The 2024 federal budget focuses on helping younger voters, particularly Millennials and Gen Z, navigate rising housing costs and inflationary pressures. However, the budget takes aim at wealthier Canadians with new tax measures, including an increase in the capital gains inclusion rate from 50% to 66.6% for gains over $250,000. This change will impact individuals selling stock or properties that are not their primary residence, as well as businesses for all capital gains.

The budget also projects a deficit of $39.8 billion in FY24/25 and includes new spending measures, such as a $480 billion government spending plan for the next fiscal year, which includes $54 billion in debt payments. Critics argue that the budget’s spending outpaces the savings found in a strategic spending review, making it challenging to achieve fiscal credibility.

On the housing front, the budget introduces various measures, including allowing 30-year mortgage amortizations for first-time homebuyers of new builds and increasing the RRSP Home Buyers’ Plan limit from $35,000 to $60,000. Additionally, the budget aims to create a renters’ bill of rights and tenant protection fund while incentivizing the construction of new purpose-built rental units.

Overall, the budget’s focus on taxation and spending may have limited impact on housing affordability and the broader economy. Concerns remain regarding low productivity growth, insufficient business capital spending, and the challenges of investing in residential rental real estate.

Published by Dr. Sherry Cooper

https://mailchi.mp/dominionlending/canadian-federal-budget-2024-higher-deficits-higher-government-spending-and-higher-taxes-for-the-wealthy?e=d20e214ea7

The federal budget for 2024 has prioritized housing, introducing $52.9 billion in new spending to tackle affordability challenges for young Canadians, particularly concerning homeownership. The budget projects a deficit of $39.8 billion this fiscal year, with a gradual decline to $20 billion by 2028-29. One significant change is the increase in the capital gains inclusion rate for secondary home sales, from 50% to 66.7% starting June 25, 2024. This affects gains above $250,000 for individuals and all gains for corporations and trusts. Sales of principal residences will remain exempt from capital gains tax.

To illustrate, if you sell a vacation home for a $300,000 profit, previously you would have paid taxes on $150,000 of your gain, but under the new rules, you’ll pay taxes on $200,100. Around 11% of Canadians own at least two homes, according to 2023 research from Royal LePage.

Other housing initiatives include longer amortization periods for first-time buyers, increased withdrawal limits from RRSPs for home purchases, and measures to protect renters. The budget also plans to build nearly 4 million new homes by 2031 and support programs that aim to train and recruit skilled trades workers for housing construction.

In addition, the government plans to enhance data collection and crack down on mortgage and real estate fraud by consulting with the mortgage industry to develop income verification tools through the Canada Revenue Agency.

Published by Steve Huebl

https://www.canadianmortgagetrends.com/2024/04/budget-2024-housing-highlights-capital-gains-inclusion-rate-on-secondary-homes-rises-to-66-7/

The Canadian Real Estate Association (CREA) reported that national home sales remained steady in March, while new listings dipped slightly. Prices showed little movement, but CREA experts anticipate a stronger housing market in the upcoming months. There is significant demand for housing due to rapid population growth and first-time homebuyers’ concerns about potential price hikes if the Bank of Canada lowers interest rates.

Ottawa is providing support for first-time buyers through measures such as resuming 30-year amortization on insured mortgages for new construction and easing restrictions on the RRSP Home Buyers’ Plan. These initiatives aim to assist at-risk homeowners and stimulate the market. However, there are potential downsides, including possible unintended consequences for mortgage-backed securities and increased borrowing costs for all participants.

March data showed a slight rise in national home sales and a decrease in new listings, resulting in a tightened sales-to-new listings ratio. The market remains balanced overall, with inventory levels unchanged from February. Although March’s national average home price increased slightly year-over-year, it remains below early 2022 levels due to interest rate hikes.

In conclusion, the spring housing season is poised to be strong as pent-up demand continues to grow. The expected interest rate cuts by the Bank of Canada later this year could further boost the housing market. Stay tuned for more insights as we review the federal budget and its impact on the housing market.

Published by Dr. Sherry Cooper

https://mailchi.mp/dominionlending/canadian-job-market-whimpers-in-march-while-us-roars-430742?e=d20e214ea7

The British Columbia government has revealed further details about its proposed house flipping tax, set to be introduced in spring with an effective date of January 1, 2025. The tax targets homes resold within two years of purchase, with exemptions for certain life events like death, divorce, or job relocation. Initial sales within the first year without exemptions would incur a 20% tax on profits, gradually decreasing to zero over the second year. The aim is to address housing affordability issues and ensure properties are occupied rather than flipped for profit.

Additionally, the government announced expansions to existing programs and new incentives in last week’s budget. First-time homebuyers will benefit from increased property transfer tax exemptions for homes valued up to $835,000, potentially saving up to $8,000. Moreover, there’s a new exemption for newly built homes valued up to $1.1 million and a property transfer tax exemption for purpose-built rental buildings of four or more units to stimulate rental home construction, effective from 2025 until 2030. These measures collectively aim to boost housing availability and affordability across British Columbia.

