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5 Year Canadian Bond Yield: +0.034 to .464 % Canadas 5-year bond yield is the basis for most long-term fixed mortgage rates.
The spread (obtained by subtracting the bond yield above, from the industry average 5 year mortgage rate of 2.39) is over the top of the profit range at 1.95
TMBMKCA-05Y | Canada 5 Year Government Bond Overview | MarketWatch
Canadian home prices expected to keep rising this year, outpacing inflation
Poll of property market analysts finds prices expected to rise 5% this year
Authors of the article:
Mumal Rathore and Richa Rebello
The Canadian housing market has showed resilience, helped by record low mortgage rates and massive fiscal spending.
BENGALURU Canadian house prices will continue their upwards march this year, outpacing inflation after hitting record highs in 2020, according to a Reuters poll of property market analysts who said the risk of a COVID-19 resurgence derailing activity was low.
Renewed lockdown restrictions after a second wave of infections hit the country are threatening expectations for a strong recovery after the economy likely posted its biggest GDP drop on record of 5.1 per cent in 2020.
Yet the Canadian housing market showed resilience, helped by record low mortgage rates and massive fiscal spending.
The Jan. 12-29 poll of 15 property market analysts showed house prices would rise 5 per cent on average this year nationally. That was the highest prediction since Reuters began polling for 2021 in February 2019.
Prices were expected to jump 4 per cent further next year compared to 3 per cent forecast in September. Both 2021 and 2022 predictions are significantly higher than inflation expectations.
Historically low interest rates, changing housing needs, high household savings and improving consumer confidence will keep demand (for homes) supercharged, said Robert Hogue, senior economist at RBC.
The main restraining factors will be a lack of supply, waning pandemic-induced market churn, a modest creep-up in interest rates and an erosion of affordability. Call it a 2022 soft landing.
The Bank of Canada was predicted to keep its key interest rate unchanged at near-zero levels until at least 2024, according to a separate Reuters poll.
House prices in Toronto and Vancouver were expected to rise 5.3 per cent and 4.1 per cent this year respectively, up from 2 per cent predicted for both in September.
Apart from easy monetary policy, a desire for more living space and a successful vaccine rollout were identified as the potential drivers of Canadian housing market activity this year, the poll showed.
While prices are set to rise again this year, nine of 14 economists who answered an additional question on whether activity would be faster or slower than in 2020 said it was likely to be slower over the coming year.
But most economists who responded to another question said the risk of a resurgence in COVID-19 cases derailing the housing market this year was low.
Fading income support, expiring mortgage deferrals and rising interest rates would strongly suggest that the housing market will downshift over the course of 2021, said Brendan LaCerda, senior economist at Moodys Analytics.
Housing is at risk, but not from COVID-19.
Affordability remains a concern. When asked to assess house prices on a scale of 1 to 10, where 1 is cheap and 10 is expensive, respondents rated national, Toronto and Vancouver at 7, 8 and 9, respectively.
Lower interest rates have improved affordability despite the increase in prices. However, that only implies homes are cheap conditional on rates. Rising rates in 2021 will strain affordability, said LaCerda.
Scotiabank Nowcast: Employment Gains Continued Prior to Omicron Spread, Q4-2021 GDP at 6.22%
This note is part of a series that will be published after important data releases, documenting mechanical updates of the nowcast for Canadian GDP coming from the Scotiabank nowcasting model. The evolution of this nowcast will inform Scotiabank Economics official macroeconomic outlook.
The Canadian labour market continued to power ahead in December according to Statistics Canadas labour force survey (LFS), with the net gain of +55K jobs for the month that brought the unemployment rate down to 5.9%, just 0.2 ppts above the level of February 2020. This bodes well for the overall Canadian GDP growth in December and is in line with our Q4-2021 estimate of +6.22% Q/Q SAAR.
The timing of the survey (December 5 to 11) means that it largely missed the beginning of the spread of the Omicron variant and the late-December tightening in public health measures that occurred in response to it. The flooding in BC, a source of downside risk to the short term outlook, occurred after the LFS was completed in November. In December, however, the LFS picked up the beginning of the reconstruction phase, according to StatCan. As a result, we are not likely to find out the true impact of this disaster on the labour market until the November survey of employment, payrolls and hours (SEPH) is released in late January.
With these caveats, the underlying picture of the labour market in Canada is one of continuing recovery. The ratio of employment to population (61.5%), the labour force participation rate (65.3%), the unemployment rate (5.9%) are all within 0.2 0.3 ppts of their respective February 2020 levels, signalling a rapid diminishing of the labour market slack. Even the ranks of those unemployed for 52 weeks or longer, while still significantly elevated at 293K (Feb 2020: 179K), continued to fall rapidly in December.
The tightness in the labour market spurred a recovery in wages, which grew 2.7% y/y in December, although this increase was much weaker than the rate of inflation over the same period. While the spread of the Omicron variant will likely lead to short term weakness in employment, in particular in the high-contact industries that are subject to public health restrictions, it is already exacerbating labour shortages in essential services as scores of employees self-isolate having tested positive for the virus.
With inflation running significantly above the Bank of Canadas inflation-control target range, the labour market slack essentially gone and wages picking up, the short term impact of the Omicron spread is unlikely to alter the Bank of Canada on its path to higher rates in 2022.
Source: Scotiabank Global Economics
OSFI maintains Qualifying rate at mortgage contract rate plus 2 percent or 5.25 percent
The Office of the Superintendent of Financial Institutions (OSFI) confirmed that the minimum qualifying rate for uninsured mortgages will remain the greater of the mortgage contract rate plus 2 percent or 5.25 percent.
In an environment characterized by increased household indebtedness and low interest rates, it is essential that lenders test their borrowers to ensure that mortgages can continue to be paid during more adverse conditions. This environment supports todays decision to maintain the current minimum qualifying rate.
Mortgages are typically one of the largest exposures that banks carry on their balance sheets. Ensuring that borrowers can continue to repay their mortgage loans strongly contributes to the safety and soundness of Canadas financial system.
OSFI reviews and communicates the minimum qualifying rate at least every December. Throughout the year, we will continue to monitor the appropriateness of the minimum qualifying rate and will make further adjustments, if conditions warrant.