Weekly Digest

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May 3rd, 2024

US Announcement

It’s increasingly looking like Canada’s first rate cut will be either June 5 or July 24. We would be a lot more confident of the timeline if it weren’t for the U.S. timetable being pushed back. From Wednesday’s meeting, it appears that rates will remain elevated through the summer.

Some small positive notes from the meetings is that the Fed assured that hikes are off the table.

Canada will likely need to cut before the U.S due to our weakening economy and GDP (more on that below).

GDP

Canada’s GDP continues to make headlines, as we are falling well short of the US.

February’s numbers undershot the estimate of 0.30% coming in at 0.20%. March had 0% growth. Annualized, GDP should be roughly 2.4% in Q1 and predictions are falling flat with a year end growth of just 0.60%.

This will continue to be a troublesome topic for Canada moving forward.

Rate Wars

With fewer applications to underwrite, major banks continue to be aggressive on pricing. TD has offered up a baseline Prime – 1.01% on conventional files (= 6.19%).

TD continues to jockey with RBC for the top mortgage lender in Canada while Scotiabank has come back to the table in 2024 with aggressive fixed rate promos.

Connecting the Dots on Rates

As of this morning, the 5yr bond is yielding 3.68%+ which is up about 0.20% from January. The implied probability for BoC rate cuts are down to just 2.4 rate cuts by the end of the year.

As an indicator of how competitive the residential mortgage market is, 5-year fixed rates are actually LOWER today than they were in January, despite the increase costs of funds to banks and lenders.

The critical variable guiding the bank’s hand is inflation as we all know. Mortgage interest costs increased 25% year-over-year and remain the biggest driver of inflation.

The next CPI update on May 21st.

Rental Inflation Decelerating?

• Rents dropped YoY in Vancouver, Toronto and Halifax, by 4% and 1.4% 9.2% respectively

• Rents increased YoY in Montreal, Calgary and Regina, by 7.9%, 8.5%, and 17.6% respectively

• The most expensive rental market in Canada is North Vancouver, and least expensive of major cities is Saskatoon.

Ontario Housing Market Update

• 13,844 – Number of Residential Sale

  • +6.8% y/y

• $843,241 – Average Home Price

  • +1.4% y/y

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 5.24%

• 3 year fixed, 30 yr amortization – 5.44%

• 2 year fixed, 30 yr amortization – 6.20%

• 5 year variable, 30 yr amortization – Prime – 0.90% = 6.30%

• 5 year fixed, 25 yr amortization – 5.19%

• 3 year fixed, 25 yr amortization – 5.34%

• 2 year fixed, 25 yr amortization – 6.10%

• 5 year variable, 25 yr amortization – Prime – 1.00% = 6.20%

INSURED

• 5 year fixed, 25 yr amortization – 4.89%

• 4 year fixed, 25 yr amortization – 4.89%

• 3 year fixed, 25 yr amortization – 4.94%

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

Fast Facts

• 144,000. Firearms that Ottawa is planning to buy from Canadians as part of its buy back program, a plan that is facing challenges after Canada Post said it refuses to collect them.

• 1,109 – People caught last month trying to cross the U.S.-Canada border illegally into Vermont from Canada, the highest recorded number in a single month.

• 35% – Share of Canadian high school students who spend five or more hours per day on electronic devices, a problem that a new Ontario school smartphone ban hopes to solve.

• 27% – according to the Bank of Canada, the numbers of all real estate buyers who were investors.