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Bank of Canada is more worried than usual about debt loads

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The Bank of Canada is more worried than it was last year about household debt loads, and is concerned about the abilities for households to stay on top of them in the coming years once mortgages renew at higher rates.

That’s one of the main takeaways of the bank’s Financial System Review, an annual assessment of various risks the bank deems to be of concern to the stability of Canada’s financial system.

While the bank highlighted the risks of cybersecurity attacks, the ongoing global banking crisis and climate change, the risk presented by growing mortgage debt was a recurring theme throughout the document.

After slashing them in the early days of the pandemic, the Bank of Canada raised its benchmark interest rate aggressively last year.

While the move appears to have achieved its desired effect of bringing down inflation, it came with the collateral damage of walloping variable rate mortgages, as the bank’s rate moved from barely above zero in early 2022 to 4.5 per cent presently.



While only about one-quarter of mortgage holders have a variable rate loan, the effect of rate hikes has been dramatic, adding thousands of dollars to the periodic payments in many cases and extending the life of the loan by years if not decades.

In 2019, less than one-fifth of new mortgages were amortized for longer than 25 years. Last year, almost half of new loans were stretched out over a longer period.

Existing mortgages, many of which have been insulated from rate hikes so far, will start to feel their impact in the coming years as they renew, and the bank is worried about what might happen when they do.

“The decline in house prices has also reduced homeowner equity, and some signs of financial stress — particularly among recent homebuyers — are beginning to appear,” the bank said.

By the end of 2026, nearly all mortgage holders will have seen their payments increase. The bank says if rates evolve the way financial markets expect, the typical mortgage payment will be about 20 per cent higher over the next three years.

Financial stresses appearing

The numbers show that the financial stresses on households that the bank is worried about are already starting to appear.

The average debt service ratio — the percentage of a household’s total income that goes toward paying their mortgage — rose from 16 per cent to more than 19 per cent last year. That’s the highest level on record in at least a decade.

And the percentage of all mortgages where the DSR is in excess of 25 per cent skyrocketed, from 12 per cent in 2021 to 29 per cent by the end of last year.

 

Rising mortgage rates ward off potential homebuyers

4 months ago

Duration 2:04

Higher mortgage rates are dissuading potential homebuyers across Canada, according to new housing numbers from the Canadian Real Estate Association, while some sellers are failing to turn a profit on previously high-priced properties.

Given the amount of money it’s taking to cover the mortgage, it’s no surprise that many of those households are having a harder time staying on top of their other debts.

The bank says that households that took on a mortgage since 2020 are carrying about 17 per cent more credit card debt on average than those that took out a mortgage in the three years leading up to the pandemic. Arrears on credit cards have also been rising and are close to pre-pandemic levels.

Royce Mendes, an economist with Desjardins, recently warned about the looming risk of mortgage debt, calling it a “ticking time bomb” in a report last week. It’s clear the central bank is thinking the same thing, he said Thursday.

“The Bank of Canada is worried about the same thing we are: mortgage renewals a few years in the future.”

Robert Kavcic, an economist with Bank of Montreal, said in a report to clients that while debt loads of all forms are indeed ticking higher, he doesn’t expect it to become a major shock to the system because higher rates are being absorbed slowly.

“The characteristics of the Canadian mortgage market have been extremely important in containing the early damage from the tightening cycle (e.g., the lack of immediate payment shock is a key reason we are not seeing forced selling in the housing market),” he said.

“It buys households and the economy time to absorb higher rates … the mortgage market is not a time bomb, but more of persistent headwind that will blow for a few years going forward.”

 

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Baby Gourmet Foods recalls organic baby cereal over possible bacteria contamination

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CALGARY – A brand of baby cereal is being pulled from all in-store and online retailers in Canada due to possible Cronobacter contamination.

Calgary-based Baby Gourmet Foods has issued a product recall for its Banana Raisin Oatmeal Organic Whole Grain Cereal, which is sold in 227 g packages.

The bacteria can cause serious or fatal infections to the bloodstream, central nervous system and intestines.

The Canadian Food Inspection Agency says the recall was triggered by agency test results.

The company says no other Baby Gourmet or Little Gourmet products are affected by the recall and no incidents related to the product have been reported to date.

It says anyone who purchased the cereal should dispose of it immediately or return to the location where it was purchased.

This report by The Canadian Press was first published July 21, 2024.

The Canadian Press. All rights reserved.



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Springer homers twice as Jays down Tigers 5-4 to avoid series sweep at Rogers Centre

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TORONTO – In what has been a down-in-the-dumps season for the Toronto Blue Jays, George Springer has lifted the spirits of his teammates and manager in the past month.

Springer played the hero role again on Sunday, going 3-for-4, slamming two homers and three RBI to push the Blue Jays (45-54) to a 5-4 win and avoid a sweep against the Detroit Tigers (49-51) before 38,766 at Rogers Centre.

