23 Feb

Global Tariff Uncertainty Is Not Good For the Canadian Housing Market

General

Posted by: Ryan Roth

Canadian MLS® Systems posted a double-digit jump in new supply in January 2025 when compared to December 2024. At the same time, sales activity fell off at the end of the month, likely reflecting uncertainty over the potential for a trade war with the United States.

Although sales were down 3.3% month-over-month in January, this was mostly the result of sales trailing off in the last week of the month.

Meanwhile, the number of newly listed homes increased with an 11% jump compared to the final month of 2024. Aside from some of the wild swings seen during the pandemic, this was the largest seasonally adjusted monthly increase in new supply on record going back to the late 1980s.

“The standout trends to begin the year were a big jump in new supply at an uncommon time of year, as well as a weakening in sales which only showed up around the last week of January,” said Shaun Cathcart, CREA’s Senior Economist. “The timing of that change in demand leaves little doubt as to the cause – uncertainty around tariffs. Together with higher supply, this means markets that had been steadily tightening up since last fall are now suddenly in a softer pricing situation again, particularly in British Columbia and Ontario.”
New Listings

With sales down amid a surge in new supply, the national sales-to-new listings ratio fell to 49.3% compared to readings in the mid-to-high 50s in the fourth quarter of last year. The long-term average for the national sales-to-new listings ratio is 55%, with readings between 45% and 65% generally consistent with balanced housing market conditions.

There were close to 136,000 properties listed for sale on all Canadian MLS® Systems at the end of January 2025, up 12.7% from a year earlier but still below the long-term average for that time of the year of around 160,000 listings.

“While we continue to anticipate a more active spring for the housing sector, the threat of a trade war with our largest trading partner is a major dark cloud on the horizon,” said James Mabey, CREA Chair. “While uncertainty about the economy and jobs will no doubt keep some prospective buyers on the sidelines, a softer pricing environment alongside lower interest rates will be an opportunity for others.”

There were 4.2 months of inventory on a national basis at the end of January 2025, up from readings in the high threes in October, November, and December. The long-term average is five months of inventory. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months and a buyer’s market would be above 6.5 months.
Home Prices

The National Composite MLS® HPI has barely budged in the last year, owing to ongoing softness in B.C. and Ontario. This has offset rising prices on the Prairies, in Quebec, and across the East Coast.

The National Composite MLS® Home Price Index (HPI) changed slightly (-0.08%) from December 2024 to January 2025.

The non-seasonally adjusted National Composite MLS® HPI was unchanged (+0.07%) compared to January 2024. That said, it was technically the first year-over-year increase since last March.
Bottom Line

The Bank of Canada’s aggressive rate cuts and regulatory changes aimed at making housing more affordable were offset last month by the increasing uncertainty surrounding a potential trade war with the United States. Tiff Macklem clearly recognizes from this report that significant uncertainty is detrimental to both the Canadian housing market and the broader economy. Our economy teeters on a precarious line between modest growth and recession. Before the tariff threats emerged, it seemed the housing market was poised for a strong rebound as we approached the spring selling season.

Unfortunately, the situation has only deteriorated, particularly as President Trump has repeatedly suggested that Canada could become the 51st state, further angering Canadians. While the first round effect of tariffs leads to higher prices as importers attempt to pass off the higher costs to consumers, second-round effects slow economic activity owing to layoffs and business and household belt tightening.

The Bank of Canada will no doubt come to the rescue slashing interest rates further. This is particularly important for Canada where interest-rate sensitivity is far higher than in the US.
17 Feb

Canada’s January Unemployment Rate Fell to 6.6% On Stronger-Than-Expected Job Growth

General

Posted by: Ryan Roth

Today’s Labour Force Survey for January surprised on the high side as businesses expanded employment despite threats of a tariff war with the US.

According to Statistics Canada, employment increased by 76,000 last month, bringing the jobless rate down to 6.6%. Economists in a Bloomberg survey expected a smaller rise of 25,000 jobs, with the unemployment rate rising to 6.8%. This pattern of stronger-than-anticipated employment data has continued since November, with increases in both part-time and full-time work.

The employment rate—the proportion of the population aged 15 and older who are employed—increased 0.1 percentage points to 61.1% in January, marking the third consecutive monthly increase. These recent increases follow a period in which employment growth had been outpaced by population growth, resulting in the employment rate declining 1.7 percentage points from April 2023 to October 2024.

