Increase jolts highly indebted consumers who took out large mortgages during the pandemic
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Jul 15, 2022 • 11 hours ago • 3 minute read • 18 Comments
OTTAWA — The Bank of Canada’s surprise jumbo interest rate hike this week has jolted highly indebted consumers, who took out large mortgages during the pandemic, but were less prepared for the sharp rise in borrowing costs than Bay Street investors.
Higher rates are also slamming the brakes on Canada’s once red-hot housing market and, as consumers feel the pinch, could slow spending on travel, dining out and luxury goods.
The central bank raised its policy rate by 100 basis points to 2.5 per cent on Wednesday, its largest increase in nearly 24 years. Its aim is to crush hot inflation, which hit a four-decade high of 7.7 per cent in May, with the bank promising more hikes to come.
Money markets are betting on three more increases this year to get the policy rate to 3.5 per cent to 3.75 per cent by year-end.
“There’s going to be a lot of pain out there. And I think the bank is underestimating the risks to both housing and consumption,” said Stephen Brown, senior Canada economist at Capital Economics.
There’s going to be a lot of pain out there
Stephen Brown, economist, Capital Economics
The moves have sent mortgage rates spiralling, a concern for Canadians with variable rate mortgages, which accounted for about 50 per cent of new mortgage loans in Canada in May, compared with about seven per cent pre-pandemic, official data shows.
“I am distraught,” said Udit Kumar, who bought a suburban Toronto home this spring. The rate on his variable mortgage has already jumped from 1.84 per cent to 3.4 per cent in just a few months.
“We now find ourselves in a situation where the value of our houses might be going down and the mortgages are going up,” he said.
We now find ourselves in a situation where the value of our houses might be going down and the mortgages are going up
Udit Kumar, homeowner
Most Canadians with variable mortgages have static payments: as rates go up the monthly instalment stays the same but less principle gets paid. But about 20 per cent of variable loans are not static — meaning each hike can add hundreds of dollars to a payment.
For example, a monthly payment of $2,845 (US$2,171) on a typical home will go up by $323 because of the jumbo hike, according to Lowestrates.ca.
Toronto-area mortgage broker Ron Butler said he was already hearing from people worried about having to sacrifice groceries to pay their mortgages. But while the situation is painful for many, he does not foresee a wave of defaults due to Canada’s record low jobless rate, he said.
“In the history of banking in this country … rate increases have not had a massive impact on mortgage default. No matter how fast and no matter how big.”
Still, with social media full of people lamenting their suddenly super-sized payments and plunging home values, real estate agents say Wednesday’s 100-bp hike has cast another chill over Canada’s already cooling housing market.
“Everybody just freezes when this happens,” said Dan Plowman, who owns a real estate agency in Durham, a suburban area east of Toronto.
The average selling price in the Toronto area dropped 14.1 per cent in June from February’s peak, reversing some of the region’s hefty pandemic gains.
Brown of Capital Economics expects housing prices nationwide to fall about 20 per cent peak-to-trough and he’s concerned the Bank of Canada is perhaps too quick to sacrifice the housing market in order to cool inflation.
But a chill may be just what the Bank of Canada is looking for. Senior deputy Carolyn Rogers reiterated on Wednesday that restoring balance in the Canadian housing market would help curb the excess demand fanning inflation.
“And that’s what we’re aiming to do,” she said.
© Thomson Reuters 2022
Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.
The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.
Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.
The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.
Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”
“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.
“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”
Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.
The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.
It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.
Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.
It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.
“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.
Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.
The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.
Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.
The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.
“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.
Asked how long that environment could last, he said that’s out of Telus’ hands.
“What I can control, though, is how we go to market and how we lead with our products,” he said.
“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”
Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.
On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.
That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.
Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”
“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.
“We will continue to monitor developments and will take further action if our codes are not being followed.”
French said any initiative to boost transparency is a step in the right direction.
“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.
“I think everyone looking in the mirror would say there’s room for improvement.”
This report by The Canadian Press was first published Nov. 8, 2024.
Companies in this story: (TSX:T)
CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.
It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.
The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.
Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.
TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.
The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.
This report by The Canadian Press was first published Nov. 7, 2024.
Companies in this story: (TSX:TRP)
The Canadian Press. All rights reserved.
BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.
The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.
On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.
“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.
“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”
Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.
BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.
The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.
BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.
It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.
The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”
Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.
This report by The Canadian Press was first published Nov. 7, 2024.
Companies in this story: (TSX:BCE)
The Canadian Press. All rights reserved.
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