The May inflation data, released this morning by Statistics Canada, bore no surprises. The year-over-year (y/y) inflation measured by the Consumer Price Index (CPI) at 3.4% was just as expected–down a full percentage point from the April reading. This is the smallest increase since June 2021. Economists hit this one on the head because we knew dropping the April 2022 figure from the y/y calculation would considerably lower May inflation.

By May of last year, y/y  inflation had already risen sharply to 7.7%, mainly due to dramatic energy price increases reflecting the impact of the Russian invasion of Ukraine. Inflation peaked at 8.1% in June ’22, suggesting low inflation next month as well. This is why the Bank of Canada predicted that inflation would fall to 3% by this summer.

Taking inflation down to 3% will likely be easier than the drop from 3% to 2% because the low-hanging fruit has already been harvested. Many service prices are a lot stickier than the price of commodities and durable goods.

The May inflation slowdown was primarily driven by the 18.3% y/y plunge in gasoline prices resulting from the base-year effect. Excluding gasoline, the CPI rose 4.4% in May, following a 4.9% increase in April. A drop in natural gas prices (-3.5%) also contributed to the energy price deceleration.

Prices for durable goods grew at a slower pace year over year in May, rising 1.0% after increasing 2.2% in April. The increase in May is the smallest since May 2020 and coincided with easing supply chain pressures compared with a year ago. This was reflected in furniture prices (-2.9%), which fell by the largest amount since June 2020, and passenger vehicle prices (+3.2%), which showed the smallest increase since February 2021.

Grocery prices remain elevated–up 9.0% y/y–down only one tick from April. Prices for food purchased from restaurants rose slightly faster year-over-year in May (+6.8%) than in April (+6.4%), amid ongoing elevated labour shortages, input costs and expenses, which Stats Can data show job vacancies can disproportionately affect these businesses.

Rising interest rates also boost inflation. This is because mortgage costs are just over 3% of the CPI. They are a part of the most significant component of the index–shelter–which represents almost 30% of the index. The mortgage interest cost index rose by a whopping 29.9% in May, following a 28.5% increase in April. This was the largest increase on record for the third consecutive month, as Canadians continued to renew and initiate mortgages at higher interest rates. And, of course, this does not include the effects of the policy rate hike in June.

It takes time for the full effect of interest rate hikes entirely feed into the CPI. Mortgage interest costs will continue to rise as higher interest rates flow gradually through to household mortgage payments with a lag as contracts are renewed. And home-buying related expenses ticked higher in May, with higher home resale prices increasing realtor and broker commissions.

Bottom Line

Achieving the 2% inflation target will take some effort. The Bank of Canada continues to be concerned that the Canadian economy remains too hot. Although unemployment relative to job vacancies has recently started to rise, the Bank remains troubled that excess demand will continue to push some prices upward. This is the cyclical component of inflation–inversely correlated with the unemployment rate–a version the Fed calls ‘supercore’ inflation. Supercore includes household services such as haircuts, personal care, babysitting, restaurant meals, travel, accommodation, recreation and entertainment.

It is roughly the CPI-trim (which filters out extreme price movements that might be caused by severe weather and other temporary factors) minus the price of food, shelter and energy. This measure has fallen less than the other core measures. Supercore inflation is about 5.5% y/y, compared to CPI-trim at 3.8%,CPI- median at 3.9% (see the chart below).

Looking at the recent monthly trends on a three-month annualized basis, CPI-trim was at 3.8% in May, down from 3.9%, and CPI-median was at 3.6%, down from 3.8% in April.

This is why the Bank of Canada emphasizes labour market data and overall spending measures. We will get two more important Statistics Canada releases before the July 12th BoC decision: the June 30th  monthly GDP number for April and the all-important Labour Force Survey on July 7th. Unless these data show a meaningful economic slowdown or a rise in unemployment, the odds of another BoC rate hike are about 60%.

The Bank of Canada holds rates steady again but maintains its commitment to 2% inflation

The Bank of Canada left the overnight policy rate at 4.5%, as expected, stating their view that inflation will hit 3% by mid-year and reach the 2% target by next year. They admit, however, that demand continues to exceed supply, wage gains are too high, and labour markets are still very tight. The Bank is also continuing its policy of quantitative tightening.