Published by Steve Huebl

https://www.canadianmortgagetrends.com/2024/02/the-latest-in-mortgage-news-bc-government-unveils-details-of-its-proposed-home-flipping-tax/

Despite January’s unexpected drop in inflation, economists believe the Bank of Canada will likely delay its first rate cut until mid-year. Headline inflation in January came in at 2.9%, below expectations of 3.3%, attributed to lower energy and grocery prices. The Bank’s preferred core inflation measures also trended downward, with CPI-median easing to 3.3% and CPI-trim falling to 3.4%. However, shelter costs continued to exert upward inflation pressure, particularly on rent prices due to housing supply-demand imbalances.

Economists note that despite the inflation slowdown, the Bank of Canada may hold off on rate cuts due to strong wage gains and firm service prices. While the possibility of rate cuts in the coming months has increased, the Bank is expected to remain cautious until further signs of easing inflation pressures emerge. Additionally, stronger-than-expected job gains in January provide the Bank with leeway to delay rate cuts for now. Bank of Canada Governor Tiff Macklem emphasized the importance of ensuring a clear path toward achieving the 2% inflation target before considering rate cuts.

Following the release of the latest inflation data, bond markets have slightly increased the odds of rate cuts, with a 29% chance of a quarter-point cut in March and an 11% chance of 50 basis points worth of easing by June. Overall, while the possibility of rate cuts has become more plausible, the Bank of Canada is expected to maintain a cautious approach, closely monitoring inflation trends and economic indicators before making any significant policy changes.

Published by: Steve Huebl

https://www.canadianmortgagetrends.com/2024/02/unexpected-inflation-drop-wont-hasten-bank-of-canadas-rate-cut-plans-economists-say/

In the latest update from the Canadian Real Estate Association, the housing market continues its path to recovery, with a notable surge in home sales between December 2023 and January 2024. This upward trend, amounting to a 3.7% increase nationwide, reflects a growing confidence among buyers despite lingering uncertainties. However, it’s important to note that while sales have shown improvement, they still fall short of the ten-year average by 9%, indicating that the market is still navigating its way out of the challenges experienced over the past couple of years.

Leading this surge in sales are key regions such as the Greater Toronto Area, Hamilton-Burlington, Montreal, and Greater Vancouver, among others. These areas have witnessed a significant uptick in transactions, with January 2024 recording a remarkable 22% increase compared to the same period last year. Despite this positive momentum, the market is not without its complexities. Prices have experienced a modest decline, particularly in Ontario markets like the Greater Golden Horseshoe, albeit with variations across different regions.

Amidst these dynamics, there’s a palpable sense of anticipation fueled by the prospect of interest rate cuts, prompting a resurgence in buyer activity. This renewed interest, coupled with pent-up demand, has led to an increase in new listings, albeit modest, signaling a potential shift in market dynamics. However, challenges persist, with inventory levels remaining tight at 3.7 months nationally. Looking ahead, there’s cautious optimism for further market stabilization, especially as interest rates are expected to decline, potentially stimulating both demand and supply in the housing sector.

In summary, while the Canadian housing market shows promising signs of recovery with an increase in sales activity, the landscape remains nuanced, characterized by shifting prices and evolving buyer sentiments. As the market adjusts to these changes, stakeholders are closely monitoring developments, particularly the anticipated impact of future interest rate adjustments on housing dynamics.

Published by: Dr. Sherry Cooper

https://mailchi.mp/dominionlending/canadian-home-sales-continued-to-rise-in-january-as-markets-tightened?e=d20e214ea7

In 2023, Canadian mortgage holders faced challenges with a series of interest rate hikes by the Bank of Canada, impacting variable-rate borrowers and those renewing mortgages. While mortgage delinquency rates increased slightly, borrowers remained resilient. Looking ahead to 2024, about $251 billion in mortgages are set to renew, with an additional $352 billion in 2025. Despite expectations that 8 in 10 mortgage holders will experience significant payment increases by the end of 2025, anticipated interest rate cuts in 2024 are predicted to alleviate the payment shock.

Forecasts for the 2024 housing market vary among institutions. The Canadian Real Estate Association predicts a 9% year-over-year increase in home sales, with a 1.5% rise in average prices. Royal LePage expects a 5% year-over-year increase, emphasizing a significant shift as Canadians adjust to mid-single-digit borrowing costs. RBC Economics forecasts a 9.4% year-over-year increase in home resales, with a 1.9% rise in prices by Q4. TD Economics anticipates a 5.2% growth in home sales and a 0.5% increase in home prices.