“You want to watch when George is up because you never know what you’re going to see,” Toronto starter Kevin Gausman (8-8) said.

What Gausman and the Blue Jays saw in the series finale was a lead-off homer from Springer and a one-out, two-run blast from the right fielder in the third inning for his 23rd multiple long ball outing.

He also hustled to make a running catch in foul territory in the fifth inning and hurried to force the issue and gain a double in the fifth inning to set up Spencer Horwitz’s game-tying single to centre.

This was critical because rookie Justyn-Henry Malloy had put the Tigers in front with his first grand slam in the top half of the inning.

“He’s been an aircraft carrier-type where he’s saying, ‘get on, I’m going to lead the way,” Toronto manager John Schneider said.

The 34-year-old Springer struggled mightly out of the gate this season. But he worked on changing the path of his swing and began to see productive results in late June.

In his last 21 games, Springer has batted .377 (29 for 77) with six doubles, a triple, eight home runs and 25 RBI.

Schneider also reported that during the difficult times, Springer still helped out his younger teammates like Horwitz and Ernie Clement, who came through with the game-winning hit in the sixth inning, knocking in Justin Turner from second with a single to centre.

“I’ll be an open book (for teammates),” Springer said.

“It’s my job to help anybody I can to make a smoother transition in their career.”

Former teammates Dexter Fowler and Michael Brantley helped a young Springer in his early seasons with the Houston Astros. In fact, Brantley is still on speed dial and pitched in to support Springer through the challenging part of this season.

“I still annoy him every day,” Springer said. “He claims he’s retired, but he’s meant the world to me.”

Daulton Varsho also contributed in a big way to the Blue Jays’ cause on Sunday. He made a game-saving catch, leaping up against the left-field wall to snag Carson Kelly’s long fly ball with two on and one out in the eighth inning off reliever Chad Green, who also pitched the ninth for his seventh save.

Gausman didn’t help his cause with back-to-back walks to load the bases. Gausman went 6 2/3 innings, striking out five and yielding four runs on five hits and three walks.

Detroit rookie starter Keider Montero (1-3) was replaced by Will Vest with one out in the fifth when Clement came through with his significant single. But Montero was responsible for Turner and took the loss.

Montero gave up five runs on eight hits with three strikeouts.

Designated hitter Vladimir Guerrero Jr. had this three-game homer streak stopped, but he did check in with a two-out double to right field in the seventh inning.

SPRINGING AHEAD

Springer’s leadoff homer on Sunday was the 58th of his career. He only trails former Blue Jays outfielder Ricky Henderson (81) on the all-time MLB list.

ON DECK

The Blue Jays have a day off before their three-game set against the Tampa Bays Rays begins at Rogers Centre on Tuesday. Jose Berrios (8-7) will start for Toronto. The Rays will counter with righty Ryan Pepiot (6-5).

This report by The Canadian Press was first published July 21, 2024.

The Canadian Press. All rights reserved.



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Canada downs Puerto Rico 103-93 in Olympic men’s basketball tune-up game

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ORLEANS, France – Canada’s national men’s basketball team wrapped up pre-Olympic play with a 103-93 exhibition win over Puerto Rico on Sunday.

Dillon Brooks paced the Canadian attack with 21 points, while Nickeil Alexander-Walker and Trey Lyles each chipped in with 15 off the bench.

Brooks, a defensive specialist for the Houston Rockers, had a very efficient offensive performance, shooting 8-of-12 from the field, including 3-of-4 from three-point range, in just over 22 minutes of play.

RJ Barrett added 14 points and seven rebounds, while Shai Gilgeous-Alexander scored 14 and added six assists.

Canada led 46-40 at halftime and built a comfortable 23-point lead in the third quarter only to watch Puerto Rico make things interesting in the final quarter by cutting the lead to five.

Jose Alvarado kept Puerto Rico competitive with 21 points, including 5-of-10 shooting from beyond the arc.

Canada finished its Olympic tune-up schedule with two wins and a loss. The seventh-ranked Canadians scored a convincing 85-72 victory over host France on Friday in Orleans, after dropping an 86-72 decision to the top-ranked United States on July 11 in Las Vegas.

Guard Jamal Murray, who didn’t play against France, played just under seven minutes on Sunday but didn’t figure in the scoring. Canada Basketball said Murray, a star guard with the Denver Nuggets, was pulled from Friday’s game as “a precaution.”

The Canadians open the Olympic basketball competition on Saturday against 14th-ranked Greece, led by two-time NBA MVP Giannis Antetokounmpo, in Lille, France.

Canada’s men’s basketball team will be making its first Olympic appearance since finishing seventh at the 2000 Sydney Games.

Along with Greece, Canada is in Group A, the tournament’s so-called “Group of Death,” with No. 2 Spain and No. 5 Australia.

This report by The Canadian Press was first published July 21, 2023.

The Canadian Press. All rights reserved.



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