Since our last newsletter in late October, there have been a ‘few’ changes in the political and economic landscape which will have an impact on the Canadian mortgage world.
The US election results, in favour of Donald Trump and the Republican party will likely have negative consequences for the Canadian economy, which is already underperforming our peer group. The election results are generally viewed as inflationary, and as such, bond yields on both sides of the border rose immediately following the results. The U.S. government has already borrowed roughly $35 trillion from investors at home and abroad, including foreign governments. It costs the US government more than $1 trillion in interest annually to service this debt, which is about 17% of total US federal spending. Mr. Trump’s tax and spending proposals are forecast to dramatically increase the amount the government needs to borrow.
A strong US economy is bad news for the Canadian dollar and that has historically impacted Canada in both positive and negative ways. The family trip to Disneyland may instead be a drive to Chilliwack to see the remaining structures of Dino Town and a walk around the quaint and lovely City of Hope. A weak dollar is good for exports, or at least used to be when we actually manufactured things here and exported lumber and oil. The most recent GDP data shows our exports are dropping already despite the weakened loonie. We’ll wait and see what happens with potential tariffs and their impacts.
We are offering our services to any disgruntled Americans who want to purchase a mutli-million dollar home, as long as they can get around the foreign buyers ban, foreign buyers tax, anti-flipping tax and foreign buyer property transfer tax — all which have miraculously ‘solved’ the upward trajectory of housing costs.
Mortgage Rates: The Downward Trend Continues
Fixed rate mortgages rose marginally after the US election, but as a result of November’s lacklustre GDP numbers, Canadian bond yields have again dropped by a reasonable amount, negating the post-election Trump Bump. There is a 50/50 expectation of a 0.50% rate cut on December 11th. Rates in general are still treading downwards, just not in a linear fashion. We are still recommending variable rate mortgages as a slowing Canadian economy is likely inevitable, resulting in further and sustained downward pressure on interest rates. GDP in Canada grew at an annual rate of 1%, driven mostly by continued government spending. If it wasn’t for government spending, GDP would be negative. Our economy is now growing slower than population growth. Many have argued that high levels of inflation were in part due to high levels of immigration, so if that population growth goes negative with recent policy changes, will that drag our GDP down faster? On this side of the border, by the end of the 2024-25 fiscal year Canada’s total debt is expected to surpass $1.4 trillion. Every day, this debt grows by more than $100 million, and every second, Canada pays more than $1,200 in interest. We now spend more on interest payments than on health care. But, at least you will get $250 from the government in the Spring — on top of the $200 for our Ontario clients via the way of Ford’s bribe… we mean… rebate.
Below is a chart of the Canada 5-year bond yield, which dictates the 5-year fixed mortgage interest rates offered by lenders. The chart shows the general downward trend in rates since the summer, the Trump Bump in late October, followed by the decline in the yields as a result of the end of November Canadian GDP data:
New CMHC Rules Effective Dec 15th
You can now purchase up to $1,500,000 with a downpayment of less than 20%: the minimum downpayment is 5% on the first $500,000 and 10% on the remainder of the purchase price. This is “good news” for households with high income but with minimal savings. You will however need about $275,000 in household income to get into the upper end of this price range.
30-year amortizations are now available if you are considered a first time homebuyer (you or your partner/spouse have not owned in the previous 4 years), increasing purchasing power by about 15%.
You can also obtain a 30-year amortization if you are buying a brand new property from a developer (if you’re a first time homebuyer or a repeat buyer).
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