“Economic growth in the first quarter looks to be stronger than was projected in January, with a bounce in exports and solid consumption growth. While the Bank’s Business Outlook Survey suggests acute labour shortages are starting to ease, wage growth is still elevated relative to productivity growth. Strong population gains are adding to labour supply and supporting employment growth while also boosting aggregate consumption. Housing market activity remains subdued.”

The Bank expects consumption spending to moderate this year “as more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly.”

“Overall, GDP growth is projected to be weak through the remainder of this year before strengthening gradually next year. This implies the economy will move into excess supply in the second half of this year. The Bank now projects Canada’s economy to grow by 1.4% this year and 1.3% in 2024 before picking up to 2.5% in 2025”.

Most economists believe the Bank of Canada will hold the overnight rate at 4.5% for the remainder of this year and begin cutting interest rates in 2024. A few even think that rate cuts will begin late this year.

In contrast, the Fed hiked the overnight fed funds rate by 25 bps on March 22 despite the banking crisis and the expectation that credit conditions would tighten. This morning, the US released its March CPI report showing inflation has fallen to 5% year-over-year. Next Tuesday, April 18, Canada will do the same. The base year effect has depressed y/y inflation. Canada’s CPI will likely have a four-handle.

Fed officials next meet in early May, and it is widely expected that the Fed will continue to raise the policy rate while the Bank will continue the pause.

Due to the differences in our mortgage markets and the higher debt-to-income level in Canada, our economy is much more interest-sensitive. Despite these disparate expectations, the Canadian dollar has held up relatively well.

Bottom Line

The Bank of Canada upgraded its growth projections for this year in a new forecast, suggesting the odds of a soft landing have increased. This may preclude interest rate cuts this year.

“Governing Council continues to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the 2% target,” the bank said.

The April Monetary Policy Report suggests strong Q1 growth resulted from substantial immigration. With the population proliferating, labour shortages should continue to decline, and inflation will fall to 3% later this year. The global growth backdrop is better than expected, though the Bank continues to look for a slowdown in the coming months, citing the lagged effects of rate hikes and the recent banking sector strains.

Governor Macklem said in the press conference that the economy needs cooler growth to corral inflation, although the Bank’s forecast does not include an outright recession.

The Bank will refrain from cutting rates this year. The Governor explicitly said at the press conference that market pricing of rate cuts later this year is not the most likely scenario.

Are you looking to sell your home? We have a few tips to help you make the most of the spring season!

1. Hire an Experienced Realtor: Before preparing your home for the Spring market, you will want to hire an experienced realtor! A good realtor will serve as your guide through the entire sales process, helping you get your home ready for listing, showing potential buyers and finalizing the eventual sale. This is even more important given the changing landscape in relation to additional safety protocols with viewings and even virtual viewing options. Now, more than ever, the expertise of a realtor will help you navigate the sales process.
2. Prioritize Repairs and Improvements: Before listing your home, it is important to go through room-by-room and address any issues such as chipped paint, small holes in the wall, broken fixtures, old appliances, etc. Correcting these minor issues will help your home truly shine when buyers walk through.
3. Clean and Stage Your Home: Now that you have made the necessary minor repairs, you can start staging your home! Start with the exterior of your home and ensure you tidy up the yard, remove any junk and wash your windows! When it comes to the interior of your home, you will want to declutter and do a deep clean (a professional cleaning service can come in handy for this!). Once your home is decluttered and clean, your real estate agent can help you stage it so that it appears spacious and inviting.
4. Consider a Pre-Listing Inspection: Once you are ready to list your home, it can be a good idea to consider a pre-listing inspection. The inspector would conduct a complete visual inspection of all interior and exterior elements (including HVAC systems, wiring, ceiling, chimneys, gutters, etc.), which would help put prospective buyers at ease.
5. Organize The Paperwork: There is a lot of paperwork when it comes to selling your home. Having all of these documents organized and together for potential buyers will help to speed up the process and allow them to address any questions before the deal is finalized. Permits, renovation or repair receipts, warranties, rental agreements and copies of your utility bills are all good records for potential buyers.

