At the exact time consumers would need a report, Canada abandons its real estate warning system. This agency has been reporting warnings for the local market for nearly a decade. The last report was September 2021, declaring Canada as highly vulnerable. The latest report was replaced with a message saying it would no longer be available.
Canadian bond yields are hitting the highest level in the last decade. Mortgages are following close-suit behind. The 5-year Government Bond Yield reached 2.544% on Friday. This is up 74.25 basis points from the month before. How does this influence the cost of a 5-year fixed rate mortgage? In one word; directly. RBC’s fixed rate was 3.94% last week vs 2.19% back in October.
Unemployment Rates Hits Record Low and Credit Conditions Tighten
Canadian Unemployment rates fell to 5.3% in March. This is 0.2 points down from the previous month. This rate has never been this low and is unheard of given current interest rates. This low unemployment rate is fueling rate hikes. Canadian businesses are facing tighter lending conditions, despite rates being low. Credit has tightened for 2 consecutive quarters. This hasn’t happened since the Great Recession.
New Tax on Home Trading
Canada is proposing a new measure in the Federal 2022 Budget. This measure comes in the form of all pre-construction assignments being hit was a sales tax. Building a home usually takes tears, so this has become a prime target. By inserting a sales tax, assignments would be higher than market housing and erode profit margins. A month ago, the first interest rate hike occurred. Canada is trying to increase demand with 3 incentives for first-time home buyers. Stimulating demand creates pressure for home prices to rise, something experts have warned against if Canada wants more affordable housing.
Everyone Seeing Wealth Grow EXCEPT Young Canadians
Canadians have seen the average net worth rise 0.8% in Q4 of 2021. Meanwhile, households under 35 had an average net worth down 1.4% from the last quarter. According to Statistics Canada, this was the only ae cohort that has seen a net worth decline in this quarter. Everyone is seeing a boom except young Canadians.
Inflation Out of Bank of Canada’s Concern
The bank’s goal is to maintain inflation at 2 points with a 1 point margin, making a 3% maximum. A recent survey found 70% of businesses forecast an annual inflation over these 3 points. When inflation expectations become unanchored, it becomes more difficult to keep within the target range.
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