INTEREST RATES THIS MONTH

While inflation has been moving in the right direction the past few months, the jobs reports for December and January have shocked economists. January saw the Canadian economy add 150,000 new jobs, about 10 times more than economists had predicted. Those jobs numbers followed December’s report of 100,000 new jobs added, again about 10 times what economists had predicted. These two jobs reports caught most by surprise, and has caused some concern that the Canadian economy may not be cooling as much as the Bank of Canada would like, and may cause the BoC to increase rates further, or hold rates at current level for longer.

Inflation continued to tick lower in January, dropping from 6.3% in December to 5.9%, the first time it has dipped below 6% since February 2022. To be noted were significant increases in gas prices in January, groceries continuing to increase in price well above average, as well as shelter and mortgage interest costs, which were all significant contributors to the elevated inflation rate. If you ask me, I would say that higher interest rates are not likely to have much impact on increased grocery costs or energy prices, two of the main contributors to high inflation at the moment. As for the cost of shelter and higher mortgage interest costs driving up inflation, well isn’t that ironic that the higher interest rates that are meant to reduce inflation are now one of the largest contributors to inflation!! Surely the BoC is stripping these figures out of inflation when doing their calculations.

Although inflation has been inching downward and dropped more than expected in January, the jobs reports from the past couple of months have caused concern with investors that the BoC may have to hold rates higher for longer. That caused a significant increase in government bond yields over the past month, and bond yields have risen about 0.65% since early February. Since fixed mortgage rates typically follow trends in bond yields, the increase has caused some lenders to increase their fixed rates over the past few weeks, mainly in 3 – 5 year fixed rate terms.

Overall, the jobs data is something the BoC will be keeping a close eye on, but some experts believe that what we may be seeing is companies playing catch up from the pandemic years where it seemed just about every industry was short-staffed and could not find enough employees. It may not necessarily be a sign that the economy is overheated, and in fact the added jobs could increase productivity in some industries which could actually help to bring prices down. Inflation is moving in the right direction, and that is the economic indicator the BoC is most focused on.

Below is a list of some of the best mortgage rates on the market.

1 year fixed – 5.99%
2 year fixed – 5.54%
3 year fixed – 4.99%
4 year fixed – 4.99%
5 year fixed – 4.79%
5 year variable – 5.75%
Bank Prime Rate = 6.70%

HOUSING MARKET – PRICES STABILIZING!

The housing market in February continued the same trend of below average sales volume that we have seen over the past several months. However, one interesting change is that instead of average home prices dropping, which is the trend we have seen for nearly a year, average home prices for freehold properties actually increased by 5% in February. This may be a sign that home prices have stabilized. Here are some highlights from the Ottawa Real Estate Board’s January sales report:

• Members of the Ottawa Real Estate Board sold 855 residential properties in February, compared with 1,411 properties in February 2023, a decrease of 39%. The 5 year average for February sales is 1,157.
• February sales included 633 in the freehold property class, down 42% from a year ago, and 222 in the condominium category, a decrease of 31% from February 2022.
• February saw 1,366 new properties listed, a decrease of 22% over February 2022. The 5 year average for February listings is 1,632.
• There is now 2.8 months of inventory in the freehold property class, up from 0.7 months in February 2022, and 2.5 months of inventory in the condominium class, up from 0.7 months a year ago.
• The average sale price for a condominium class property in February was $410,927, a decrease of 12% from last year. 
• Average sale price for freehold properties was $708,968, a decrease of 15% from a year ago. However, it marks a 5% increase from January 2023.

While average sale price of freehold properties is still down significantly from February 2022 (down 15%), one important thing to note is that average sale price for freehold properties increased by 5% in February compared with January. Furthermore, in January the average sale price for freehold properties increased by 3% over December. In essence, the average sale price for freehold properties has increased by 8% over the past couple of months. This could be a sign that prices are stabilizing. These are the first two months where we have seen significant increases in sale price since the Bank of Canada began increasing interest rates in March of 2022.

While it’s unlikely that we see prices continue to increase significantly, at least for now, it definitely could be an indication that prices have stabilized and perhaps we have seen the last of the drops in prices.

WERE YOU A FIRST-TIME HOMEBUYER IN 2022? DON’T FORGET THE TAX CREDIT!

Since it’s officially tax season, we wanted to remind any of our clients who were first-time homebuyers last year about the First Time Homebuyer Tax Credit. If you purchased your first home in 2022, don’t forget to claim this tax credit, which may give you up to a $1,500 tax refund. If you have an accountant file your taxes, be sure to notify them that you purchased your first home in 2022. If you file your own taxes, make sure you claim the refund on your 2022 tax return.

Not sure what to do with your tax refund? You likely have some ability to pre-pay your mortgage with a lump sum payment, and any lump sum payment you make goes directly towards reducing your principal balance. If you’re not sure what your pre-payment options are, or how to make a payment, reach out to us and we would be happy to help.

2022 INCOME TAXES NOW OPEN FOR FILING

Everybody loves doing taxes right? Maybe not everybody, but it’s that time of the year. The Canada Revenue Agency opened up 2022 income taxes for electronic filing on Feb. 21st, so individuals can now file their 2022 income taxes. If you’re expecting a tax refund, you are now able to file, and you should receive your refund back within a few weeks.

If you are expecting a tax refund, again, you may want to consider using some of your refund to make a lump sum payment on your mortgage. Any lump sum payment you make will go directly to reducing your principle balance. If you are unsure about your pre-payment options or how to make a pre-payment, reach out to us any time and we can assist.

TAX-FREE HOME SAVINGS ACCOUNT – COMING SOON!

In budget 2022, the federal government proposed the Tax Free Home Savings Account, a savings tool to help first-time homebuyers to save for down payment on a new home. The TFHSA was enacted in December 2022, and while you cannot contribute to this account yet, it is expected that Canadians will be able to contribute sometime in 2023, so if you are starting to save for a first home, you should be able to use this tool later in the year.

The TFHSA has some GREAT benefits for would-be first-time homebuyers. It will likely allow people to contribute up to $8,000 per year to the account, with a maximum of $40,000 lifetime contributions. Like an RRSP, contributions are tax deductible, AND withdrawals, including investment income, would be non-taxable, like a TFSA. Essentially, you get the benefits of both a RRSP and a TFSA in one savings tool.

To be eligible you must not have owned a home in which you have lived at in at least 4 calendar years. Account holders will be able to hold the account for a maximum of 15 years.

There are still some details to be confirmed over the coming months, but this will be a great savings tool for anyone considering a first home purchase.

NEW TO CANADA PROGRAMS

Over the coming months we plan to highlight some of the unique lending programs we have available, and point out some of the highlights of them. If you know anyone that could benefit from some of these programs, we would love to speak with them, so please pass this along to them.

This month we are highlighting some of our programs for borrowers that are new to Canada. Our team has lots of experience helping clients that are new to the country, and there are some great programs available to help these borrowers. Here are a few highlights of our New to Canada lending programs:

• Solutions for borrowers that are either temporary residents (work permit) or permanent residents of Canada.
• Access to some of the most competitive interest rates and terms.
• Minimum down payment of 5% for permanent residents, and 10% for temporary residents.
• No income required for some programs (certain conditions apply)
• Programs available for owner-occupied properties as well as investment properties.

My team has the knowledge and experience to quickly identify the best programs and lenders for our new to Canada clients, and to ensure our clients are getting the best financing available to them. If you know of anyone that is new to Canada and is considering a new home purchase, we would be happy to help them!