Regarding interest rates, 2024 is anticipated to bring relief, with a potential Bank of Canada rate cut by mid-year, leading to forecasts of the overnight target rate falling to at least 4.00% by year-end. Most economists agree that the peak of bond yields, influencing fixed mortgage rates, has passed, with expectations of a decline. The Big 6 banks project varying year-end 2024 target rates, with BMO predicting 4.00%, CIBC at 3.50%, NBC at 3.25%, RBC at 4.00%, Scotia at 4.00%, and TD at 3.50%.

Published by Steve Huebl

https://www.canadianmortgagetrends.com/2023/12/2024-housing-market-and-interest-rate-forecasts/

Mortgage rates in Canada are experiencing a notable drop, with fixed rates below 5% for the first time since spring. The decline follows a substantial drop in bond yields, prompting mortgage providers to cut rates by 20-30 basis points. For instance, Butler Mortgage now offers a market-leading insured 5-year fixed rate at 4.99%, specifically for purchases with a down payment below 20%. Despite concerns about rates not falling as quickly as bond yields, experts believe the recent rate cuts could alleviate worries about the impending “renewal cliff” faced by borrowers as mortgages worth hundreds of billions are set to renew in the coming years.

The latest developments are easing concerns about rising mortgage rates, as evidenced by notable decreases in fixed rates. The 5-year fixed rates are now below 5%, a welcome change for borrowers who had witnessed rising rates over the past year. Bond yields have played a key role in driving these rate cuts, with a 38 basis points drop in the 5-year Government of Canada bond yield. Major mortgage providers, including big banks like Scotiabank and CIBC, have reduced rates by 20-30 basis points, translating to lower monthly payments for borrowers. The drop in rates is helping mitigate the impact of the “renewal cliff,” providing relief to borrowers facing substantial payment increases in the near future.

However, some experts note that the pace of rate drops might not be commensurate with the decline in bond yields. Despite the 100 basis points drop in bond yields, fixed rates are not decreasing as rapidly. Factors such as risk premiums and profit-taking by lenders are contributing to this phenomenon. Mortgage brokers emphasize the importance of a slow and sustained easing in bond yields for continued rate decreases. While concerns about the “renewal cliff” persist, the ongoing rate drops are seen as a positive development that could potentially soften the impact on borrowers facing mortgage renewals in the coming years.

Published By Steve Huebl

https://www.canadianmortgagetrends.com/2023/12/mortgage-rates-under-5-theyre-coming-back-as-lenders-slash-fixed-rates/

The latest inflation report reveals positive developments, with the October Consumer Price Index (CPI) showing a decrease in year-over-year inflation to 3.1%, attributed to a decline in gasoline prices. Notably, rent prices accelerated, particularly in Nova Scotia, Alberta, British Columbia, and Quebec. Property taxes also rose, marking the highest national increase since October 1992. Despite these challenges, the Bank of Canada’s monetary policy appears effective in curbing inflation, with expectations of rate cuts in the second quarter of the next year, given the anticipated economic slowdown.

The inflation data indicates a successful impact of tighter monetary policy, leading to a decrease in the inflation rate. Bank of Canada Governor Tiff Macklem, closely monitoring underlying price pressures, has suggested that today’s news supports the view that policy rates have peaked. The Bank’s inflation projections have been adjusted, with the expectation of hitting the 2% inflation target in the second half of 2025. Given the current economic scenario and the upcoming GDP and Labor Force Survey releases, the likelihood of rate cuts in the second quarter of the following year is emphasized.

Economists at BMO highlight a regional variation in inflation rates, noting stabilization in several provinces, though Quebec and Ontario face higher rates. The overall assessment is that there is no immediate need for further rate hikes, and the Bank could potentially consider interest rate cuts in the second quarter of the upcoming year, influenced by the encouraging signs of stabilization in a significant portion of the country.

Published by Sherry Cooper

https://sherrycooper.com/articles/canadian-inflation-dips-to-3-8-keeping-boc-on-the-sidelines-2/

Senior Deputy Governor Carolyn Rogers of the Bank of Canada has advised Canadians to brace for the likelihood of prolonged higher interest rates, attributing the shift to global adjustments and the diminishing factors that kept rates low during the pandemic. Rogers stressed the importance of proactive adjustments to safeguard the financial system’s resilience, noting a significant decline in consumer spending and borrowing in response to the unprecedented rate increases over the past 16 months.

Despite the slowdown in household credit growth, Rogers highlighted the potential ongoing strain on mortgage holders with fixed payments as interest rates persist at elevated levels, particularly during the upcoming 2026 renewal cycle.

Rogers acknowledged that the forces that maintained record-low interest rates, such as increased savings by aging baby boomers and emerging economies joining the global market, are waning. She pointed out that the recent economic adaptation to higher rates necessitates continued proactive adjustments. While there is currently a modest increase in financial stress among households with mortgages, Rogers cautioned that the impact on mortgage borrowers with fixed payments is likely to persist, with a significant number facing potentially higher payments by the end of 2026.

Published by Steve Huebl

https://www.canadianmortgagetrends.com/2023/11/we-could-see-rates-stay-higher-for-longer-bank-of-canada-says/