Manufacturing employment rose by 33,000 (+1.8%) in January, following an increase of 17,000 (+0.9%) in December. The increase in January was concentrated in Ontario (+11,000; +1.3%), Quebec (+9,700; +1.9%), and British Columbia (+8,700; +4.9%). Despite the gains in the past two months, overall employment in manufacturing changed little year over year in January.

Employment in professional, scientific, and technical services rose in January (+22,000; +1.1%), the second increase in the past three months. On a year-over-year basis, employment in the industry was up by 66,000 (+3.4%).

Employment gains led by manufacturing in January

Employment in construction increased by 19,000 (+1.2%) in January, building on a net increase of 47,000 (+2.9%) recorded from June to December 2024. On a year-over-year basis, employment in construction was up by 58,000 (+3.6%) in January.

Employment also increased in accommodation and food services (+15,000; +1.3%), transportation and warehousing (+13,000; +1.2%) and agriculture (+10,000; +4.4%) in January. At the same time, there were fewer people employed in “other services” (which includes personal and repair services) (-14,000; -1.8%).

The unemployment rate declined 0.1 percentage points to 6.6% in January, marking the second consecutive monthly decline from a peak of 6.9% in November 2024. The unemployment rate had previously increased 1.9 percentage points from March 2023 to November 2024, as labour market conditions cooled after a period of low unemployment rates and high job vacancies following the COVID-19 pandemic.

Many unemployed people are facing continued difficulties finding employment despite recent employment growth.

Wage inflation slowed markedly in the past three months, which is welcome news for the Bank of Canada. While the strength of this report has led some to speculate that the central bank will ease less aggressively, we agree that jumbo rate cuts are a thing of the past. However, monetary policy is still overly restrictive, especially if the Trump tariff threats come to fruition.

We expect the BoC to reduce the overnight rate from 3.00% today to 2.5% in quarter-point increments by the spring season. This should significantly boost Canadian housing market activity, particularly given the recent decline in mortgage rates.

Bottom Line

Employment in manufacturing may be particularly susceptible to changes in tariffs and foreign demand. The sector has the most jobs dependent on US demand for Canadian exports,

According to the Labour Force Survey, there were 1.9 million people employed in manufacturing in January, comprising 8.9% of total employment—the fourth largest sector in Canada. As a total share of jobs, manufacturing employment has decreased over the years, particularly in the 2000s, but has been more stable since 2010.

Automotive manufacturing industries are highly integrated with US supply chains; an estimated 68.3% of jobs in these industries depend on US demand for Canadian exports. People working in automotive manufacturing (which includes motor vehicle manufacturing, motor vehicle parts manufacturing and motor vehicle body and trailer manufacturing) were concentrated in Southern Ontario, particularly in the economic regions of Toronto (which accounted for 27.7% of all auto workers), Kitchener–Waterloo–Barrie (19.8%) and Windsor-Sarnia (14.8%) in January. In Windsor-Sarnia, automotive manufacturing industries accounted for 38.3% of manufacturing employment and 7.3% of total employment (three-month moving averages, not seasonally adjusted).

In January 2025, a collective bargaining agreement covered over one-quarter (26.5%) of automotive manufacturing employees. In comparison, the union coverage rate in the automotive industry was nearly twice as high in January 2002 (49.9%).

In January, food manufacturing was the most significant manufacturing subsector overall, accounting for 16.4% of all manufacturing employment. It was also the largest subsector across all provinces except Ontario. This subsector relies less on foreign demand, with 28.8% of jobs dependent on US demand for Canadian exports.

The recent acceleration in job growth may not prevent the Bank of Canada from cutting interest rates further this year. The recent wave of hiring likely won’t be enough to placate concerns that a potential Canada-US trade war could plunge the economy into a recession. Still, overnight swap traders eased expectations for a cut at the March 12 meeting to about 60% from close to 80% previously. We expect another 25 bp rate cut at the March and June BoC meetings.

The data were released simultaneously with US nonfarm payrolls, which increased by 143,000 in January as the unemployment rate was 4%. The loonie reversed the day’s loss against the US dollar, trading at C$1.4300 as of 8:34 a.m. in Ottawa. Canada’s two-year yield rose some seven basis points to the session’s high of 2.65%, with Canadian debt underperforming the US and developed markets.

