The Bank of Canada on June 1 raised its benchmark interest rate a half point to 1.5 per cent, the highest since 2019 (Official Statement Here). Here’s what you need to know.

Only getting started 

The central bank has selected a steep path to higher interest rates. Policymakers have now raised borrowing costs at three consecutive meetings, and at the last two they opted for unusually large half-point increases, the first time that’s happened since the Bank of Canada started scheduling interest-rate announcements in 2000. (They prefer quarter-point changes to avoid unnecessary disruption.)

Bank of Canada governor Tiff Macklem is only getting started. His mission is to keep the consumer price index advancing at an annual rate of about two per cent a year, and the index increased 6.8 per cent in April from a year earlier. That’s worrisome enough, but central bankers made it clear in their new policy statement that inflationary pressure continues to build.

The consumer price index “will likely move even higher in the near term before beginning to ease,” the statement said. That easing will require higher interest rates to choke demand. “Inflation continues to broaden,” the central bank observed, citing its “core” measures of price pressures, all of which are above three per cent.

“The risk of elevated inflation becoming entrenched has risen,” the statement said. “The bank will use its monetary tools to return inflation to target and keep inflation expectations well-anchored.”


Excess demand

Much of the increase in inflation is beyond the Bank of Canada’s control. Most of the world’s richer economies are confronting similar situations because of supply shortages related to the pandemic and surging commodity prices related to Russia’s invasion of Ukraine.

Still, policymakers were caught off guard by how quickly the economy recovered from the COVID-19 recession. The jobless rate is now at a modern low, and Statistics Canada on May 31 said the economy pushed through the latest pandemic wave and grew at an annual rate of about three per cent in the first quarter.

“Canadian economic activity is strong and the economy is clearly operating in excess demand,” the Bank of Canada said. “With consumer spending in Canada remaining robust, and exports anticipated to strengthen, growth in the second quarter is expected to be solid.”

Other big economies struggled in the first quarter, so Canada would be in a relatively good position to face the global recession that some economists think is coming. Still, all that activity is adding to inflationary pressure. The Bank of Canada noted that housing markets are “moderating,” albeit from “exceptionally high levels.” That suggests higher interest rates are beginning to have their intended effect.

But as housing prices tumble, wage growth “has been picking up and broadening across sectors.” That will help households keep up with higher prices, but it also suggests policymakers might be losing their grip on inflation expectations: if you trust the central bank to keep prices under control, you might not ask for a big raise.

Expectations notwithstanding, higher wages are indicative of a market starved for supply. If companies must pay more for workers, they will likely raise prices to compensate for it. That’s what “entrenched” inflation might look like.


Where do we go from here? 

The Bank of Canada was unusually frank about where interest rates are headed. 

“With the economy in excess demand, and inflation persisting well above target and expected to move higher in the near term, the Governing Council continues to judge that interest rates will need to rise further,” the statement said. 

Most Bay Street observers of the Bank of Canada take that language to mean at least one more half-point increase when policymakers next meet in July, which would put the benchmark rate at two per cent.

That’s significant because the central bank estimates that an interest-rate setting of between two per cent and three per cent is probably “neutral,” in that it neither stokes nor chokes economic growth. Most economists think the Bank of Canada will need to go higher than two per cent to smother inflationary pressures, but they are split on whether that means a benchmark rate of 2.5 per cent, three per cent or maybe something even higher.

 Reading between the lines of the latest policy statement, it seems likely the Bank of Canada is headed for the higher end of its neutral range.

“The pace of further increases in the policy rate will be guided by the bank’s ongoing assessment of the economy and inflation, and the Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the two-per-cent inflation target,” policymakers said.

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Source: financialpost.ca
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One of the World’s Frothiest Housing Markets Turned Into a Seller’s Headache Overnight

House hunters from Toronto to small Ontario suburbs are changing how they navigate the tight housing landscape with interest rates heading higher.

A string of central bank interest rate hikes has flipped the switch on Canada’s white-hot real estate market, spurring the first national home price decline in two years. That has both buyers and sellers in some of the frothiest pockets scrambling as they try to navigate an unusually rapid shift in the country’s housing landscape.

