Inflation Improves

Canada’s annual inflation rate fell to 2.9% in January down from 3.4% in the previous month. This was well below market expectations of 3.3%. The result marked a sharp reversal from the hot reading in December, revamping expectations of disinflation in the Canadian economy and strengthening the case for more accommodation from the BoC.

Consumer prices fell for household operations and clothing, while inflation slowed sharply for transportation and food. On the other hand, rising bond yields lifted mortgage rates and drove shelter prices to accelerate.

If you remove mortgage interest from the inflation calculation, inflation is on target at 2%.

National Bank reports “The Bank of Canada expects shelter inflation to account for about 50% of total inflation over the next two years (almost double its 26% weight in the CPI basket)”. The difference between headline CPI (2.9%) to shelter inflation (6.2%) in now at the widest level since 1982.

Due to this report, odds of a rate cut in March jumped to 26%. The base case is that the Bank will cut rates at its June meeting, but the balance of risks is now skewed to an earlier cut rather than a later one.

Realtor Exodus

Toronto Star reports; realtor earnings are down 40% from the February 2022 peak in home prices. Just under 45,000 realtors have left the business since December 2022.

Shipping Disruptions

Red Sea attacks and diversions of trade ships have caused shipping costs to rise, but not as far as during the pandemic. Global supply chains are well-placed to deal with the disruption. So, for now, the risk of widespread shortages seems low.

The attacks in the Red Sea have caused a large-scale re-routing of commercial ships around the Cape of Good Hope, significantly lengthening journeys.

Mortgage Origination – Consumer Choice

Short term fixed rates (1-3 years) and variable rates continue to lead the charge in new mortgage originations.

MLS Price Indexes

Most markets have now moved out of a buyers market.

Current Interest Rates

CONVENTIONAL

5 year fixed, 30 yr amortization – 5.09%

3 year fixed, 30 yr amortization – 5.29%

2 year fixed, 30 yr amortization – 6.00%

5 year variable, 30 yr amortization – Prime – 0.60% = 6.60%

5 year fixed, 25 yr amortization – 4.99%

3 year fixed, 25 yr amortization – 5.19%

2 year fixed, 25 yr amortization – 5.90%

5 year variable, 25 yr amortization – Prime – 0.70% = 6.50%

INSURED

5 year fixed, 25 yr amortization – 4.89%

4 year fixed, 25 yr amortization – 4.89%

3 year fixed, 25 yr amortization – 4.99%

5 year variable, 25 yr amortization – Prime – .90% = 6.30%

Fast Facts

19.30% – the national average of home price’s dropped values since February 2022’s peak.

$659,395 – Canada’s national average home price as of January 2023.

$126,000,000 – The amount that the City of Toronto has allotted to affordable housing and shelters in its 2024 budget.

35 billion – Capital One’s bid to buy Discover, creating a credit card giant.

800 – Drones that Canada will donate to Ukraine as part of a $500 million aid package announced last June. Canada has now spent a total of $9.7 billion in support for Ukraine.