Heightened trade uncertainty will continue to plague Canadian business hiring and spending decisions. Consumers, as well, will likely moderate spending in response to the uncertainty.

10 Feb

Understanding Second Mortgages: Are They Right for You?

General

Posted by: Ryan Roth

One of the biggest benefits to purchasing your own home is the ability to build equity in your property. This equity can come in handy down the line for refinancing, renovations, or taking out additional loans – such as a second mortgage.
A second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. Some advantages include the ability to access a large loan sum, better interest rates than a credit card and the ability to use the funds how you see fit. However, keep in mind interest rates are typically higher on a second mortgage versus refinancing and can add additional cash flow tension to your monthly bills. Talk to a mortgage professional today to determine if this is the best option for you!

What is a second mortgage?

First things first, a second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing a second home or property and taking out a separate mortgage for that. A second mortgage is a very different product from a traditional mortgage as you are using your existing home equity to qualify for the loan and put up in case of default. Similar to a traditional mortgage, a second mortgage will also come with its own interest rate, monthly payments, set terms, closing costs and more.

Second mortgages versus refinancing

As both refinancing your existing mortgage and taking out a second mortgage can take advantage of existing home equity, it is a good idea to look at the differences between them.

Firstly, a refinance is typically only done when you’re at the end of your current mortgage term so as to avoid any penalties with refinancing the mortgage. The purpose of refinancing is often to take advantage of a lower interest rate, change your mortgage terms or, in some cases, borrow against your home equity.

When you get a second mortgage, you are able to borrow a lump sum against the equity in your current home and can use that money for whatever purpose you see fit. You can even choose to borrow in installments through a credit line and refinance your second mortgage in the future.

Some key things to note when looking at a second mortgage or refinancing:

  • If you have a favorable interest rate on your first mortgage, a second mortgage allows you to keep the lower rate on your primary loan, resulting in a lower blended rate.
  • Refinancing resets the amortization schedule, which could extend the loan term. A second mortgage leaves the existing term intact, helping you stay on track with your overall financial goals.
  • Second mortgages often come with more flexible terms, such as interest-only payments, fully open, or shorter term, which can suit your immediate needs.

What are the advantages of a second mortgage?

There are several advantages when it comes to taking out a second mortgage, including:

  • Homeowners can access a significant portion of their home equity (typically 80%-85% LTV).
  • Better interest rate than a credit card as they are a ‘secured’ form of debt.
  • You can use the money however you see fit without any caveats.
  • Allows you to access your home equity without breaking your existing mortgage and incurring penalty fees.

What are the disadvantages of a second mortgage?

As always, when it comes to taking out an additional loan, there are a few things to consider:

  • Interest rates tend to be higher on a second mortgage than refinancing your mortgage.
  • Additional financial pressure from carrying a second loan and another set of monthly bills.

Before looking into any additional loans, such as a secondary mortgage (or even refinancing), be sure to reach out to me! Regardless of why you are considering a second mortgage, it is a good idea to get a review of your current financial situation and determine if this is the best solution before proceeding.

 

2 Feb

Bank of Canada Cuts Policy Rate By 25 BPs

General

Posted by: Ryan Roth

The Bank of Canada (BoC) reduced the overnight rate by 25 basis points this morning, bringing the policy rate down to 3.0%. The market had anticipated a nearly 98% chance of this 25 basis point reduction, and consensus aligned with this expectation. The Federal Reserve is also set to announce its rate decision this afternoon, where it is widely expected to maintain the current policy rate. As a result, the gap between the US Federal Funds rate and the BoC’s overnight rate has widened to 150 basis points. This discrepancy is largely attributed to stronger growth and inflation in the US compared to Canada. Consequently, Canada’s relatively low interest rates have negatively impacted the Canadian dollar, which has fallen to 69.2 cents against the US dollar. Additionally, oil prices have dropped by five dollars, now at US$73.61.

The Bank also announced its plan to conclude the normalization of its balance sheet by ending quantitative tightening. It will restart asset purchases in early March, beginning gradually to stabilize and modestly grow its balance sheet in alignment with economic growth.

