A new minimum qualifying rate (stress test) for uninsured mortgages will be set:

The minimum qualifying rate for uninsured mortgages will be the greater of the five-year benchmark rate published by the BoC or the contractual mortgage rate +2%.

Lenders will be required to enhance their LTV measurement and limits to ensure risk responsiveness:

Federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve.

Restrictions will be placed on certain lending arrangements that are designed, or appear designed to circumvent LTV limits:

A federally regulated financial institution is prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.

If you have any questions about the changes please contact me at (Cory Kline- Cory@ndlc.ca)

The Canadian economy has grown at a stronger-than-expected annual rate of 3.7% in the past year, taking the jobless rate down to its lowest level in nearly a decade. With Canada’s economy the strongest in the Group of Seven countries, Ottawa now projects much smaller deficits than it did in March. The Liberal government cut its deficit projection for the fiscal year that ends March 31 to just under $20.0 billion, down from $28.5 billion in the March budget. It now expects a cumulative deficit over the coming five fiscal years of $86.5 billion, compared with $120 billion previously.
Finance Minister Bill Morneau announced new spending today totalling $7.7 billion over six years, bringing the total new spending since the March budget to $19.1 billion over six years. This additional stimulus comes as the economy is running far faster than its long-run potential noninflationary pace, rapidly approaching full capacity. The Bank of Canada has already raised interest rates twice since the summer and meets again on Wednesday. While we do not expect the Bank to hike rates tomorrow, additional fiscal stimulus runs the risk of ever tighter monetary policy–meaning higher interest rates than otherwise would be the case down the road. Higher interest rates slow interest-sensitive spending and nothing is as sensitive to rates as home purchases. With all the government’s concern about the record level of household debt, tighter monetary policy might well be welcome.
The government has already taken repeated actions to slow the housing market. Most recently, the federal financial institutions’ regulator, OSFI, has tightened the stress testing for non-insured mortgage borrowers effective in January.
Deficit spending, particularly the enhanced child benefit system, has undeniably been fueling consumption. The government announced today it would index its marquee Canada Child Benefit to inflation beginning in July 2018, two years earlier than scheduled. It also expanded the Working Income Tax Benefit, which supplements the earnings of low-income workers, starting in 2019. It also reduced the small business tax rate to 10%, announced last week, and it snuck in changes to the tax system that “ensure low corporate tax rates go towards supporting businesses, not to the top 1% of income earners”. In that regard, Ottawa is proceeding with a new tax on investment income held in private corporations and will detail the measure in its 2018 budget.
Trudeau’s team has been backtracking on a trio of tax proposals unveiled by Morneau in July and offered new details in its update on Tuesday. It will proceed to restrict so-called income sprinkling — paying family members who don’t work for a firm — with new legislation due later this year. The Liberals will also tax investment income held in private corporations when it exceeds $50,000 annually, releasing rules for that in its 2018 budget. It has abandoned a third proposal, which changed capital gains rules.
Despite the improved economic outlook, there is no forecast to return to budgetary balance, although the debt-to-GDP ratio does fall more rapidly than in the 2017 budget.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

This week, OSFI (Office of the Superintendent of Financial Institutions) announced that effective January 1, 2018 the new Residential Mortgage Underwriting Practices and Procedures (Guidelines B-20) will be applied to all Federally Regulated Lenders. Note that this currently does not apply to Provincially Regulated Lenders (Credit Unions) but it is possible they will abide by and follow these guidelines when they are placed in to effect on January 1, 2018.
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While the headline net jobs gain was a disappointing 10,000–well below the average monthly increase in the past year–the underlying data in this morning’s StatsCanada release were quite robust. The jobless rate remained unchanged at 6.2 per cent as the acceleration in wage gains suggests that the economy is close to full employment. Average hourly pay gains hit 2.2 per cent year-over-year, the fastest pace since April 2016, mostly reflecting a long-awaited acceleration in wages in the past few months. The Bank of Canada has cited sluggish wage growth as evidence of slack in the economy. In a reversal of the pattern in August, the rise in full-time jobs was dominant, up 112,000 offsetting a loss of 102,000 part-time jobs.
Canada’s labour market has generated more jobs this year since emerging from the last recession in 2009. Employment growth and rising incomes are fueling a consumption binge that has made the country’s economy the fasted in the G7. That growth, however, is slated to slow in the current quarter as exports have declined for three consecutive months and housing activity has moved off its peak, especially in the Greater Golden Horseshoe around Toronto.
Faster wage growth, which should eventually feed through to higher prices, supports the Bank of Canada’s view that inflation will return to its two per cent target over the next year. After a more dovish speech by Governor Poloz last week trimmed the odds of another rate hike this year, today’s report has led some commentators to suggest another increase before yearend is likely. Much will depend on the pace of overall economic activity, which is slowing. Today’s jobs report is consistent with our view that growth is tailing off to the 2.0%-to-2.5% range, well below the booming 4.5 per cent pace posted in Q2.

The unemployment rate at 6.2 per cent is the lowest in decades except for the period just before the financial crisis in 2008-09 when the economy was running full out.
According to StatsCanada, Ontario was the only province with a notable employment gain for the second consecutive month. There were employment declines in Manitoba and Prince Edward Island. Most of the job gains were in the public sector where educational services led the way, offsetting the losses in August. As well, more people worked in wholesale and retail trade in September, while employment fell in information, culture and recreation. Construction jobs were flat, and real estate related jobs edged down a bit.

Some Other Details In The Canadian Report
• Hours worked are up 2.4 per cent from a year earlier, the most significant annual increase since June 2012
• Total employment is up by about 320,000 over the past 12 months, driven by 289,000 new full-time jobs
• Youth unemployment fell to 10.3 per cent, the lowest on record, as their participation rate dropped. That reflected an increase in the full-time school attendance rate to the highest since 2011
Hurricanes Hit U.S. Payrolls
The number of employees on U.S. payrolls dropped in September for the first time since 2010. Nonfarm payrolls fell 33,000 while the unemployment rate plummeted two ticks to 4.2 per cent–a 16-year low–and wage gains accelerated. This seeming inconsistency is the result of the separate surveys used to determine each of these numbers. As well, hurricanes Harvey and Irma prevented 1.47 million people from going to work, the most since January 1996. Hourly workers are typically not paid unless they show up for work, regardless of reason.
The U.S. Labour Department suggests that hurricanes had a net effect of reducing the employment numbers in September, while there was “no discernible effect” on the national unemployment rate, which at 4.2 per cent is the lowest since February 2001. The U-6, or underemployment rate, fell to 8.3 per cent from 8.6 per cent; this measure includes those who are involuntarily working less than full-time and people who want a job but aren’t actively looking.
Very tight labour markets boosted average hourly earnings by 0.5 per cent month-over-month taking the year-over-year gain to 2.9 per cent. Some of this increase probably reflects the lower-paid workers that couldn’t make it to work because of the weather. It will be several months before the weather-related effects wash out.
There is nothing in this report that changes my view that the Fed will hike interest rates one more time before the year is out.