Whether you are looking to buy or sell, it is important to work with a trusted real estate and a mortgage expert to ensure the best outcome for you and your family!

Call me today to review your options!

289-455-8801

dannybenjamin@dominionlending.ca

Canadian inflation decelerated meaningfully in January despite the continued strength in the economy. Labour markets remain very tight, and retail sales continue strong. Nevertheless, the Bank of Canada’s jumbo rate hikes over the past eleven months have tempered inflation from a June ’22 peak of 8.1% y/y to 5.9% in January.

The 3-month average growth in the Bank of Canada’s preferred median and trim inflation measures – designed to look through volatility in individual product prices to better gauge underlying price pressures – are running at around 3.5% on a three-month annualized basis. That’s still above the BoC’s 2% inflation target but is well below peak levels last year.

Prices for cellular services and passenger vehicles contributed to the deceleration in the all-items CPI. However, mortgage interest costs and food prices continue to rise.

Last month, inflation excluding food and energy, rose 4.9% y/y. Prices excluding mortgage interest costs rose 5.4%. In both cases, year-over-year price growth was slower than in December. Some of the decline in inflation was due to base-year effects. In January 2022, mounting tensions amid the threat of a Russian invasion of Ukraine, coupled with supply chain disruptions and higher housing prices, put upward pressure on prices.

Monthly, the CPI rose 0.5% in January 2023, following a 0.6% decline in December. Higher gasoline prices contributed the most to the month-over-month increase, followed by a rise in mortgage interest costs and meat prices.

Another critical factor in today’s data is that inflation in services eased to 5.3% from 5.6%.

Food prices, however, remain elevated in January (+10.4%) compared to 10.1% in December. Grocery price acceleration in January was partly driven by year-over-year growth in meat prices (+7.3%), resulting from the most significant month-over-month increase since June 2004. Food purchased from restaurants also rose faster, rising 8.2% in January following a 7.7% increase in December.

Bottom Line

The Bank of Canada must feel pretty good about today’s inflation numbers. They confirm the wisdom of their announced pause in rate hikes at the January meeting. Despite continued strength in the labour market and January retail sales, headline and core inflation measures have declined again, with a five handle now on the headline rate. That is still a long way to the 3.0% inflation forecast by the end of this year, but it is moving in the right direction.

There will be no BoC action when they meet again on March 8. Their press release will be scrutinized for a hawkish versus dovish tone. Regardless of upcoming data, there is virtually no chance of any rate cuts this year.

Most of us like where we live, but we might not love it. Have you fallen out of love with your home? No sweat! We have the tips to help you fall in love with your home, all over again!

Cleanse and Purge

Depending how long you have lived in your home, you have probably gathered up a number of items that you no longer need, want or use. One of the first steps to falling in love with your home again is purging your space of all that unnecessary stuff – whether it is old clothes, furniture you hate, outdated accessories – removing the old to make way for the new can have a huge effect on how you feel about your home.

Rearrange Your Rooms

Once you have purged all of the unwanted items around your home, you probably have a bit more space to work with! A great way to breathe new life into your space is by re-arranging your furniture! While not all rooms will have optimal space, you might be surprised if you just try and see how it would look with a different layout! Simply moving around your furniture will make your home feel revived, without any extra spend!

Consider a New Colour

If you’re looking for that little extra refresh, a new coat of paint is a great way to get the job done! Changing the tone of your room from darker to lighter, or warm to cool, can make the space feel brand new again! This year’s tones include purples and pink hues, matched with grey and white or pops of teal and blue for that extra 70s vibe!

Or Try a New Style

If you’ve always had a home with traditional cupboards or furniture, it might be time to mix it up! Swapping out a few old pieces for something new, perhaps with a modern twist, can revive any space. Consider starting small by swapping lamps or your coffee table and moving up to larger items like TV stands and bookshelves for that fulsome redo!

Enhance Your Lighting

Lighting has a big effect on mood, and it is the same for your home. Installing new light fixtures, adding or removing lamps, or even changing your bulbs from a bright white to warm or vice versa for a different environment. If you’re looking for that extra ambiance, try a lava lamp or a cute candle tray!