In some cases, people are turning to high-interest bridge loans to get themselves out of tough situations, according to Bruce Joseph, founding director of Trident Mortgage Investment Corp. His alternative lending firm, based in Barrie, typically serves a niche market of high networth business owners who can afford to pay interest rates around 7% for financing tailored to their needs. Now that borrowing costs across the board are up — the average of major banks’ five-year mortgage rates runs at 5% — some people who already bought new homes are struggling to offload their old ones. That’s when they turn to alternative lenders like Joseph:

“I think we have a group of people that kind of got caught with that market turning,” Joseph said. “We just came out of a very aggressive sellers’ market, and moved very quickly into a buyers’ market, so their strategy made a lot of sense until really the last several weeks.”

Cooling Market

Several Ontario cities saw price declines last month.

They’re not the only ones getting caught by the sudden shift. Mom-and-pop real estate investors in some places have seen their prospective margins from new purchases evaporate with the rise in borrowing costs, potentially sidelining a source of demand that came to account for a fifth of the market nationally through the pandemic.

And those who took out shorter-term subprime mortgages — which account for 1.3% of Canada’s loan market — now face the prospect of having to refinance at double the cost. That could introduce forced sellers and distress to the market.

Whether it all amounts to Canada’s long housing boom facing just another dip or something more severe will depend on how many people find themselves in trouble, and whether that trouble develops a momentum of its own. So far, the sudden market shift has been uneven, with places that saw less extreme run-ups holding onto their gains or even strengthening, while the cities and towns in Ontario that were at the forefront of the pandemic boom are suddenly tumbling.

“The demand fever in Canadian housing has broken,” Robert Kavcic, a senior economist at Bank of Montreal, wrote in a note Monday. He says there could be a 20% drop from peak values in some of the markets that saw the biggest gains the last two years.

“Let’s say that we’re just getting started,” he wrote.

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Source: Bloomberg.com
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Take these steps to ensure you're truly ready to pay for a mortgage

Many people aspire to be homeowners, but since it’ll likely be the most significant financial decision you’ll ever make, it’ll take careful consideration. You need to ensure you take the proper steps to put yourself in a good position to buy.

1. Have steady income

Unless you have a ton of cash on hand, you’ll need a mortgage to buy a home.

Whether you’re a full-time employee or freelance, how much of a mortgage you’ll qualify for depends on your income. Generally, the more you make, the more you’ll be eligible for.

Generally, lenders want to see that you’ve had a job with the same employer for at least 12 months. This is important to lenders because they may not want to take a risk on someone that just got a new job and has a chance of not passing the probation period. Having steady employment gives lenders peace of mind.

In the case of freelancers, small-business owners or self-employed individuals, lenders want to see consistent income. They would qualify you based on the income listed on your CRA notice of assessments from the last two to three years.

2. Improve your credit score

Your credit score is listed as a number between 300 and 900. The higher your number, the more creditworthy you are. This number matters a lot to lenders since it’s a quick way to determine how likely you are to repay loans.

If your credit score is in poor standing (below 660), you may have difficulty getting approved.

Lenders may see you as a risk. They may deny you loans, or only be willing to provide you loans with unfavourable terms, such as a high interest rate.

Before applying for a mortgage, try to improve your credit score by paying down debt and limiting your credit usage. Keep in mind that your credit score won’t improve overnight. A meaningful increase may take months or even years.

3. Save for a down payment

You need to have a down payment to qualify for a mortgage when buying a home. How much you need will depend on the purchase price of your home.

  • $500,000 or less purchase price – 5 per cent down payment required

  • $500,000 to $999,999 purchase price – 5 per cent down payment required for the first $500,000, 10 per cent for the portion above $500,000

  • $1 million or more purchase price – 20 per cent down payment required

Any mortgage with less than a 20 per cent down payment is considered a high-ratio mortgage. A high-ratio mortgage would require you to get mortgage default insurance, which is 2.8 per cent to 4 per cent of the mortgage amount.

Saving more money, ahead of house hunting, means your monthly payments will be lower. However, when real estate prices rise, your savings rate may not outpace the year-over-year increases.

