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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Deciding to borrow money to launch your small business startup is a big decision. It’s the second biggest decision after deciding to start the business. Since it is a big decision, it requires much thought and research before taking the leap. There are multiple ways to fund a small business startup, and it’s important to know and understand all of them before making a final decision.
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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.

Rarely in life do things go as planned, especially in real estate.
In a perfect world, when buying a new home, most people want to take possession of their new house before having to move out of the old one. This makes moving a lot easier and allows you time for painting or renovations prior to moving into your new home.

Where it gets complicated; most people need the money from the sale of their existing house to come up with the down payment for the new house!!
This is where bridge financing comes in.

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The federal finance minister seems convinced that Ottawa’s efforts to cool the housing market are working. In a letter to the House of Commons finance committee Bill Morneau says, “A decline in the share of new insured loans issued to highly indebted borrowers suggests that the quality of credit is improving in the high-ratio mortgage market.”

This does not appear to take into account the abundance of homes priced at more than $1 million in the biggest and busiest markets of Toronto and Vancouver. These homes are not eligible for government sponsored, high-ratio mortgage insurance under federal policy changes put in place back in October.

The latest numbers out of the GTA may force the minister to take another look at his comments. The figures show the average price for an existing detached home dropped below the million-dollar threshold in the first two weeks of this month. That will make a lot more high-ratio mortgages eligible for CMHC insurance once again.

Economists and other market watchers are not rushing to call the slide in Toronto prices a “correction”. Many believe it is likely do to a change in the composition of the market; with more, lower priced, homes finally going up for sale.

It may be worth noting that only three of the four major policy changes announced by the federal government back in October have actually been implemented nearly a year later. More stringent stress tests for mortgage qualification, restriction of mortgage insurance to homes costing less than $1 million, new reporting requirements for the principal residence capital gains exemption – all aimed directly at consumers – are firmly in place. A plan to get lenders, in particular the big banks, to share in the risk of insuring against mortgage default still languishes in the consultation stage.

Aug 28, 2017
Thank you First National Financial for your insight.

We are all familiar with the banks and local credit unions, but what are monoline lenders and why are they in the market?

Mono, meaning alone, single or one, these lenders simply provide a single yet refined service: to fulfill mortgage financing as requested. Banks and credit unions, on the other hand, offer an array of other products and services as well as mortgages.
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Canadians have contributed to a record number of foreign buyer sales in the United States…

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Article “Growing number of Canadians buying foreign properties” from Canadian Real Estate Wealth, by Justin da Rosa 24 Jul 2017

Market watchers have been swamped by a wave of numbers recently but the one that pops to the surface as the most significant is the latest employment figure.

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In an article the Globe and Mail released this week titled “Time to get over our squeamishness about reverse mortgages” by Rob Carrick.

It is an interesting article that explains the increasing need and demand for reverse mortgages in Canada, and that accessing equity from a home can be a smart solution.

Carrick, a well-known Personal Finance Columnist for the Globe and Mail, wrote that “…it’s time to take a fresh look at the reverse mortgage and get over the common view that it’s a last resort or short-sighted measure”.

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