The projections in the January Monetary Policy Report (MPR) released today are marked by more-than-usual uncertainty due to the rapidly evolving policy landscape, particularly the potential threat of trade tariffs from the new administration in the United States. Given the unpredictable scope and duration of a possible trade conflict, this MPR provides a baseline forecast without accounting for new tariffs.

According to the MPR projections, the global economy is expected to grow by about 3% over the next two years. Growth in the United States has been revised upward, mainly due to stronger consumption. However, growth in the euro area is likely to remain subdued as the region faces competitiveness challenges. In China, recent policy actions are expected to boost demand and support near-term growth, although structural challenges persist. Since October, financial conditions have diverged across countries, with US bond yields rising due to strong growth and persistent inflation, while yields in Canada have decreased slightly.

The BoC press release states, “In Canada, past cuts to interest rates have begun to stimulate the economy. The recent increase in both consumption and housing activity is expected to continue. However, business investment remains lackluster. The outlook for exports is improving, supported by new export capacity for oil and gas.

Canada’s labor market remains soft, with the unemployment rate at 6.7% in December. Job growth has strengthened in recent months after a prolonged period of stagnation in the labor force. Wage pressures, previously sticky, are showing some signs of easing.

The Bank forecasts GDP growth to strengthen in 2025. However, with slower population growth due to reduced immigration targets, both GDP and potential growth will be more moderate than previously anticipated in October. Following a growth rate of 1.3% in 2024, the Bank now projects GDP to grow by 1.8% in both 2025 and 2026, slightly exceeding potential growth. As a result, excess supply in the economy is expected to be gradually absorbed over the projection horizon.

CPI inflation remains close to the 2% target, though with some volatility stemming from the temporary suspension of the GST/HST on select consumer products. Shelter price inflation remains elevated but is gradually easing, as anticipated. A broad range of indicators, including surveys on inflation expectations and the distribution of price changes among CPI components, suggests that underlying inflation is near the 2% target. The Bank forecasts that CPI inflation will remain around this target over the next two years.

Aside from the potential US tariffs, the risks surrounding the outlook appear reasonably balanced. However, as noted in the MPR, a prolonged trade conflict would most likely result in weaker GDP growth and increased prices in Canada.

With inflation around 2% and the economy in a state of excess supply, the Governing Council has decided to further reduce the policy rate by 25 basis points to 3%. This marks a substantial (200 bps) cumulative reduction in the policy rate since last June. Lower interest rates are expected to boost household spending, and the outlook published today suggests that the economy will gradually strengthen while inflation remains close to the target. Nevertheless, significant and widespread tariffs could challenge the resilience of Canada’s economy. The Bank will closely monitor developments and assess their implications for economic activity, inflation, and monetary policy in Canada. The Bank is committed to maintaining price stability for Canadians.Nevertheless, significant and widespread tariffs could challenge the resilience of Canada’s economy. The Bank will closely monitor developments and assess their implications for economic activity, inflation, and monetary policy in Canada. The Bank is committed to maintaining price stability for Canadians.
Bottom Line

The central bank dropped its guidance on further adjustments to borrowing costs as US President Donald Trump’s tariff threat clouded the outlook.

Bonds surged as the market absorbed the central bank’s decision not to guide future rate moves. The yield on Canada’s two-year notes slid some four basis points to 2.79%, the lowest since 2022. The loonie maintained the day’s losses against the US dollar.

In prepared remarks, Macklem said while “monetary policy has worked to restore price stability,” a broad-based trade conflict would “badly hurt” economic activity but that the higher cost of goods “will put direct upward pressure on inflation.”

“With a single instrument — our policy rate — we can’t lean against weaker output and higher inflation at the same time,” Macklem said, adding the central bank would need to “carefully assess” the downward pressure on inflation and weigh that against the upward pressure on inflation from “higher input prices and supply chain disruptions.”

In the accompanying monetary policy report, the central bank lowered its forecast for economic growth in 2025 due to the federal government’s lower immigration targets. The bank expects the economy to expand by 1.8% in 2025 and 2026, down from 2.1 and 2.3% in previous projections. The central bank trimmed business investment and exports estimates but boosted its consumption forecast.

The bank estimated that interest rate divergence with the Federal Reserve was responsible for about 1% of the depreciation in the Canadian dollar since October.

We expect the BoC to continue cutting the policy rate in 25-bps increments until it reaches 2.5% this Spring, triggering continued strengthening in the Canadian housing market.