4. Become familiar with government incentives

A few different government incentives can help first-time home buyers achieve their goals.

The Tax-Free First Home Savings Account (FHSA) is being introduced in 2023 and is arguably the biggest help. Those looking to buy a home can contribute $8,000 a year to their FHSA, up to a total of $40,000. Contributions provide a tax deduction and any interest or capital gains earned are tax-free.

There’s also the Home Buyers’ Plan (HBP) that allows you to withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) for the purchase of your first home. This applies to each buyer, so couples buying together could access up to $70,000. If you use the HBP, you need to repay what you withdrew over 15 years.

Another program to consider is the First Time Home Buyer Incentive (FTHBI). With this program, the government will provide you with up to 10 per cent of the purchase price. This would increase your down payment amount, which would lower your monthly payments. However, the government would take a share of your home’s equity. For example, if the FTHBI provides you with five per cent of the down payment, the government gets five per cent when you sell your home.

5. Get pre-approved for a mortgage

Getting pre-approved for a mortgage is arguably the best way to prepare for homeownership. During this process, lenders would formally run your numbers and verify your details. They’d look at your income, down payment, credit score, outstanding debt, and more.

Based on that information, they’d be able to provide you with an amount and the interest rate for a mortgage. This is vital as you’ll now know exactly how much you’ll be able to afford. Best of all, lenders can typically hold the rate offered for 90 to 120 days, so you can search for a home within your budget knowing that you have the financing secured.

It’s worth noting that a pre-approved mortgage is different from a pre-qualification. With a pre-qualification, lenders aren’t verifying any of your information. It’s simply a quick way for them to tell you how much you’ll roughly be approved for. Since pre-approvals are more formal, you’re getting a guarantee that the funds will be made available to you.

6. Create a realistic budget

Getting pre-approved for a mortgage is great, but it doesn’t factor in every expense. Therefore, it’s a good idea to create a budget that factors in all of your expenses and goals. For example, you may want to include the cost of raising children, vacations, and retirement savings.

By factoring in these expenses in advance, you can budget accordingly. That might mean that your actual maximum affordability is below how much your lender is willing to provide you in the form of a mortgage.

Remember, mortgage lenders only calculate things on the basis of whether you can make your monthly mortgage payments. They’re not considering any other goals you have. The last thing you want is to be house poor.


This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Source: www.financialpost.ca/
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72% think the First Home Savings Account will have little to no impact on their ability to purchase a home: survey


Ottawa announced a new tax-free First Home Savings Account (FHSA) in its 2022 federal budget earlier this month. But while the account aims to help more Canadians enter the housing market, most believe it will do little to help them purchase a home, a recent Hardbacon survey found. 

The FHSA – expected to be introduced in 2023 – will assist home buyers with saving for a down payment on their first home. Younger Canadians between the ages of 18 and 40 can save up to $8,000 a year over five years for a total of $40,000.

The account will offer a tax deduction and tax-free withdrawals, combining the benefits of both retired registered savings plans (RRSPs) and tax-free savings accounts (TSFAs). 

Yet, while a majority (70 per cent) of Canadians want to use the FHSA, most (72 per cent) think it won’t help them buy a home.  

Skyrocketing home prices is one reason. Some (39 per cent) think the FHSA is unfair because it leaves out people who want to buy in more expensive markets.  

The Canada Mortgage and Housing Corp. only allows a minimum down payment of $40,000 for a maximum purchase price of $650,000. In comparison, the average price of a home in Canada reached a record $816,720 in February. 

Those who do plan to put money into the account next year are hoping to cut spending (32 per cent), decrease RRSP contributions (16 per cent), and reduce (12 per cent) or take money out (nine per cent) of their TFSA. Some (three per cent) also intend to take money out of their RRSP or reduce contributions to a Registered Education Savings Plan (two per cent). 

Of the 30 per cent who don’t plan to use the savings tool, over half (54 per cent) don’t understand its advantages and the others (46 per cent) believe they won’t have enough money to contribute.  

“The FHSA is a tax-free savings account, but it doesn’t mean that it actually makes saving for a down payment any easier, especially in hotter real estate markets,” Hardbacon’s editor-in-chief Stefani Balinsky said in a press release. 

