As in previous years, reading the Bank of Canada’s annual Financial System Review can be enough to send your pulse racing, and not in a good way.
On the bright side, this time around, those most likely to suffer from the bank’s warnings will be young enough to withstand the health effects of heart palpitations.
The main reason why the Financial System Review can be worrying — just as it was last year, when it warned of the dangers of rising mortgage debt when few thought high inflation would be a problem — is that the Bank of Canada’s main aim is to tell us all what could go wrong, to offer solutions and to help us prepare.
Unexpected but worrying
Again this time, as Bank of Canada governor Tiff Macklem and his chief deputy, Carolyn Rogers, laid out their most ominous scenarios at Thursday’s news conference, they added a proviso.
“This is not what we expect to happen,” Macklem assured reporters after laying out a chilling series of potential events that could seriously damage the fortunes of those who poured their savings into a home during the pandemic as prices soared 50 per cent and interest rates plunged.
For those people, many of them young buyers hoping to get a first foot on what they expected would be a “property ladder,” the dire warnings may sound louder than the reassurances.
Macklem and Rogers insisted that since the vast majority of Canadians had paid off their mortgages or had manageable debt, the wider financial system was in little danger. But due to the absolute necessity of fighting inflation with rising interest rates, people who got in at the peak may be in trouble, especially if they lose their jobs. With jobs numbers on Friday predicted to remain strong, that seems far away, but things can change in a period of rising rates.
“If the economy slowed sharply and unemployment rose considerably, the combination of more highly indebted Canadians and high house prices could amplify the downturn,” Macklem said.
The central bankers reminded us that, in theory, the most recent buyers had a financial pad since “stress test” rules required buyers to have the financial capacity to pay a lot more than mortgage lenders were asking. But that did not mean young buyers had set aside the cash in an emergency account. Nothing prevented them from spending it on the inevitable necessities that come with a new home.
“If those highly indebted households lose their jobs, they would likely need to reduce their spending sharply to continue servicing their mortgage,” Macklem added, though where highly indebted and newly unemployed people would get the cash to do that is far from obvious.
Moderation or default?
Neither questioners nor central bankers uttered the word “default,” but if conditions really were to get as bad as the bleak scenario above, the number of mortgage defaults would likely rise.
Similarly, while the central bankers repeatedly talked about a necessary “moderation” in the housing market, there was no mention of the kind of serious decline in prices that some analysts are predicting.
Although Macklem tried his best to deflect the questions, it is hard to see critics being mollified if a surge in interest rates helps spur defaults among young and vulnerable recent homebuyers.
Conservative leadership candidate Pierre Poilievre has slammed the central bank, saying governor Tiff Macklem let inflation get out of hand. (Ryan Remiorz/The Canadian Press)
Part of the logic for offering such a bleak forecast might be as a warning to the many Canadians who are still borrowing to buy houses at levels they may regret.
Figures released last week by TransUnion, a company that monitors household debt, shows despite the threat of rising rates, Canadian borrowing in the first three months of this year — including mortgages and lines of credit — was up more than nine per cent from the same period in 2021.
It seems everyone has a take on inflation and its consequences.
The World Bank and the Organization for Economic Co-operation and Development have warned of the dangers of stagflation. U.S. Treasury Secretary Janet Yellen testified to the U.S. Senate that high inflation would persist. Even rapper Cardi B and billionaire Elon Musk have weighed in with predictions of a recession, Canadian Business reports.
WATCH | Bank of Canada governor on threat to fire him over high inflation:
Bank of Canada governor on Pierre Poilievre’s threat to fire him
1 day ago
Duration 1:24
Tiff Macklem, governor of the Bank of Canada, said he will leave politics to the politicians when asked about Conservative leadership candidate Pierre Poilievre’s campaign promise to fire him.
According to Macklem, the situation remains “delicate,” a term he used more than once.
After what he called the biggest economic shock he hoped we would ever face, including “two years of a pandemic and unprecedented economic and social upheaval,” the governor implied he would reluctantly accept recession as the price of getting inflation under control.
The clear implication is that for financial stability, inflation is now a more important problem than a weakening housing market and that some of those who ignored last year’s warning that surging mortgage borrowing was an accident waiting to happen may be sacrificed for the greater good.
“The housing market, it’s an important part of the economy,” Macklem said. “We are watching it closely, but our focus ultimately is on the whole economy and in getting inflation back to target.”
MONTREAL – The employers association at the Port of Montreal has issued the dockworkers’ union a “final, comprehensive offer,” threatening to lock out workers at 9 p.m. Sunday if a deal isn’t reached.
The Maritime Employers Association says its new offer includes a three per cent salary increase per year for four years and a 3.5 per cent increase for the two subsequent years. It says the offer would bring the total average compensation package of a longshore worker at the Port of Montreal to more than $200,000 per year at the end of the contract.
“The MEA agrees to this significant compensation increase in view of the availability required from its employees,” it wrote Thursday evening in a news release.
The association added that it is asking longshore workers to provide at least one hour’s notice when they will be absent from a shift — instead of one minute — to help reduce management issues “which have a major effect on daily operations.”
Syndicat des débardeurs du port de Montréal, which represents nearly 1,200 longshore workers, launched a partial unlimited strike on Oct. 31, which has paralyzed two terminals that represent 40 per cent of the port’s total container handling capacity.
A complete strike on overtime, affecting the whole port, began on Oct. 10.