Retouch and Refinish

If you’re not interested in going all out on your home makeover, you don’t have to! There are still plenty of ways you can fall in love with your home again… such as with a little retouching and reviving! A great place to start is your kitchen cupboards. refinishing and painting your existing cabinets is easier than you may think!

Don’t Forget About the Exterior!

While we spend a lot of our time indoor our home, you don’t want to forget about the exterior! New and inviting front door lighting, a cute brick path and some new flowers can create a whole new world for you to enjoy. Consider also adding wicker furniture, an outdoor rug and hanging fairy lights or adding a water feature for that extra relaxation.

Not sure if you can afford updates to your home? Consider utilizing your home equity! Contact me today so I can tell you how.

Email: dannybenjamin@dominionlending.ca

Phone: 289-455-8801

A second mortgage is a mortgage that is taken out against a property that already has a home loan (mortgage) on it. Generally people take out second mortgages to satisfy short-term cash or liquidity requirements, have an investment opportunity or to pay off higher-interest debts (such as credit cards and student loans) that a second mortgage might offer.

If you are considering a second mortgage for any reason, here are a few key points to keep in mind:

Second Mortgages and Home Equity: Your second mortgage and what you can qualify for hinges on the equity that you have built up in your home. Second mortgages allow you to access between 80 and 95 percent of your home equity, depending on your qualifications.

For example, if you seeking 95% Loan-to-Value loan (“LTV”):

House Value =                                                       $850,000
95% LTV (maximum mortgage amount)               $807,500
less: First Mortgage                                               ($550,000)
Amount Available Through Second Mortgage     $257,500

Second Mortgages and Interest Rates: When it comes to a second mortgage, these are typically higher risk loans for lenders. As a result, most second mortgages will have a higher interest rate than a typical home loan. There is also the option of working with alternative and private lenders depending on your situation and financial standing.

Second Mortgage Payments: One advantage when it comes to a second mortgage is that they have attractive payment factors. For instance, you can opt for interest-only payments, or you can select to pay the interest plus the principal loan amount. Work with your mortgage broker to discuss options and what would work best for your situation.

Second Mortgage Additional Fees: A second mortgage often comes with additional fees that you should be aware of before going into the transaction. These fees can vary widely but often are a percentage of the mortgage.  Other fees to consider include appraisal fees, legal fees to set up the second mortgage and any lender or broker administration fees (particularly with alternative or private lenders).

Second mortgages are a great option for many homeowners and, in some cases, may be a better solution than a refinance or a Home Equity Loan (HELOC). If you are interested in learning more or want to find out if a second mortgage is right for you, don’t hesitate to reach out to me today.

Change of Address Checklist.

So, you’re moving! Before you hunker down in your new home, there are a few things you will want to take care of regarding your new address.

Personal Contacts

First and foremost, if you haven’t yet, make sure to tell all your personal contacts about your address change, including:

• Relatives
• Friends
• Employer
• Schools, colleges, universities, daycares
• Landlord (if necessary)
• Clubs, associations and charities

Healthcare Professionals

For the purposes of keeping your health care records up to date, make sure to update your professional contacts:

• Doctor(s)
• Dentist
• Veterinarian
• Other healthcare specialist(s)

Creditors and Services

If you haven’t yet reached out to your services, you will want to do so as soon as possible for a smooth change of service from your existing address to your new address. These services include:

• Phone, cable, internet, mobility company
• Electricity / hydro
• Natural gas
• Heating fuel company (ask if you receive a deposit refund)
• Financial institution
• Credit card companies
• Insurance companies / broker(s)
• Lawyer / notary
• Subscriptions (e.g., newspapers, books, music, loyalty programs)

Government Services

Lastly, it is vital to inform the federal and your provincial/territorial government if your address changes to ensure all your data and ID cards are updated:

• Driver’s license
• Health Card
• Vehicle registration
• Canada Post / epost
• Canada Revenue Agency
• Canada Pension Plan / Quebec Pension Plan
• Old Age Security
• Employment Insurance

Need assistance in your search for a new home? Contact me today!