will give the central bank a window on business intentions before the next policy meeting.

Concerning the housing market, the Bank’s press release noted that “Housing resale activity has remained soft into the second quarter, as the housing market continues to adjust to new mortgage guidelines and higher borrowing rates. Going forward, solid labour income growth supports the expectation that housing activity will pick up and consumption will continue to contribute importantly to growth in 2018.”

Not everyone shares this optimism. The past week’s bank earnings releases show that mortgage originations have slowed considerably from year-ago levels and some have suggested that weak activity will prevail for the rest of the year.

The posted mortgage-rate, which is used to qualify borrowers, has risen to 5.34%, making it more difficult for some to gain approval, particularly at the federally regulated lenders. Variable mortgage rates are much lower as the gap between fixed and floating rates has hit historical highs.

Bottom Line: The central bank statement was much more hawkish than expected suggesting we are on target for a rate hike in July and another one is likely in October as well.

The Bank of Canada raised rates three times since the middle of last year as the economy moved closer to full capacity. But the Bank has been in a holding pattern since January cautiously waiting to see the results of trade negotiations and the degree of the slowdown in housing.

These factors will determine the pace of future rate hikes with the Bank estimating its neutral rate is 3%, more than double the current overnight rate. The Bank will only very gradually approach that level, mindful of the impact on an overly indebted household sector.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

DLC BLOG
Mortgage Moment: When Life Gives You Lemons…

Mortgage Moment: When Life Gives You Lemons…We all do it. Even I fall guilty to it at times. It’s really a part of Human Nature…and really what fun is life without it?

What exactly are we talking about? Dreaming. We make grand plans and lay them out with the utmost care. We write them out, daydream about them, and (hopefully) we make them come true! There is nothing wrong with doing this…not a single thing! However, as many of you know, rarely do the dreams and plans we lay out stay on course as we would like them to.

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DLC BLOG
How to Navigate The Mortgage Rate Wars

How to Navigate The Mortgage Rate WarsYou may have heard that rates are changing, and that is true. They don’t call it war for nothing and you need an expert by your side!

Think of mortgage brokers as your loyal soldiers. What we are seeing is exactly what we anticipated when prime rate goes up and discounts go down. Confused? Don’t be, variable rates are based on prime and both Bank of Canada Prime and Bank Prime are different.

What the new discount means is what it means – they anticipate prime to go up higher.

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DLC BLOG
Fixed Versus Variable Interest!

Fixed Versus Variable Interest!Fixed Interest Rates

This is usually the more popular choice for clients when it comes to deciding on which type of interest rate they want.

There are many reasons why, but the most unsurprising answer is always safety. With a fixed interest rate, you know exactly what you are paying every month and you know that the amount of interest being charged for the term of your mortgage will not increase and it will not decrease.

Fixed interest rates can be taken on 1-year, 2-year, 3-year, 5-year, as well as 7 and 10-year terms. Please note, term is not meant to be confused with amortization. When you have a 5-year term but a 25-year amortization- the term is when your mortgage is up for renewal, but it will still take you the 25 years to pay off the entire debt.

The biggest knock on fixed interest rates when it comes to mortgages, especially 5-year terms, is the potential penalty. If you want to break your mortgage and pay it out, switch lenders, take advantage of a lower rate, or anything like this and your term is not over, there will be a penalty. With a 5-year term a fixed rate penalty can be anywhere from $1,000- $20,000 or more.

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