Still, the bulk of Canadians (88 per cent) want to become homeowners one day.

“What the survey found is that the most effective source of a down payment is the Bank of Mom and Dad. Still, not everyone is that fortunate,” said Balinsky. 

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Source: financialpost.com
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The Bank of Canada's move to hike its interest rate may help control runaway home prices in the London region, but it won't do much to increase affordability or help first-time homebuyers enter the market, observers say.


In what was the central bank’s biggest hike in more than 20 years, the
key interest rate was raised Wednesday by half a percentage point to one per cent. The move is meant to help fight inflation that hit a three-decade high of 5.7 per cent in February.

But because the rate also impacts the cost of bank loans, including variable-rate mortgages, it’s expected to lower demand for housing across the country.

“Having higher interest rates will cool off the market because it will make buying a new property or financing a new property more expensive,” said Mike Moffatt, an associate professor at the Ivey business school at Western University.

The expected dip in demand nationally, however, may not be as big in London, which has other forces at play pushing prices up, Moffatt said.

Key among them is the growth the region is experiencing. According to the latest census data, the London area’s population grew at a rate of 10 per cent between 2016 and 2021, making it the fastest-growing metropolitan area outside of British Columbia and the fastest in Ontario.

Skyline of Downtown London, Ontario


“As the pandemic sort of continues and work from home becomes more commonplace for workers, a lot of families who are living in the Greater Toronto Area are making their way down to Southwestern Ontario because they want more space, a bigger backyard . . . so expect demand to stay strong,” Moffatt said.

Home prices in the London region have been on a tear over the past five years and especially since the start of the COVID-19 pandemic in March 2020.

The average resale price of a home, for instance, hit a record of $825,000 in February, $210,000 more than in February 2021, before dipping slightly for the first time in months in March.

But even at those heights, London remains more affordable than many communities in Ontario, said Randy Pawlowski, president of the London and St. Thomas Association of Realtors.

“When you look at the average price across the country, our area is still $115,000 below the other centres to the east of us and some of those municipalities,” he said. “So there’s still upward pressure everywhere.”

He added: “Clients are wondering if they’ve missed the peak by not bringing properties to market sooner. But you know, who’s to say for sure?”

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Source: lfpress.com
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Housing affordability is a key focus for the Liberals in their 2022 federal budget, with promises of a ban on some foreign buyers for two years and billions of dollars to help first-time home buyers get into the market.

The federal government outlined its plans to tackle sky-high housing costs in Thursday's budget — including a temporary ban on foreign buyers, a crackdown on speculators, a pledge to double the pace of new home construction and a new tax-sheltered way for Canadians to save up to buy a home.

The government is moving ahead with something it floated on the campaign trail last year: a Tax-Free First Home Savings Account. The budget offered some rudimentary details:

Starting next year, Canadians will be entitled to contribute up to $8,000 per year to the accounts, which allow them to save and invest funds to buy a home in the most tax-advantageous way. Currently, Canadians can use anything from a savings account to an RRSP or TFSA to save for their first home — but all come with a certain amount of tax restrictions.

RRSPs provide a tax rebate when people contribute, but any money withdrawn under the existing Home Buyer's plan must be replenished later without the tax break. Conversely, Canadians who use their TFSAs to save for a home can grow those funds in a tax-sheltered way, but they don't get the tax break when they make the investment.

The new program adopts the most appealing parts of those two programs by giving savers a tax rebate for contributing and also allowing those savings to grow without being taxed on the gain. It's "tax-free in, tax-free out," as the budget puts it.

The program has a maximum lifetime contribution limit of $40,000, and the government estimates the Tax-Free First Home Savings Account program will cost it about $725 million in tax revenue. Finance Minister Chrystia Freeland said the government sees that as money well spent.

"We will make it easier for our young people to get those first keys of their own," she said of the government's various housing initiatives, which she described as "perhaps the most ambitious plan that Canada has ever had."

First-time buyers say they need help

The new account may be great news for savers, but it won't do much to improve affordability for those who don't have the money to spare.