The union has said it will accept the same increases that were granted to its counterparts in Halifax or Vancouver — 20 per cent over four years. It is also concerned with scheduling and work-life balance. Workers have been without a collective agreement since Dec. 31, 2023.
Only essential services and activities unrelated to longshoring will continue at the port after 9 p.m. Sunday in the event of a lockout, the employer said.
The ongoing dispute has had major impacts at Canada’s second-biggest port, which moves some $400 million in goods every day.
On Thursday, Montreal port authority CEO Julie Gascon reiterated her call for federal intervention to end the dispute, which has left all container handling capacity at international terminals at “a standstill.”
“I believe that the best agreements are negotiated at the table,” she said in a news release. “But let’s face it, there are no negotiations, and the government must act by offering both sides a path to true industrial peace.”
Federal Labour Minister Steven MacKinnon issued a statement Thursday, prior to the lockout notice, in which he criticized the slow pace of talks at the ports in Montreal and British Columbia, where more than 700 unionized port workers have been locked out since Nov. 4.
“Both sets of talks are progressing at an insufficient pace, indicating a concerning absence of urgency from the parties involved,” he wrote on the X social media platform.
This report by The Canadian Press was first published Nov. 8, 2024.
VANCOUVER – Employers and the union representing supervisors embroiled in a labour dispute that triggered a lockout at British Columbia‘s ports will attempt to reach a deal when talks restart this weekend.
A spokesman from the office of federal Labour Minister Steven MacKinnon has confirmed the minister spoke with leaders at both the BC Maritime Employers Association and International Longshore and Warehouse Union Local 514, but did not invoke any section of the Canadian Labour Code that would force them back to talks.
A statement from the ministry says MacKinnon instead “asked them to return to the negotiation table,” and talks are now scheduled to start on Saturday with the help of federal mediators.
A meeting notice obtained by The Canadian Press shows talks beginning in Vancouver at 5 p.m. and extendable into Sunday and Monday, if necessary.
The lockout at B.C. ports by employers began on Monday after what their association describes as “strike activity” from the union. The result was a paralysis of container cargo traffic at terminals across Canada’s west coast.
In the meantime, the union says it has filed a complaint against the employers for allegedly bargaining in bad faith, a charge that employers call a “meritless claim.”
The two sides have been without a deal since March 2023, and the employers say its final offer presented last week in the last round of talks remains on the table.
The proposed agreement includes a 19.2 per cent wage increase over a four-year term along with an average lump sum payment of $21,000 per qualified worker.
The union has said one of its key concerns is the advent of port automation in cargo operations, and workers want assurances on staffing levels regardless of what technology is being used at the port.
The disruption is happening while two container terminals are shut down in Montreal in a separate labour dispute.
It leaves container cargo traffic disrupted at Canada’s two biggest ports, Vancouver and Montreal, both operating as major Canadian trade gateways on the Pacific and Atlantic oceans.
This is one of several work disruptions at the Port of Vancouver, where a 13-day strike stopped cargo last year, while labour strife in the rail and grain-handling sectors led to further disruptions earlier this year.
This report by The Canadian Press was first published Nov. 8, 2024.
VANCOUVER – Judicial recounts in British Columbia‘s provincial election should wrap up today, confirming whether Premier David Eby’s New Democrats hang onto their one-seat majority almost three weeks after the vote.
Most attention will be on the closest race of Surrey-Guildford, where the NDP were ahead by a mere 27 votes, a margin narrow enough to trigger a hand recount of more than 19,000 ballots that’s being overseen by a B.C. Supreme Court judge.
Elections BC spokesman Andrew Watson says the recounts are on track to conclude today, but certification won’t happen until next week following an appeal period.
While recounts aren’t uncommon in B.C. elections, result changes because of them are rare, with only one race overturned in the province in at least the past 20 years.
That was when Independent Vicki Huntington went from trailing by two votes in Delta South to winning by 32 in a 2009 judicial recount.
Recounts can be requested after the initial count in an election for a variety of reasons, while judicial recounts are usually triggered after the so-called “final count” when the margin is less than 1/500th of the number of votes cast.
There have already been two full hand recounts this election, in Surrey City Centre and Juan de Fuca-Malahat, and both only resulted in a few votes changing sides.
A partial recount of votes that went through one tabulator in Kelowna Centre saw the margin change by four votes, while a full judicial recount is currently underway in the same riding, narrowly won by the B.C. Conservatives.
The number of votes changing hands in recounts has generally shrunk in B.C. in recent years.
Judicial recounts in West Vancouver-Sea to Sky in 2020 and Coquitlam-Maillardville in 2013 saw margins change by 19 and six votes respectively.
In 2005, there were a record eight recounts after the initial tally, changing margins by an average of 62 votes, while one judicial recount changed the margin in Vancouver-Burrard by seven.
The Election Act says the deadline to appeal results after judicial recounts must be filed with the court within two days after they are declared, but Watson says that due to Remembrance Day on Monday, that period ends at 4 p.m. Tuesday.
When an appeal is filed, it must be heard no later than 10 days after the registrar receives the notice of appeal.
A partial recount is also taking place in Prince George-Mackenzie to tally votes from an uncounted ballot box that contained about 861 votes.
The Prince George recount won’t change the outcome because the B.C. Conservative candidate there won by more than 5,000 votes.
If neither Surrey-Guildford nor Kelowna Centre change hands, the NDP will have 47 seats and the Conservatives 44, while the Greens have two seats in the 93-riding legislature.
This report by The Canadian Press was first published Nov. 8, 2024.
