The Latest in Mortgage News: BoC Deputy Governor Says Rate Hikes Could Come Later Than Expected
Financial markets may be pricing in the first interest rate hikes as early as March, but they shouldn’t be too confident about that timing.
That was the message from Bank of Canada Deputy Governor Lawrence Schembri during a question and answer session following a speech on the labour market this week.
“There’s a lot of uncertainty about the timing of the closing of the output gap, so one should be careful not to assume it’s necessarily going to be the second quarter. It’s a range of six months—that’s our best estimate,” he said.
The Bank of Canada said last month that it expects economic slack to be absorbed in the middle quarters of 2022, which is when it anticipates the first move in the coming rate-hike cycle.
But labour market uncertainty is making it more difficult to pinpoint the timing of the first rate hike, Schembri argued.
“Our assessment of labour market conditions and underlying capacity and inflationary pressures is now more difficult,” he said. “Consequently, more uncertainty exists around the timing of when the output gap will close and inflation will return sustainably to our 2% target.”
Bank of Canada Governor Tiff Macklem sent a similar message this week in an opinion piece for the Financial Times. He noted that while the timing of the next rate hike is “getting closer,” it’s still very dependent on economic conditions.
“For the policy interest rate, our forward guidance has been clear that we will not raise interest rates until economic slack is absorbed,” he wrote. “We are not there yet, but we are getting closer.”
BoC Survey Shows Consumers Expect to Increase Spending “Significantly”
A recent Bank of Canada survey of consumer expectations found Canadians plan to increase their spending “significantly,” although they continue to remain cautious.
“Pent-up demand for some goods and services remains after long periods of restrictions. This is likely supported by extra savings,” the BoC reported. It noted that over 40% of respondents reported saving more than usual during the pandemic due to reduced spending.”
Respondents who accumulated savings intend to spend about one-third of these funds by the end of 2022—in fact, they reported having already spent about 10 percent of their extra savings in 2021.”
They also expect inflation to remain higher in the near term due to supply disruptions, but for the most part they don’t expect the situation to persist long term.
Nova Scotia Eyes Housing Tax for Out-of-Province Buyers
For those looking for more affordable housing in Nova Scotia, prices could become a little more expensive.
Nova Scotia Premier Tim Houston recently instructed the province’s finance minister to impose a levy of $2 per $100 of assessed property value on properties purchased by out-of-province buyers.
“The housing crisis is real and Nova Scotians expect us to act,” said Houston. “We’ll do what needs to be done to make sure Nova Scotians can afford a place to call home. We will not wait.”
According to the Canadian Real Estate Association, the average purchase price in Nova Scotia in October was $365,692. Based on a theoretical assessed value of $300,000, the proposed tax would work out to about $6,000.
In the capital of Halifax, the average price is even higher, having risen nearly 25% over the past year to $485,642 as of October.
DLC Group Reports $75 Billion in Funded Mortgages
Earlier this week, Dominion Lending Centres Inc. reported third-quarter mortgage volumes totalling $22.6 billion, a 61% increase compared to a year earlier.
Year-to-date funded volumes (as of Sept. 30) for the DLC Group of Companies—which includes Dominion Lending Centres, Mortgage Architects, Mortgage Centres Canada and Newton Connectivity Systems—were $57.9 billion, a 71% increase from a year earlier. Volumes are now at $75 billion for the past 12 months as of Sept. 30. By comparison, rival brokerage network M3 Group, which encompasses Invis, Mortgage Intelligence, Mortgage Alliance and Verico, reported 12-month funded volumes of $67 billion.
“We are very proud of our franchisees and mortgage professionals, Gary Mauris, Executive Chairman and CEO, said in a statement. “Their tremendous hard work has directly contributed towards another record quarter for the DLC Group. Similar to Q2 2021, the Q3 2021 results for funded volumes, revenues and adjusted EBITDA are the highest quarterly financial and operating results in the DLC Group’s 15-year history.”
DLC Group said it improved its leverage by repaying $3.2 million from free cash flows towards its Sagard credit facility, bringing its outstanding principal balance to approx. $27.8 million (CAD).