As a first time home buyer, the process of purchasing a home can seem very daunting. From a financing standpoint, here are 10 common questions I hear from first time home buyers.
Month: September 2016
The August jobs report was stronger than expected as payrolls bounced back from a significant July decline. Canada’s economy added 26,000 jobs last month (a 0.1% gain), thanks to large gains in the public sector and increased payrolls in Quebec. The rebound followed a disappointing July report where the economy shed 31,200 positions, with big losses in full-time employment. The unemployment rate rose a tenth of a percentage point to 7.0%, as more people entered the labour force.
Over the past year, employment increased by 77,000 (0.4%), but reflecting the weakness in the economy, especially in the oil sector, all of the gains in the past twelve months were in part-time work. Over the same period, the total number of hours worked fell by 0.4%.
Another troubling sign was that employment was down in August among the primary workforce, people aged 25 to 54, although job gains were posted for younger and older workers. Nevertheless, the jobless rate for younger workers remained high at 13.2%, as more youths entered the labour force. For older workers, aged 55 and older, employment rose by 29,000 last month with gains for both men and women, but the unemployment rate was stable at 6.0%.
The “lost men” phenomenon is showing up in Canada, as it is prevalent in the US where the number of men aged 25 to 54 in the labour force has declined precipitously–estimated at about 7-to-10 million men in the US who are not working or seeking work. This has led to an unprecedented decline in the labour force participation rate of men. In Canada, employment among people aged 25 to 54 decreased by 25,000 in August, virtually all of which was among men, as their jobless rate increased 0.3 percentage points to 6.6%.
There are many theories about why this is happening. For one, the weaker sectors of the economy–goods production (especially oil) and construction (weaker in the US than in Canada)–are dominated by male employment. Many of these lost workers are less educated.
The labour force participation rate in Canada (adjusted to US concepts) was 65.4% in August, compared with 62.8% in the United States. The participation rate in Canada declined 0.4 percentage points over the past 12 months, while it increased slightly in the United States (+0.2 percentage points).
According to Stats Canada, “Adjusted to the concepts used in the United States, the unemployment rate in Canada was 5.9% in August compared with 4.9% in the United States. On a year-over-year basis, the unemployment rate was essentially unchanged in Canada, while it declined slightly in the United States (-0.2 percentage points).”
On a geographical basis, employment rose in Quebec and Newfoundland, while it declined in New Brunswick. For all of the other provinces, there was little change in payrolls.
Public sector jobs increased in August, while self-employment fell and the number of private sector employees was roughly unchanged. Job declines were posted in professional, scientific and technical services.
Bottom Line: Canada’s economy has been pummeled by the decline in the oil sector and the modest growth in manufacturing and service employment. While we are optimistic about a substantial growth rebound in the second half of this year continuing into 2017, lingering pain is evident. The brightest spot in the economy has been housing in Vancouver and Toronto, but that has boosted household imbalances and over-extended many first-time homebuyers, leaving us vulnerable to financial instability in the future. Preliminary evidence suggests that housing may now be slowing markedly in Vancouver.
Dr. Sherry Cooper
Sometimes “life happens”, and when it does, your home can be your savior if you have accrued some equity in it. Maybe you’ve been out of work, run up your credit cards and driven your credit rating into the ground. Perhaps, you’ve decided to leave the job you hate and venture out into the world of owning your own business. Whatever it may be, the equity in your home can help.
I recently helped a client who had maxed out her high interest credit cards due to not being able to work for a couple of years, and the credit card debt had lowered her credit score substantially. She was now back to work as a self employed consultant earning a good income, but the $1,000 monthly interest payments she was paying was seriously eating at her cash flow and not reducing the principal she owed. Dead money!!
Quebec wants to stop immigrants from using the program to gain access, only to move elsewhere. B.C. and Ontario are favourite locations. The stricter criteria mean immigrants who have property in another province, or who have children attending school in another province are being denied entry.
As for B.C.’s efforts, the 15% tax on foreign buyers – implemented August 2nd – does appear to be having an effect.
Numbers from the Real Estate Board of Greater Vancouver show sales, which were already slowing, plunged nearly 23% compared to July and 26% compared to a year ago.
Prices in the region covered by the tax dipped about 8% y/y in August. But that is seen as a result of changes in the composition of sales. In the area covered by the REBGV, prices were up more than 31% y/y, but just 0.3% from July.
The Bank of Canada’s decision to hold rates steady once again was very much as expected, even though first half growth was well below the forecast in the July Monetary Policy Report. US growth in the first half of this year was also disappointing, reflecting weakness in business and residential investment. US consumer spending was strong, held up by a buoyant labour market.
Rebounding US growth in the second half bodes well for a sustained rebound in Canadian exports. The recently released July trade report for Canada showed a major improvement in exports to the US, a long-awaited sign of a revival in Canadian growth.
Other recent indicators suggest that Canada’s economy entered the third quarter on a stronger footing following the wildfire-related slump in the second quarter. Q2 growth was also depressed by the larger-than-expected contraction in exports. The Bank expects a strong rebound in Q3 growth as oil production resumes and rebuilding in Alberta begins.
Fiscal stimulus will also play a role in the second half economic revival as consumer spending is boosted by the July 1 introduction of Canada Child Benefits payments. Federal infrastructure spending should also begin to impact growth by the final quarter of this year. Nevertheless, the Bank suggested that growth for the remainder of this year will remain below their July forecast.
Inflation is in line with BoC expectations. Total CPI inflation is below the 2% target largely owing to the decline in consumer energy prices. “Measures of core inflation remain around 2%, reflecting offsetting effects of excess capacity and past exchange rate depreciation”.
As always, the final paragraph of the Bank’s statement assesses economic risks. The report suggests that the inflation profile has trended downward since July. As for elevated household debt levels, long a concern, the Bank alluded to the recent slowdown in the Vancouver housing market suggesting that while still early days, it might well be the start of a soft landing. Recent data for Toronto, however, suggest that housing activity remained as robust as ever in August. Clearly, household imbalances continue to rise and heighten financial vulnerabilities.
Given the likely path of economic growth in Canada, I expect the Bank to maintain the current stance of monetary policy through 2017. This means that Canadian interest rates will remain well below rates in the US, as the Fed will likely hike the overnight rate once again either later this year or early next year. Mortgage rates will remain low for longer.
Dr. Sherry Cooper