"I think it's going to be huge," said Jamie Golombek, head of the tax and estate planning team at CIBC. "But if you don't have the money, this plan does nothing for you."

Paul Kershaw, an associate professor at the University of British Columbia and head of the think-tank Generation Squeezed, says the program risks driving home prices up even higher by making it easier for those who can already save to buy in.

"The more that we facilitate that acceleration of accumulating the next down payment, the more we're likely to be bidding up home prices," he said in an interview. "While the budget is acknowledging there's a crisis, it's failing to recognize that our country is really addicted now to high and rising home values."

Other initiatives

The budget once again targets some old housing boogeymen that have been blamed for high prices before: flippers, speculators, blind bidding and foreign buyers.

The government is proposing a two-year ban on purchases of residential real estate by people and companies who aren't citizens or permanent residents. Refugees, some international students and people with work permits would be exempt from the policy. Notably, the ban wouldn't include recreational property, such as cottages, cabins and other vacation homes.

It's a populist policy sure to resonate with many, but previous versions of such plans have not had much of an impact. A Statistics Canada report found that less than five per cent of homes in Toronto and Vancouver were owned by non-residents.

John Pasalis, founder and president of Toronto-based real estate firm Realosophy says the move may not do much, but it is still a step in the right direction toward ensuring that people buying homes are mostly doing so to live in them, not simply as financial investments.

"I don't think foreign buyers in and of themselves are the dominant buyers in the market," he said in an interview. "They're not the cause of rising home prices or rapidly rising home prices, but it's still a good policy to put forward."

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Source: https://www.cbc.ca/
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Whether you are single, married or have a family, or are heading into retirement, London, Ontario is an excellent place to live. There is a neighbourhood for almost every budget, new communities being built on the expanding perimeter, and gorgeous old estates if you really want to make a splash.
 
For The Young Professional

If you’re just out of college or not quite ready to settle down in a single-family home, you’re likely looking for a condo or small home with easy access to shops, restaurants, bars, and the nightlife scene. Naturally, you might think of Downtown, and that’s not a bad idea! But we’d also like you to consider North London.

North London, or Old North London, is a neighbourhood taking up the space between Downtown and Western University. This area, historically known for its old homes and beautiful parks, has had a resurgence of youth in the past few years. New condos and a vibrant commercial district can be found along Richmond Street. The neighbourhood’s rich history still gives the community a shine that makes it desirable and because of its proximity to Western University, it’s common for new graduates to want to stay in the area.

For The Growing Family

Plenty of schools, urban parks, sprawling yards, and streets well-suited for learning to ride a bike; what more would you like in a neighbourhood to raise your family? Byron, located in the city’s southwest area is our pick for the most family-friendly community in London.

Byron is made up of mostly middle-income families. A thriving commerce district offers plenty of opportunities to enjoy patio restaurants and local shopping. Byron is home to Springbank Park which is one of the largest parks in the city. You can wander the pathways that line the Thames River, play at the skatepark, or visit Storybook Gardens with your toddlers.

For The Nature Lover

Check out the area of Foxfield on London’s northeast side. Fox Field District Park has walking and biking trails. Snake Creek and Medway Creek intersect at the Medway Heritage Forest for an incredibly stunning escape from city life.

This neighbourhood is affordable for most families and has countless beautiful natural trails and sights to explore. But it also has plenty of city conveniences like access to shopping districts and great schools.

Not into Foxfield? Don’t worry! London is called the Forest City for a reason. The entire city has plenty of trees and parks to explore. There are a number of rivers and green spaces in every area of the city so no matter where you live, you aren’t going to be far from an escape from urban living. And since it only takes about half an hour to drive across the entire city, you won’t have to spend much time getting to any green space in London.

Source:Justo.ca
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Ready to Reno? Get a fresh start to the year with the Sherwin-Williams Colour of the Year for 2022 - EVERGREEN FOG. Evergreen Fog SW 9130 is a versatile and calming hue, a chameleon color of gorgeous green-meets-gray, with just a bit of blue.  It's a simple but sophisticated wash of beautiful, organic color for spaces that crave a subtle yet stunning statement shade.
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